Amicus Curiae Brief — DIRECTV, Inc. v. Treesh (No. 07-1004)

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a0 6 TRUS

No. 07-1004

MAR 5 - 2008

me CLERK

IN THE

Supreme Court of the United States

DIRECTV, INC. AND ECHOSTAR SATELLITE L.L.C..,

Petitioners,

Wx

MARK TREESH, Commissioner for the Department of

Revenue for the Commonwealth of Kentucky,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

BRIEF OF AMICUS CURIAE

NATIONAL TAXPAYERS UNION

IN SUPPORT OF PETITIONERS

HOWARD R. RUBIN

Counsel of Record

WILLIAM E. COPLEY III

JONMARC P. BUFFA

SONNENSCHEIN NATH &

ROSENTHAL LLP

1301 K Street, N.W.

East Tower, Sixth Floor

Washington, D.C. 20005

(202) 408-6400

Counsel for Amicus Curiae

National Taxpayers Union

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

TABLE OF CONTENTS

TABLE OF AUTHORITIES ........................006

INTEREST OF THE AMICUS CURIAE........

SUMMARY OF ARGUMENT....................0060

I.

II.

THE SIXTH CIRCUITS DECISION

UNDERMINES THE COMMERCE

CLAUSE PROHIBITION OF

STATE TAXES THAT DISCRIMI-

NATE AGAINST INTERSTATE

CI sisitsiisssiinininiensincennopiainannns

THE KENTUCKY TAX SCHEME

SUBVERTS THE LEGISLATIVE

PROCESS IN THE SAME MAN-

NER AS THE MASSACHUSETTS

STATUTE AT ISSUE IN WEST

LYNN CREAMERY v. HEALY ............

PARI sancnaicninkscsadioanaceoraaneaiaabeates

BE IEE eisenstarscstistnnncssataacantiedaaianaipemane

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Page

16

21

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TABLE OF AUTHORITIES

CASES Page

Armco Inc. v. Hardesty, 467 U.S. 638

Cee oe a tenebionde 9,11, 12

Bacchus Imports, Ltd. v. Dias, 468 U.S.

ERED EINES Ree REE ae 9,11, 14

Boston Stock Exch. v. State Tax

Comm’n, 429 U.S. 318 (1977)............... 5

Camps Newfound/Owatonna, Inc. v.

Town of Harrison, Maine, 520 USS.

EEE eee a 11

DIRECTV, Inc. v. Treesh, 487 F.3d 471

(6th Cir. 2007), petition for cert. filed,

76 U.S.L.W. 3417 (Jan. 31, 2008) (No.

RIESE eee 3, 6,9

Kassel v. Consol. Freightways Corp. of

Delaware, 450 U.S. 662 (1981)............ 17, 18, 19

Maryland v. Louisiana, 451 U.S. 725

aati sa devas cobestenabenebe 9,10, 11, 15

Minnesota v. Clover Leaf Creamery Co.,

A Ss MO CRI) aces cnsrecccrcceccssscsccnseess 17

New Energy Co. of Indiana v. Limbach,

A, SOUP CR UID cscocecovecasecsnccneccceseces 9,13

South Carolina State Highway Dep’t v.

Barnwell Bros., Inc., 303 U.S. 177

heh sls clk cnc chiedanedgeasncuniuuuianten 17

West Lynn Creamery, Inc. v. Healy, 512

I ED cc cvnvguscnssstencsssenaceserestabors passim

Westinghouse Electric Corp. v. Tully, 466

IE Ds issvemyesnckssssccosssvesusevstsanens 9

STATE STATUTES AND BILLS

Haw. Rev. Stat. Ann. = § 237-13

MOIS SUID T Docc cccneceracnsevsnecsecsosteecase 15

Ohio Rev. Code Ann. § 5737.03 (West

eds sina cngeuenaeaasaucanaiis 13

iil

TABLE OF AUTHORITIES

MISCELLANEOUS

GR BD Sr seine etistsinsnnntaancanarnonens

BN, Ga Re tas csahininncnsanieteabinseitaptennes

Brian Riley, The Less You See, The More

You Pay: The Burden of Hidden Taxes,

NTUF Policy Paper 104, August 11,

RIP sinisiciscartipsihcesactensenabanadaiaetianislaniiass

Page

16

IN THE

Supreme Court of the Anited States

No. 07-1004

DIRECTV, INC. AND ECHOSTAR SATELLITE L.L.C.,

Petitioners,

Vv.

