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Challenging Excessive Cable-Franchise Fees

Telco-IP Update reports that consumers in seven Iowa cities are challenging cable-franchise fees, arguing that they violate state law because the amount collected is larger than the actual cost to regulate the businesses.

Federal, state and local governments have inflicted high taxes upon telecom and cable TV service providers for many years, and now some consumers are fighting back. Individual lawsuits have been filed in Iowa District Court against the local government taxing agencies in Bettendorf, Cedar Rapids, Davenport, Des Moines, Dubuque, Sioux City and Waterloo.

Richard Davidson, attorney for the plaintiffs, said the suits were triggered by a May ruling by the state’s Supreme Court. The ruling was on a case -- launched by a utility user, Lisa Kragnes of Des Moines -- that affirmed that taxing agencies can only assess and recover the 'actual cost' of regulating a utility.

In Iowa, Davidson said, state courts established that the people, not the cities, own the rights of way. Because it is the public's property, cities are not authorized to rent it out, he added. The cities that have been sued each charge a 5 percent franchise fee on cable revenues -- the amount 'authorized' by the federal Cable Act.

If the suit is successful, it could shrink the taxes passed through by cable operators that attempt to compete there, including Cable One, Mediacom Communications and McLeodUSA Telecom. Currently, Davidson added, cable operators are subject to a 5 percent percent sales tax and up to 2 percent in county sales taxes, in addition to 'franchise fees' (yet another tax). These are passed through to customers, raising the rates they pay when compared with direct-broadcast satellite customers.

If the individual suits are successful, Davidson will pursue class-action status on behalf of cable TV customers. I for one welcome this challenge to the excessive taxation by U.S. government entities that raise the total cost of telecom and cable TV services for their citizens. I also hope that this consumer indignation becomes a national trend. The recent removal of the long-standing 3 percent federal excise tax was a small victory, by comparison.

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