ST. LOUIS (Legal Newsline) - Despite presenting contradictory arguments over whether it was trying to charge a “tax” or a “fee” on video streaming services, the Eighth Circuit Court of Appeals ruled the City of Creve Coeur, Mo., can continue to litigate the question in state court.
Like a number of cities and counties around the country, Creve Coeur sued the satellite streaming services for violating Missouri’s Video Services Providers Act, a law that allows local governments to collect franchise fees from cable TV operators in exchange for stringing their lines in the public right of way. Creve Coeur, like other cities, is seeking class action status on behalf of other cities and is represented by private lawyers who hope to collect a percentage of any taxes charged streaming consumers as a contingency fee.
DirecTV and Dish Network removed the case to federal court, arguing federal Internet Tax Freedom Act prohibited state and local taxes on internet services. A federal judge agreed the dispute was over a tax but that another federal law, the Tax Injunction Act, along with U.S. Supreme Court precedent, allowed the court to decline jurisdiction.
Back in state court, DirectTV and Dish Network moved to dismiss the case, arguing that since the franchise fee was actually a tax, Creve Coeur was prohibited from collecting it under the Hancock Amendment to the Missouri Constitution, which prohibits political subdivisions from levying taxes without prior voter approval. Creve Coeur responded by arguing it was trying to charge a fee, not a tax, which the judge noted was an attempt “to escape federal jurisdiction.”
The defendants sought to remove the case to federal court again, this time arguing there was no question Creve Coeur was trying to collect a tax prohibited by the Tax Freedom Act.
“Though creative, the argument is without merit for multiple reasons,” the Eighth Circuit ruled, however, citing Levin v. Commerce Energy, a 2010 Supreme Court decision rejecting federal court jurisdiction over a lawsuit accusing Ohio of charging gas companies discriminatory taxes. The principle of comity, or mutual respect, prevents federal courts from hearing most types of complaints based on state finances, the Eighth Circuit said.
The ruling allows Creve Coeur and its lawyers at Korein Tillery to fight another day, but the Eighth Circuit noted the uphill battle they face. That court in November dismissed a similar lawsuit by the city of Ashdown, Arkansas because it violated that state’s video franchise fee law.
Plaintiff lawyers, many of them active in opioid litigation, recruited cities around the country as clients to collect video franchise fees against streaming services. The effort has mostly failed, however, as courts have refused to stretch laws that were written to cover cable TV to include services delivered entirely over the internet.