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posted: 11/29/2012 5:00 AM

Editorial: Find an equitable tax on video service

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The Daily Herald Editorial Board

A proposal in the Illinois House would create the state's first tax on satellite TV service. The 5 percent tax on each subscription is aimed at raising $75 million per year, money that would be earmarked for education.

Supporting the bill, not surprisingly, is the satellite industry's chief competitor, cable TV, which now pays a 5 percent franchise fee to municipalities and would like to even things out.

But by taxing only satellite as a video service provider, the state would put itself in the position of playing favorites. While it's unlikely the state will climb out of its financial hole without some added taxation -- and considering the state's reputation as hostile to business -- elected officials must tread carefully when considering any tax proposal and seek out the most equitable ways to raise revenue.

Here's why the satellite tax is unfair.

The fee that cable providers pay to local communities was permitted by the 1996 federal Telecommunications Act to cover the costs of using public rights of way. At that time, satellite was barely a contender in the industry. Now that satellite has about one-third of the market, cable officials say the franchise fees disadvantage them and even argue that the right of way shouldn't be an issue, as construction costs and the cable footprints already are mostly in place.

However, every business has its operating costs. While satellite companies do not need to use public lands, they have other expenses that cable doesn't, such as building, launching and maintaining satellites.

Future technological advances would complicate the matter further. Consider the up-and-coming Internet video industry, or any other innovations that bring news and entertainment to people's homes and businesses. Will they eventually be taxed as well?

Rather than tax one particular service and then try to keep up with technology in a piecemeal fashion, the state should consider an across-the-board fee on video service providers, as it would not discriminate against any of them.

The bill is flawed in other ways, too. The additional cost of about $55 per year may seem insignificant to an individual satellite subscriber, but think about sports bars, for instance, that would pay on a dozen or more TV hookups. Leaders must not encumber businesses. Illinois continues to be one of the worst places to run a business when it comes to taxation, ranking 47th on corporate taxes, 46th on gas taxes and 36th on sales taxes.

Also troubling is the use of the proceeds. While the windfall for schools sounds appealing, any new tax revenue should be used to pay down the state's bills. We have a fiscal crisis to attend to.

Illinois lawmakers shouldn't be picking winners and losers with measures that stifle competition. The anti-business branding hurts everyone, and innovation should be encouraged, not burdened.

Scrap this proposal. Start over with something less discriminatory.

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