MARK TREESH, Commissioner for the Department of

Revenue for the Commonwealth of Kentucky,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

BRIEF OF AMICUS CURIAE

NATIONAL TAXPAYERS UNION

IN SUPPORT OF PETITIONERS

INTEREST OF THE AMICUS CURIAE '

The National Taxpayers Union (“NTU”) was founded

by concerned taxpayers in 1969. It is a nonprofit,

‘ Pursuant to Supreme Court Rule 37.6, NTU affirms that no

counsel for any party authored this brief in whole or in part. No

person or entity — other than NTU, its members, or its counsel

— made a monetary contribution specifically for the preparation

or submission of this brief. Pursuant to Supreme Court Rule

37.2(a), the NTU respectfully submits this brief amicus curiae in

support of the petition for a writ of certiorari. All of the parties

have consented in writing to the filing of this brief, and copies of

the consent letters are included in the appendix to this brief.

2

nonpartisan membership organization devoted to

protecting the interests of federal, state, and local

taxpayers through public education, lobbying, and

litigation on tax, spending, regulatory and economic

issues. The organization has actively participated in

matters involving telecommunications policy such as

video franchising reform, internet access taxation,

and spectrum auctioning. NTU represents over

362,000 members in all fifty states, with approxi-

mately 3,000 members in Kentucky.

A fundamental purpose of the NTU is challenging

improper or illegal taxation on behalf of taxpayers

who might otherwise face insurmountable hurdles in

attempting to vindicate their legal and constitutional

rights. NTU has litigated against efforts by state and

local authorities to erode constitutional restraints on

their taxing authority, including the restraints

imposed by the “dormant” aspect of the Commerce

Clause as defined by this Court. Representatives of

NTU have also testified before congressional commit-

tees and various state legislatures about the danger

to the federalism balance struck by the Constitution

that arises when state and local governments

exercise unrestrained taxing authority. This experi-

ence places NTU in a unique position to advise this

Court about the implications of the decision by the

United States Court of Appeals for the Sixth Circuit

to uphold Kentucky’s unconstitutional and discrimi-

natory tax on the multichannel video programming

industry.

Based on NTU’s experience in the area of taxation,

it believes that the Sixth Circuit’s decision to uphold

Kentucky’s tax scheme jeopardizes the Commerce

Clause’s protection of interstate commerce from dis-

criminatory taxation. Specifically, Kentucky's scheme

3

is a tax in name and a tariff in effect. Similar, and

similarly unconstitutional, schemes have already

been imposed upon the multichannel video pro-

gramming industry by the states of Florida, Utah,

North Carolina, Ohio, and Tennessee. By upholding

Kentucky’s discriminatory tax scheme, the Sixth

Circuit has provided states with a roadmap for

circumventing the protections of the Commerce

Clause. As a result, there is a significant danger not

only that other states will impose similar tax

schemes to discriminate against interstate competi-

tion in the multichannel video programming indus-

try, but also that states will follow Kentucky’s lead,

which has been blessed by the Sixth Circuit, to

impose similar discriminatory tax schemes to provide

a competitive advantage to in-state operators in other

industries. NTU believes that such discriminatory

taxation would be detrimental to the Constitution, to

interstate commerce, and most importantly, to the

taxpayers whom the Constitution protects. As a

result, NTU submits this brief as amicus curiae in

support of Petitioners.

SUMMARY OF ARGUMENT

Petitioners DIRECTY, Inc. and EchoStar Satellite,

LLC (“Satellite Operators”) do not exaggerate when

they describe the decision of the United States Court

of Appeals for the Sixth Circuit as a eulogy for the

“dormant” Commerce Clause.’ The Kentucky tax on

multichannel video programming, blessed below by

the Sixth Circuit, is a thinly-veiled tariff parading as

* The decision below of the United States Court of Appeals for

the Sixth Circuit in DIRECTV, Inc. v. Treesh, 487 F.3d 471 (6th

Cir. 2007), is reproduced in the Appendix to the Satellite

Operators’ Petition (“Pet. App.”) at pages 1a-20a.

4

a tax. The scheme purports to impose equal taxes on

satellite and cable television service. In reality, the

tax burden on cable operators is offset by companion

provisions freeing cable operators from paying

franchise fees to local governments and directing that

the proceeds of the tax on multichannel video

programming be used to reimburse local governments

for the lost franchise fees. As a result, there is

little if any net cost impact on cable companies.

In contrast, the new taxes imposed on the cable

operators’ only rivals in the market — the Satellite

Operators — are not offset by any similar relief.

Thus, only these out-of-state service providers bear

the brunt of Kentucky's tax scheme.* By upholding

this discriminatory tax scheme, the Sixth Circuit has

jeopardized the Commerce Clause’s prohibition of

taxes that discriminate against interstate commerce.

The Sixth Circuit’s goal may have been merely to

avoid extending the Commerce Clause’s protections

beyond the bounds previously recognized by this

Court, in keeping with Justice Scalia’s admon-

ishment in his concurrence in West Lynn Creamery,

Inc. v. Healy, 512 U.S. 186, 211 (1994). However, the

Sixth Circuit’s decision does not preserve the status

quo, but rather creates a loophole in the protection

provided by the Commerce Clause wide enough to

*In Directv v. Treesh, the Sixth Circuit made clear that, for

purposes of its analysis, it was accepting as true the allegations

in the Satellite Operators’ complaint that the Satellite Opera-

tors “used no infrastructure whatsoever within the state to

deliver programming,” and that the cable operators, in contrast,

made substantial investments in, and had a substantial

presence within, the state. See Treesh, Pet. App. 9a. Accord-

ingly, NTU treats the Satellite Operators as out-of-state inter-

ests and the cable operators as in-state interests for purposes of

this brief.

