Cable franchise

As an industry, cable providers pay roughly $3 billion in annual franchise fees to state and local governments, according to the Internet and Television Association. In Missouri, lawmakers are looking at legislation that would cut fees in half by 2027.

In recent years, St. Joseph and other Missouri cities have pushed for an online sales tax as retail activity shifts to the internet marketplace.

Those municipalities might finally get their wish in 2021. But legislation moving through the General Assembly contains one unanticipated caveat for these cities: a reduction in the franchise tax collected from cable television companies.

“Over the last six years, St. Joseph has actually seen a reduction in the cable franchise taxes that it receives,” said Bryan Carter, the interim city manager. “So the impact could be limited relative to what the impact would have been several years ago.”

Carter said St. Joseph’s cable franchise revenue has dropped from $763,000 to $693,000 in the last five years, a 9% reduction that reflects consumers abandoning cable TV in favor of streaming services that are not taxed in the same way. The city collected $334,812 in cable franchise taxes, also called fees, in the first six months of the 2021 fiscal year.

Rep. J. Eggleston sponsors one of Missouri’s online sales tax bills, commonly referred to as Wayfair legislation. His measure contains an amendment to eventually reduce the cable franchise tax to 2.5% in Missouri. That rate currently is set at 5%, the maximum allowed by Congress.

Eggleston said retail sales and cable fees are related in that new technology emerged that is not subject to the same rules. He called the reduction of the franchise tax a “good fit” that could save consumers on their cable bills. A Senate version of Eggleston’s bill also contains a provision to cut the cable franchise tax in half.

“The cable franchise fee portion was not part of the bill but does relate in that it is a leveling of the playing field,” said Eggleston, R-Maysville. “One service is taxed while a competing service is not. If you have more consistency, you have a more level playing field.”

A separate bill to limit cable franchise fees was heard in committee earlier this year, with city officials from Independence and St. Charles County expressing opposition because of an anticipated hit on revenue. In St. Joseph, Carter said he takes a more neutral stance and will have to see if the expected revenue gains from an online sales tax would outweigh what the city would lose from cutting cable franchise collections.

“We don’t know exactly what the impact of the online sales tax will be yet,” he said, “so it’s tough to say that it would immediately offset all of the losses from the cable franchise fee. I expect over time that it likely would.”

For years, cable companies have fought with regulators over franchise taxes that were established to compensate cities for the right of way needed to provide television and broadband services. In 2019, a divided Federal Communications Commission ruled in favor of cable companies in one case that allowed more in-kind services to be included in the 5% cap, something cities wanted to avoid.

“Excessive fees and inappropriate regulations imposed by local governments deter broadband deployment and discourage investment in next-generation facilities and services,” Ajit Pai, the FCC chairman at the time, said in a statement.

There might be some good news for local governments. The city of Creve Coeur, near St. Louis, has filed a lawsuit seeking to impose a franchise tax on streaming services like Hulu and Netflix, much like previous lawsuits that aimed to get cellular phone companies to pay the same taxes as landline providers. Similar lawsuits seeking to tax streaming services were filed in Georgia and Indiana.

Eggleston’s bill contains language that would create a commission to examine what’s called right-of-way issue, including fees on streaming services, for future consideration. City officials like Carter will have to tune in to see how it all turns out.

“It is something that will be beneficial in the long run,” he said. “The way people spend their money certainly are changing. It would provide a chance to catch our tax system up with the changes in consumer spending patterns.”

Greg Kozol can be reached at Follow him on Twitter: @NPNowKozol.

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