LLC LLC v. Kevin Sullivan, Commissioner of Revenue Services (2013)

MEMORANDUM OF DECISION

The plaintiff, Dish Network, f/k/a Echostar Satellite, LLC (Dish), brings this action pursuant to General Statutes §§ 12–268c and 12–268l,¹ for the refund of certain amounts paid as a tax on gross earnings, pursuant to § 12–256(b), to the department of revenue services (DRS).  The parties have filed cross motions for summary judgment on an agreement of facts, based on affidavits attached to their motions.

The agreed facts are as follows.   Dish provides satellite-delivered digital television to customers across the United States.   Dish's services include hundreds of video, audio and data channels, interactive television channels, digital video recording, high definition television, international programming, professional installation and 24–hour customer service.

In order to provide video programming to subscribers, Dish transmits its video programming from its land-based facilities to one or more of its satellites orbiting Earth and broadcasts directly to its subscribers.   The video programming transmitted from the satellite is received by an antenna known as a satellite dish, which in turn is connected to a receiver at the subscriber's location.   Receiver systems include a small satellite dish, a digital satellite receiver that decrypts and decompresses signals for television viewing, a remote control and other related components.

In order to receive Dish's services, a new subscriber would contact Dish, or its affiliates, to order service.   Subscribers are required to enter into a contract with Dish in order to receive its services.   Subscribers are required to choose a package of programming content.   Subscribers are also required to purchase or lease a satellite antenna, a satellite receiver, and related components.   Subscribers have a range of receivers to choose from, some of which include digital video recording (DVR) and some of which do not.   Subscribers then need to install and maintain Dish's equipment in order to receive the programming from Dish. Subscribers sometimes install equipment, but this is typically done by Dish for a payment from the subscriber.   In certain circumstances, equipment is required to be installed by Dish for an additional payment from the subscriber at Dish's then current rates.

Once equipment is installed and functioning, subscribers are able to view the ordered programming.   At that time, subscribers may order additional pay-per-view content or may choose to change their programming options.   Dish charges for pay-per-view content and fees for certain changes that a subscriber can make to its programming.   Dish also charges fees if a subscriber pays the bill late, and will block the subscriber's receipt of the transmission if payment is not made current.   Dish also charges fees for various other items, including the Connecticut Satellite Gross Earnings Tax.

Dish charges subscribers for other goods and services that are not “transmitted” by satellite.   Those goods and services fall into five general categories:

a.  Equipment:  Dish receives payments from subscribers for the satellite dish and for leased receivers.   The amount of those payments varies based on the type and number of receivers that a subscriber leases and is not based on the type or value of video programming received.   The equipment is delivered to subscribers at retail outlets or by Dish representatives.

b. DVR service:  Dish charges subscribers a fee for its DVR service which is provided through a device leased to the subscriber that combines a receiver with a computer-type hard drive.   This device, which is similar to a VCR or DVD, records video programming transmitted to the subscriber's receiver, which allows the subscriber to view the video programming on the subscriber's own schedule.   The DVR service functions only after the video programming has been delivered to the subscriber by satellite.

c. Installation and Maintenance:  Dish charges a fee to certain subscribers for installation and maintenance of its equipment at the subscriber's site.   Dish also offered subscribers the option of purchasing Dish's service plan, which provided technical support, replacement equipment, and in-home services.

d. Dish Magazine:  Dish charges a fee to subscribers that choose to purchase a 100–150–page magazine each month that includes entertainment news and a programming guide.   Unlike the TV Guide Channel or other video programming guides like it, which are transmitted by satellite to subscribers, Dish Magazine is delivered via U.S. mail.

e. Payment-related fees:  Dish charges subscribers a fee in the event that they do not pay their bill by a particular date, or in the event the subscriber needs to have their service “reconnected” after failing to pay their bill for several months.   Dish also charges subscribers a fee if they opt for a payment plan that is more costly than others, or if they pay with a check from an account with insufficient funds.