5

allow states to discriminate in favor of in-state

operators no less effectively than if the States were

allowed to impose traditional tariffs.‘

This Court should grant certiorari to prevent a

diminution of the protections provided by the Com-

merce Clause to interstate commerce. This Court

should also grant certiorari because the Sixth

Circuit’s analysis is flawed. The fundamental

premise underlying the Sixth Circuit’s decision —

that the Kentucky tax scheme is permissible because

Kentucky is using the proceeds of an industry-wide

tax to replace fees owed previously by in-state

operators to localities rather than exempting in-state

operators from the industry-wide tax or paying

a subsidy to in-state operators directly — cannot

be reconciled with this Court's Commerce Clause

jurisprudence.

In their petition, the Satellite Operators discuss

how the Sixth Circuit’s fundamental premise cannot

be reconciled with West Lynn Creamery. NTU agrees

with the Satellite Operators on this point. The Sixth

Circuit’s decision is contrary to this Court’s repeated

admonishment that state tax schemes must be evalu-

“In presenting this brief, NTU recognizes that states should

have discretion to use their taxing authority in a manner that

promotes business, attracts industry, and reduces the tax bur-

den on residents. This Court has repeatedly emphasized,

however, that there is a line between “tax systems [that] encour-

age the growth and development of intrastate commerce and

industry” and tax systems that discriminate by giving in-state

operators an unnatural advantage over their out-of-state rivals

in the same industry. See, e.g., Boston Stock Exch. v. State Tax

Comm’n, 429 U.S. 318, 336-337 (1997). NTU asks this Court

to grant certiorari in this case because it believes that the

Kentucky tax on “multichannel video programming” crosses this

line to the detriment of taxpayers.

6

ated according to the economic realities of the

scheme, and that discriminatory state taxation that

has the effect of a tariff is unconstitutional regardless

of whether it is “forthright or ingenious” in its con-

struction. West Lynn Creamery, 512 U.S. at 201.

NTU does not repeat the Satellite Operators’ argu-

ments regarding why Kentucky's tax scheme is

indistinguishable from the tax-and-subsidy scheme in

West Lynn Creamery. Instead, NTU will highlight

two aspects of this case not addressed as extensively

by the Satellite Operators.

First, the Sixth Circuit’s analysis cannot be recon-

ciled with the decisions of this Court prohibiting

states from exempting in-state operators from industry-

wide taxes. This Court has repeatedly declared such

schemes unconstitutional because they are indistin-

guishable in effect from a traditional tariff. The

Kentucky scheme operates equally as a tariff. It

imposes new tax burdens on out-of-state operators

while offsetting the tax burden on in-state operators

by relieving them of their obligation to pay franchise

fees to localities for rights of way across public lands.

The net effect is that only out-of-state operators bear

an additional burden as a result of the tax. The Sixth

Circuit approves of Kentucky’s scheme, however,

because Kentucky uses the proceeds of its industry-

wide tax to pay off other obligations imposed by the

State’s subordinate localities rather than exempting

the in-state operators from paying the industry-wide

tax. See DIRECTV, Inc. v. Treesh, Pet. App. 16a-17a.

Indeed, it appears that under the Sixth Circuit’s

rationale, there is only one burden that states are

prohibited from paying off with the proceeds of an

industry-wide tax — the industry-wide tax itself —

and states are permitted to use the proceeds of an

7

industry-wide tax to pay off any other burden borne

by the in-state operators.

The Sixth Circuit offers no explanation for why this

difference is constitutionally significant. Moreover,

the Sixth Circuit runs afoul of decades of commerce

clause jurisprudence from this Court by impermissi-

bly ignoring the “economic realities” of the tax

scheme. At bottom, the Sixth Circuit’s decision, if

allowed to stand, will undermine the Commerce

Clause’s protection of interstate commerce by pro-

viding states with a roadmap for enacting discrimina-

tory tax schemes that duplicate the effects of a tariff

while surviving constitutional scrutiny.

Second, the Sixth Circuit’s decision ignores two

aspects of the Kentucky tax scheme that this Court

has recognized as hallmarks of schemes that dis-

criminate against interstate commerce in violation of

the Commerce Clause. The Kentucky tax scheme

creates in-state benefits by burdening only out-of-

state interests. In addition, it “mollifies” in-state

interests that would otherwise be expected to oppose

the tax scheme by providing them with a countervail-

ing benefit that is not provided to out-of-state rivals.

As we discuss below, this Court has held in a number

of cases that when such a statute is enacted, the

normal legislative protections against abusive state

laws are not present and that it is the proper role of

the Commerce Clause to step in and prevent abuse.

One such case is West Lynn Creamery, 512 US. at

200-201. Justice Stevens, writing for the majority,

noted in West Lynn Creamery that the Massachusetts

tax on the sale of milk there at issue had “mollified”

in-state dairy producers with a subsidy that more

than offset the burden of the tax on milk distribution.

Id. The Kentucky tax on multichannel video pro-

8

gramming similarly mollifies in-state cable compa-

nies by eliminating franchise fees and mollifies the

localities that had charged the franchise fees by

providing them with the proceeds of the tax on

multichannel video programming. This Court has

repeatedly declared similarly discriminatory schemes

unconstitutional under the “dormant” aspect of the

Commerce Clause. Accordingly, this Court should

grant certiorari and make clear that discriminatory

state tax schemes that obtain in-state benefits by

burdening only out-of-state interests and subvert the

ordinary balancing of interests inherent within the

legislative process by effectively bribing in-state

interests to support the tax vielate the Commerce

Clause’s prohibition of discrimination against inter-

state commerce.

ARGUMENT

I. THE SIXTH CIRCUIT’S DECISION UN-

DERMINES THE COMMERCE CLAUSE

PROHIBITION OF STATE TAXES THAT

DISCRIMINATE AGAINST INTERSTATE

COMMERCE.

The Sixth Circuit’s interpretation of the Commerce

Clause is unworkable because it provides states with

the capability of using tax schemes to discriminate —

practically at will — in favor of in-state operators by

imposing nominally equal taxes but then giving the

in-state provider an offsetting benefit. The purpose

of this Court’s “dormant” Commerce Clause juris-

prudence has consistently been to deny states this

authority. Indeed, this Court has repeatedly struck

down state schemes that tax in-state and out-of-state

operators in an industry equally, but then provide

only in-state operators with credits or exemptions

ce

9

that neutralize the detrimental effect of the statute.

See, e.g., New Energy Co. of Indiana v. Limbach, 486

U.S. 269 (1988); Bacchus Imports, Ltd. v. Dias, 468

U.S. 263 (1984); Armco Inc. v. Hardesty, 467 U.S. 638

(1984); Westinghouse Electric Corp. v. Tully, 466 U.S.

388 (1984); Maryland v. Louisiana, 451 U.S. 725

(1981).

The Sixth Circuit takes the position that the Ken-

tucky statute is different, and therefore constitu-

tional, because Kentucky uses the proceeds from the

industry-wide tax on multichannel video program-

ming to pay off other state imposed liabilities —

franchise fees imposed by the state’s subordinate

localities — rather than exempting in-state cable

operators from the tax on multichannel video pro-

gramming. See DIRECTV, Inc. v. Treesh, Pet. App. at

15a-17a. The Sixth Circuit offers no analysis for why

this difference is constitutionally significant. Never-

theless, under the Sixth Circuit’s view the Commerce

Clause only prohibits states from using the proceeds

from an industry-wide tax to pay in-state operators’

liability under the industry-wide tax itself. Accord-

ing to the Sixth Circuit, states are permitted to

impose industry-wide taxes and set aside the pro-

ceeds of those taxes to pay-off other burdens on

behalf of in-state operators, even when the payment

of these burdens nullifies the entirety of the effect of

the industry-wide tax on in-state operators and dupli-

cates the effect of a traditional tariff.

This Court has repeatedly rejected the Sixth Cir-

cuit’s unwarranted, form-over-substance, conception

of the Commerce Clause. See, e.g., West Lynn

Creamery, 512 U.S. at 193. As this Court noted in

Maryland v. Louisiana, “[iJn each case it is our duty

to determine whether the statute under attack, what-

10

ever its name may be, will in its practical operation

work discrimination against interstate commerce.”

451 U.S. 725, 756 (1981).

Maryland v. Louisiana provides a useful example.

In that case, Louisiana imposed an industry-wide tax

on the “first use” of natural gas in the state, but

“provided a number of exemptions from and credits”

against other state-imposed taxes to abate the bur-

den of the industry-wide tax on in-state producers

and distributors of natural gas, as well as in-state

electric companies. This Court noted that the effect of

these credits and other exemptions in the statute

meant that “Louisiana consumers of OCS gas for the

most part are not burdened by the Tax, but it does

uniformly apply to gas moving out of the State.” Jd.

This Court struck down the Louisiana tax and

specifically found that Louisiana’s practice of provid-

ing in-state operators with credits for “first use” taxes

paid against other state-imposed taxes violated the

Commerce Clause. Id. at 759. The Court held that

because these entities “may recoup any increase

in the cost of gas attributable to the First-Use Tax

through credits against various taxes or a combina-

tion of taxes otherwise owed to the State of Louisiana,

Louisiana consumers of OCS gas are thus substan-

tially protected against the impact of the First-Use

Tax.” Id. at 757 (emphasis added) (citation omitted).