Dish is liable for the Satellite Gross Earnings Tax set forth in General Statutes § 12–256 for “operating a business that provides one-way transmission to subscribers of video programming by satellite.”   Dish timely filed returns related to the Satellite Gross Earnings Tax for the periods from:

(1) January 1, 2006 through March 31, 2006 (2006 Q1);

(2) April 1, 2006 through June 30, 2006 (2006 Q2);

(3) July 1, 2006 through September 30, 2006 (2006 Q3);

(4) October 1, 2006 through December 31, 2006 (2006 Q4);

(5) January 1, 2007 through March 31, 2007 (2007 Q1);

(6) July 1, 2010 through September 30, 2010 (2010 Q3);

(7) October 1, 2010 through December 31, 2010 (2010 Q4);  and

(8) January 1, 2011 through March 31, 2011 (2011 Q1).

All of these periods are at issue in these appeals.   Dish later filed amended returns for the above-referenced periods seeking refunds on the grounds that the only amounts subject to the Satellite Gross Earnings Tax are those amounts it received for packages of programming content and pay-per-view content ordered by its subscribers.

In isolating these amounts, Dish eliminated all other amounts that it receives from subscribers in calculating its gross earnings.   The commissioner rejected Dish's claims for refund and maintains that all of the amounts that are paid by subscribers so that they may view the video programming are subject to the Satellite Gross Earnings Tax, which includes amounts that Dish receives for the rental and purchase of equipment, installation and maintenance of Dish's equipment and fees charged by Dish to its subscribers (related to their receipt of video programming from Dish).   It is this decision that Dish appeals.

Pursuant to Practice Book § 17–44, the parties have each moved for summary judgment and there is no factual dispute.  “[T]hus, only questions of law remain for us to decide.”  HVT, Inc. v. Law, 300 Conn. 623, 629, 16 A.3d 686 (2011).   Regarding the construction of tax statutes, our Supreme Court has stated:  “[I]ssues of statutory construction raise questions of law, over which we exercise plenary review.   When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature ․ In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply ․ In seeking to determine that meaning, General Statutes § 1–2z directs us first to consider the text of the statute itself and its relationship to other statutes.   If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered ․ When a statute is not plain and unambiguous, we also look for interpretive guidance to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter ․” (Citation omitted;  internal quotation marks omitted.)  Kasica v. Columbia, 309 Conn. 85, 93, 70 A.3d 1 (2013).

Preliminarily, DRS challenges Dish's right to proceed in this action as to Quarters 1–3, 2006.   According to DRS, Dish is barred from recovery for these quarters as it received a fully-audited amount, that included the amounts claimed as a refund herein, and subsequently paid the audited amount in full.   It is DRS' position that Dish did not follow the procedure set forth in § 12–268i to protest an action taken by the commissioner, and therefore, Dish does not have a valid claim for a refund under the provisions of §§ 12–268c and 12–268l.

DRS's argument is basically one of exhaustion of administrative remedies.   For example, in Blass v. Rite Aid of Connecticut, Inc., 51 Conn.Sup. 622, 16 A.3d 855 (2009) [48 Conn. L. Rptr. 217], aff'd, 127 Conn.App. 569, 16 A.3d 737 (2011), a plaintiff sought relief under the Connecticut Unfair Trade Practice Act (CUTPA) against a retailer for allegedly overcharging her sales tax on her purchases.   The trial court granted the defendant's motion to dismiss, concluding that “the Sales and Use Taxes Act provides an adequate administrative remedy that the plaintiff was required to exhaust before bringing her action ․ [and] that the plaintiff did not have recourse to an independent cause of action under CUTPA for the defendant's alleged miscalculation of sales tax.”  Id., 571.  General Statutes § 12–425 provides a remedy to a customer who has overpaid sales tax.   The statute provides the primary and exclusive remedy that the legislature devised to correct such errors, and the statutory scheme required exhaustion before any other remedy became available.

In contrast, §§ 12–268c and 12–268i stand independently.  Section 12–268c(a)(1) provides as follows:  “Any company included in section 12–249, 12–256 or 12–264 ․ relieving that it has overpaid any taxes due under the provisions of chapter 210, 211 or 212 may file a claim for refund in writing with the commissioner within three years from the due date for which such overpayment was made ․” The commissioner then determines whether the claim is valid.   Pursuant to paragraph (a)(2) therein, the company may file a written protest from the denial of its claim.   If a protest is filed, the commissioner shall reconsider his denial and may grant or deny an oral hearing.   Pursuant to paragraph (a)(3), the commissioner is to mail notice of his determination on the protest.   Finally, pursuant to paragraph (a)(4), the company has one month to seek judicial review of the commissioner's determination.   This is the procedure that Dish followed, leading to this tax appeal under § 12–268l.