As a result, this Court struck down Louisiana’s “first

use” tax scheme, noting that the Commerce Clause

mandates “equality of treatment between local and

interstate commerce” and that “the pattern of credits

and exemptions allowed under the Louisiana statute

undeniably violates this principle of equality.” Id.

at 759.

11

As this Court recognized in Maryland v. Louisiana,

tax schemes like those enacted by Louisiana and

Kentucky that tax an industry evenly but provide

exemptions, credits or subsidies that abate the

burden of the industry-wide tax on in-state interests

violate the Commerce Clause because the “practical

operation” of these schemes “work discrimination

against interstate commerce” just like a traditional

tariff. 451 U.S. at 756, quoting Best & Co. v.

Maxwell, 311 U.S. 454, 456 (1940). Allowing states to

enact such schemes, as the Sixth Circuit has done in

this case, jeopardizes interstate commerce by provid-

ing states with an easily-used contrivance for cir-

cumventing the limitations of the Commerce Clause.

This Court has previously recognized that it is

useful to consider how a tax scheme could be used to

circumvent limitations recognized in the Court’s prior

Commerce Clause cases. For example, in Camps

Newfound/Owatonna, Inc. v. Town of Harrison,

Maine, 520 U.S. 564, 594-95 (1997), this Court com-

pared a Maine tax scheme to a Hawaii tax scheme

that had been struck down earlier in Bacchus

Imports LTD v. Dias, 468 U.S. 263 (1984), and struck

down the Maine tax scheme because it allowed states

to easily circumvent the Commerce Clause protec-

tions discussed in Bacchus. Likewise in this case,

comparing the Kentucky tax scheme to three simi-

larly discriminatory tax schemes that this Court has

previously struck down demonstrates how easily

states could mimic the Kentucky tax scheme to dis-

criminate against interstate commerce in any indus-

try, thereby rendering the Commerce Clause a dead

letter.

In Armco, Inc. v. Hardesty, 467 U.S. 638 (1984),

this Court, in an eight-to-one decision, struck down a

12

West Virginia tax that required every entity engaged

in the business of selling tangible property at whole-

sale to pay a percentage of its gross receipts to the

State, but exempted in-state manufacturers from

paying the tax. West Virginia argued that the tax

did not discriminate against interstate commerce

because in-state manufacturers were subject to a

larger tax. Armco, Inc., 467 U.S. at 641. This Court

disagreed, held that “West Virginia’s tax does dis-

criminate unconstitutionally against interstate com-

merce,” id., and explained that:

“[t]he tax provides that two companies selling

tangible property at wholesale in West Virginia

will be treated differently depending on whether

the taxpayer conducts manufacturing in the

State or out of it. Thus, if the property was

manufactured in the State, no tax on the sale is

imposed. If the property was manufactured out

of the State and imported for sale, a tax of 0.27%

is imposed on the sale price.” Id. at 642.

Under the Sixth Circuit’s reasoning in the instant

case, West Virginia could have brought about this

same discriminatory result merely by creating a fund

from the proceeds of the tax on the sale of property at

wholesale and using that fund to pay off burdens on

behalf of in-state manufactures, such as the manu-

facturers’ local property taxes or even a portion of the

state-imposed manufacturing tax. The discrimina-

tory effect would have been the same — only sellers

who do not manufacture their goods in West Virginia

would face an increased overall burden on the goods

they sell in the state — but the scheme would not

have run afoul of the Commerce Clause under the

Sixth Circuit’s analysis.

13

In New Energy Co. v. Limbach, 486 U.S. 269, 278

(1988), this Court struck down an Ohio tax scheme

that encouraged in-state production of ethanol. Under

the Ohio scheme, gasoline dealers were given a credit

against the state sales tax on gasoline if they mixed

their gasoline with ethanol, but only if the ethanol

was produced in Ohio or another state that grants a

similar credit for using Ohio-produced ethanol. Jd. at

269. This Court, in a unanimous decision, held that

the statute impermissibly discriminates against inter-

state commerce because it “explicitly deprives certain

products of generally available beneficial tax treat-

ment because they are made in certain other States”

and “imposes an economic disadvantage upon out-of-

state sellers.” Id. at 274, 275.

Under the Sixth Circuit’s rationale, Ohio could

have achieved the same discriminatory result with-

out violating the Commerce Clause. For example,

Ohio could have imposed a tax on all ethanol sold in

the state, created a fund from the proceeds of that

tax, and used those proceeds to pay off financial

burdens borne by in-state ethanol producers. Specifi-

cally, Ohio could have used the proceeds of such a

fund to pay the local property taxes of any property

used to produce grain for ethanol production, to pay

for grain itself and give that grain to in-state ethanol

producers, or even to pay a state-imposed tax owed

only by in-state producers such as Ohio Rev. Code

Ann. § 5737.03 (West 2008), which taxes the handling

of all grain, including grain used to make ethanol.

Using such a scheme, the state of Ohio could have

discriminated in favor of in-state ethanol producers,

while at the same time complying with the Sixth

Circuit’s interpretation of the Commerce Clause.

14

Finally, in Bacchus Imports, Ltd. v. Dias, 468 U.S.

263, 265 (1984), this Court invalidated a Hawaii tax

scheme that encouraged consumption of two kinds of

locally produced alcoholic beverages by exempting

those beverages from the twenty percent (20%) excise

tax Hawaii levied on sales of alcoholic beverages.

The locally produced alcoholic beverages that Hawaii

attempted to exempt were okolehao — “a brandy

distilled from the root of the ti plant, an indigenous

shrub of Hawaii” — and a locally produced wine

made from pineapples. Jd. This Court had no dif-

ficulty in striking down Hawaii’s tax scheme as

unconstitutional, holding that the exemption for

okolehao and pineapple wine “violated the Commerce

Clause because it had both the purpose and effect of

discriminating in favor of local products.” Id. at 273.

This Court further explained that “[a] cardinal rule of

Commerce Clause jurisprudence is that ‘[nlo State,

consistent with the Commerce Clause, may impose a

tax which discriminates against interstate commerce

* * * by providing a direct commercial advantage to

local business.” Jd. at 268, quoting Boston Stock

Exch. v. State Tax Comm’n, 429 U.S. 318, 329 (1977)

(internal quotation marks omitted).

Hawaii, like West Virginia and Ohio in the exam-

ples above, would have been empowered to bring

about the same discriminatory effect under the Sixth

Circuit’s interpretation of the Commerce Clause by

mimicking Kentucky’s discriminatory tax scheme.

Instead of a direct exemption for okolehao and

pineapple wine from Hawaii’s excise tax, Hawaii

could have taxed all alcoholic beverages equally and

then placed a portion of the proceeds into a State

fund for the purpose of paying costs and fees on

behalf of manufacturers of okolehao and pineapple

wine. For example, Hawaii could have paid the local

15

real property taxes for any property in Hawaii used

to produce okolehao, subsidized the purchase of

ti root and pineapple when used in the production

of okolehao and pineapple wine, or even used the

proceeds to pay off the state-imposed manufacturing

tax, Haw. Rev. Stat. Ann. § 237-13 (LexisNexis 2007).

The net effect to such a scheme would have been

the same — granting local manufacturers of these

alcoholic beverages a competitive advantage over out-

of-state rivals in the market for alcoholic beverages.

These hypothetical applications of the basic me-

chanics of the Kentucky tax scheme to tax schemes

previously invalidated by this Court demonstrate

that the Sixth Circuit’s decision below is both erro-

neous and dangerous. Allowing states to offset the

effect of an industry-wide tax on in-state interests

by eliminating other burdens borne only by in-state

operators is no less discriminatory in effect than

exempting in-state operators from the industry-wide

tax itself.

In fact, this case presents an even clearer example

of discrimination. Unlike the Louisiana scheme in

Maryland v. Louisiana that less obviously abated the

effect of the industry-wide tax by simply providing

credits against other state-imposed taxes, the Ken-

tucky scheme is blatant in its discrimination. The

Kentucky scheme creates a separate fund from the

proceeds of the industry-wide tax for the sole purpose

of paying off burdens borne only by in-state opera-

tors — franchise fees. This is a far more direct, and

indeed more troubling, form of discrimination than

the offsetting tax credits at issue in Maryland v.

Louisiana. It simply is too easy for states to mimic

the Kentucky scheme and discriminate in favor of in-

state operators if the Sixth Circuit’s analysis is

16

allowed to stand. Under such a scheme, the ability of

a state to discriminate is virtually limitless. This

Court has consistently taken the position that the

protections afforded to interstate commerce by the

Commerce Clause are far more robust. As a result,

this Court should grant the Satellite Operators’

petition for a writ of certiorari and make clear that

states cannot so easily circumvent the protections of

the Commerce Clause.

Il. THE KENTUCKY TAX SCHEME SUB-

VERTS THE LEGISLATIVE PROCESS IN

THE SAME MANNER AS _ THE

MASSACHUSETTS STATUTE AT ISSUE

IN WEST LYNN CREAMERY v. HEALY.

The Kentucky tax on multichannel video pro-

gramming bears two hallmarks that identify it as

belonging to the category of taxes that this Court has

repeatedly struck down as discriminating against

interstate commerce. It provides benefits to in-state

interests by burdening, exclusively, out-of-state inter-

ests. It also mollifies in-state interests that ordinar-

ily would be expected to oppose the tax scheme,

thereby circumventing the balancing of interests in-

herent within the legislative process that is ordinar-

ily relied upon to provide taxpayers with a degree of

protection against abusive tax schemes. As the NTU

has observed in numerous cases, including cases

involving taxes on rental-care services and passenger

facility charges on airline tickets, imposing taxes that

disproportionately burden citizens who have no vote

in the jurisdiction is attractive because of the politi-

cal benefit it provides. See, e.g., Brian Riley, The

Less You See, The More You Pay: The Burden of

Hidden Taxes, NTUF Policy Paper 104, August 11,

1998.