Section 12–268i provides that “[a]ny taxpayer aggrieved by the action of the commissioner or his authorized agent in fixing the amount of any tax ․ may apply to the commissioner, in writing, within sixty days after the notice of such action is delivered or mailed to it, for a hearing and a correction of the amount of such tax ․” The commissioner has the authority to grant or deny a hearing on the taxpayer's complaint.

This statutory section stands as an alternative to the course that was open to Dish, but the court concludes that it is not exclusive.   Therefore, the court considers each of the quarters, set out above, eligible for a refund in this appeal.

Turning to the merits, the court must determine Dish's eligibility for a refund for each of the sources of gross earnings, indicated above, under § 12–256(b).  This statute, as applicable, provides that “each person operating a business that provides one-way transmission to subscribers of video programming by satellite, shall pay a quarterly tax upon the gross earnings from ․ the transmission to subscribers in this state of video programming by satellite ․”

In engaging in this analysis, the court notes the following:

1. The statute plainly states that the tax on gross earnings applies to those earnings “from” the transmission of video programming.   Webster's Dictionary defines “from” as indicating “the source or original or moving force of something.”

2. A taxing statute is to be “strictly construed;  and statutory ambiguities in the imposition of such taxes must be resolved in favor of the taxpayer and against the taxing authority.   In addition, courts must construe statutory provisions as they are written;  and in a manner so as to give effect to the apparent intent of the legislature.”  (Citations omitted.)  Zachs v. Groppo, 207 Conn. 683, 689–90, 542 A.2d 1145 (1988) (rejecting DRS's argument that a one-way pager or beeper service should be included within the meaning of a telephone answering service).

3. With regard to a similar tax imposed under § 12–256(b) on a community antenna television system, the statute specifies that the tax is imposed on gross earnings from “the lines, facilities, apparatus and auxiliary equipment” used for operating this type of television system.   Under § 1–2z, the court is directed to take into account its statutory interpretation of the relationship between one part of a statute and another.

4. The court must interpret a statute so that its provisions are “reasonably related.”  Pond View, LLC v. Planning & Zoning Commission, 288 Conn. 143, 150, 953 A.2d 1 (2008).   The interpretation must not be strained, but logical.   See Germain v. Manchester, 135 Conn.App. 202, 209–10, 41 A.3d 1100 (2012).

In light of these considerations, the court rules as follows.   With regard to Dish's gross earnings from equipment, installation and maintenance, and the Dish Magazine, Dish is entitled to a refund, as these amounts are not “from” video transmission.   With regard to the payment-related fees, the plaintiff is not entitled to a refund.   The fact that the subscriber pays an additional fee for being late with a payment is irrelevant as Dish is receiving gross earnings related to the video transmission.   Finally, the court concludes that the DVR revenues are subject to the tax.   While a DVR function is not directly a video transmission, it is sufficiently related to the source, i.e., the transmission, so that the gross earnings are appropriately subject to taxation.

While the court has concluded, in general, which of the categories are subject to a refund, and which are not, as the DRS points out, the parties need to confer on the exact amount due under this decision before a final judgment may enter.   See, e.g., Connecticut Bank & Trust Co. v. CHRO, 202 Conn. 150, 155, 520 A.2d 186 (1987).

Therefore, the parties are directed to report back to the court with specific figures.²

So Ordered.

Henry S. Cohn, Judge

FOOTNOTES

FN1. Pursuant to § 12–268l, Dish named the commissioner of DRS as the defendant..  FN1. Pursuant to § 12–268l, Dish named the commissioner of DRS as the defendant.

FN2. The duty to resolve the outstanding issue of the amount of refund due to Dish does not preclude the parties from taking an appeal from the judgment that will enter after they report back to the court..  FN2. The duty to resolve the outstanding issue of the amount of refund due to Dish does not preclude the parties from taking an appeal from the judgment that will enter after they report back to the court.

Cohn, Henry S., J.