17

This Court has long recognized that a purpose of

the Commerce Clause’s prohibition of state laws dis-

criminating against interstate commerce is to pre-

vent states from succumbing to the temptation to

provide benefits to those within the state at the

expense of out-of-state interests. For example, in

South Carolina State Highway Dep’t v. Barnwell

Bros., this Court noted that its dormant analysis of

the Commerce Clause arose from “the thought, often

expressed in judicial opinion, that when the regula-

tion is of such a character that its burden falls

principally upon those without the state, legislative

action is not likely to be subjected to those political

restraints which are normally exerted on legislation

where it affects adversely some interests within the

state.” 303 U.S. 177, 185 n.2 (1938).

This “thought” has been prominent in this Court’s

more recent Commerce Clause jurisprudence. For

example, in Minnesota v. Clover Leaf Creamery Co..,

this Court upheld a Minnesota law banning retail

sale of milk in plastic nonreturnable, nonrefillable

containers on the ground that it burdened in-state

and out-of-state dairies alike, stating that “[t]he exis-

tence of major in-state interests adversely affected by

the Act is a powerful safeguard against legislative

abuse.” 449 U.S. 456, 473 n.17 (1981). Likewise, in

Kassel v. Consol. Freightways Corp. of Delaware, this

Court refused to accord an Iowa law barring use of

trucks longer than 60 feet on Iowa’s interstate high-

ways the usual “special deference’ to state highway

safety regulations,” noting that “[t]his traditional

deference ‘derives in part from the assumption that

where such regulations do not discriminate on their

face against interstate commerce, their burden usu-

ally falls on local economic interests as well as other

States’ economic interests, thus ensuring that a

18

State’s own political process will serve as a check

against unduly burdensome regulations.” 450 US.

662, 675 (1981), quoting Raymond Motor Transp.,

Inc. v. Rice, 434 U.S. 429, 444 n.18 (1978). The Court

held that “[lJess deference to the legislative judgment

is due, however, where the local regulation bears

disproportionately on out-of-state residents and busi-

nesses” and struck down the lowa law because

“Iowa’s scheme, although generally banning large

doubles from the State, nevertheless has several

exemptions that secure to Iowans many of the

benefits of large trucks while shunting to neighboring

States many of the costs associated with their use.”

Id.

This concern was also a key component of the

Court’s decision in West Lynn Creamery, in which

Justice Stevens noted that the Massachusetts tax-

and-subsidy scheme was constitutionally problematic

because, among other reasons, it provided a subsidy

to “one of the most powerful” groups “which would

otherwise [be expected to] lobby against the” tax

scheme:

“when a nondiscriminatory tax is coupled with a

subsidy to one of the groups hurt by the tax, a

State’s political processes can no longer be relied

upon to prevent legislative abuse, because one of

the in-state interests which would otherwise

lobby against the tax has been mollified by the

subsidy. So, in this case, one would ordinarily

have expected at least three groups to lobby

against the order premium, which, as a tax,

raises the price (and hence lowers demand) for

milk: dairy farmers, milk dealers, and consum-

ers. But because the tax was coupled with

a subsidy, one of the most powerful of these

19

groups, Massachusetts dairy farmers, instead of

exerting their influence against the tax, were in

fact its primary supporters.” 512 U.S. at 200-

201.

The Kentucky tax scheme subverts the legislative

process, and reaps the same kind of ill-gotten gains,

as the statutes at issue in West Lynn Creamery and

Kassel. Kentucky mollified the two powerful in-state

interests that ordinarily would have been expected to

lobby against its new tax on multichannel video

programming. Under Kentucky’s tax scheme, in-

state cable operators were subjected to a new state-

level tax on their video programming for the first

time, and localities lost their right to impose fran-

chise fees on cable operators, but both of these

in-state interests were “mollified” by the State.

Kentucky mollified the in-state cable operators by

eliminating the obligation to pay franchise fees

imposed by Kentucky’s subordinate localities, and it

mollified the localities by providing them with the

proceeds of the tax on multichannel video program-

ming, thereby ensuring that the localities do not lose

revenue. The only party made worse off by Ken-

tucky’s tax scheme (besides the state’s consumers,

who are deprived of the benefits of fair competition)

are the in-state cable operators’ only marketplace

rivals — the out-of-state Satellite Operators — who

pay for the benefits provided to the cable operators

and localities under Kentucky’s tax scheme by paying

the full tax with no abatement, whatsoever.

As a result, the Kentucky tax scheme discriminates

against interstate commerce just like a traditional

tariff. The result is that in-state cable operators can

reduce price and gain market share from their out-

of-state rivals, the Satellite Operators. This is pre-

20

cisely the kind of scheme the Commerce Clause was

designed to prevent.

In the end, this case is worthy of this Court's

consideration for a simple reason. The Sixth Circuit's

decision is a serious threat to the continued vitality

of the Commerce Clause’s protection of interstate

commerce from discriminatory taxes. The Kentucky

tax on multichannel video programming, blessed

below by the Sixth Circuit, is a thinly veiled tariff.

As NTU has demonstrated, similar schemes can be

implemented by any other state and can be used to

discriminate in favor of in-state interests in practi-

cally any industry. This Court, in its prior cases, has

given the Commerce Clause a robust meaning that

cannot countenance the type of discrimination inher-

ent within the Kentucky scheme. Accordingly, this

Court should grant the Satellite Operators’ petition

for a writ of certiorari and make clear that the Ken-

tucky scheme cannot serve as a model for consti-

tutionally permissible discrimination against inter-

state commerce.

21

CONCLUSION

For these reasons, the Court should grant the

petition for a writ of certiorari.

Respectfully submitted,

HOWARD R. RUBIN

Counsel of Record

WILLIAM E. COPLEY III

JONMARC P. BUFFA

SONNENSCHEIN NATH &

ROSENTHAL LLP

1301 K Street, N.W.

East Tower, Sixth Floor

Washington, D.C. 20005

(202) 408-6400

Counsel for Amicus Curiae

National Taxpayers Union

APPENDIX

la

APPENDIX

Sonnenschein 1301 K Street, N.W.

SONNENSCHEIN NATH & Suite 600, East Tower

ROSENTHAL LLP Washington, D.C. 20005-3364

202.408.6400

202.408.6399 fax

www.sonnenschein.com

Howard R. Rubin

202.408.9164

hrubin n hein.com

February 15, 2008

- SS. MAIL

E. Joshua Rosenkranz

Heller Ehrman, LLP

Times Square Tower

7 Times Square

New York, NY 10036

RE: DIRECTV, Inc. and EchoStar Satellite

L.L.C. v. Treesh, No. 07-1004 (S. Ct.)

Dear Mr. Rosenkranz,

I am writing to you on behalf of the National

Taxpayers Union (“NTU”) to confirm our conversa-

tion in which I requested the consent of petitioners

DIRECTV, Inc. and EchoStar Satellite L.L.C. (collec-

tively, “the petitioners”) to NTU filing an amicus

curiae brief in support of the petition for a writ of

certiorari filed in the above-styled action. I appreci-

ate your having provided me with the petitioners’

consent and am following up, pursuant to Supreme

Court Rule 37(2)(a), to obtain that consent in writing.

2a

Please indicate your consent by signing below and

return the signed letter to me by fax at 202-408-6399.

Thank you for your assistance. If you have any ques-

tions or concerns, please do not hesitate to contact

me.

Sincerely,

/s/ Howard R. Rubin

Howard R. Rubin

/s/ FE. Joshua Rosenkranz

E. Joshua Rosenkranz

Heller Ehrman, LLP

Times Square Tower

7 Times Square

New York, NY 10036

Counsel for Petitioners

DIRECTV, Inc. and

EchoStar Satellite L.L.C.

3a

Sonnenschein 1301 K Street, N.W.

SONNENSCHEIN NATH & Suite 600, East Tower

ROSENTHAL LLP Washington, D.C. 20005-3364

202.408.6400

202.408.6399 fax

www.sonnenschein.com

Howard R. Rubin

202.408.9164

February 15, 2008

VIA E-MAIL AND U.S. MAIL

Douglas M. Dowell

Office of Legal Services for Revenue

Department of Revenue of the

Commonwealth of Kentucky

P.O. Box 423

Frankfort, KY 40602-0423

RE: DIRECTV, Inc. and EchoStar Satellite

L.L.C. v. Treesh, No. 07-1004 (S. Ct.)

Dear Mr. Dowell,

I am writing to you on behalf of the National

Taxpayers Union (“NTU”) to confirm our conversa-

tion from yesterday afternoon in which I requested

the consent of respondent Mark Treesh, Commis-

sioner for the Department of Revenue of the Com-

monwealth of Kentucky, to NTU filing an amicus

curiae brief in support of the petition for a writ of

certiorari filed in the above-styled action. I appreci-

ate your having provided me with Commissioner

Treesh’s consent and am following up, pursuant to

Supreme Court Rule 37(2)(a), to obtain that consent

in writing.

4a

Please indicate your consent by signing below and

return the signed letter to me by fax at 202-408-6399.

Thank you for your assistance. If you have any ques-

tions or concerns, please do not hesitate to contact

me.

Sincerely,

/s/ Howard R. Rubin

Howard R. Rubin

/s/ Douglas M. Dowell

Douglas M. Dowell

Office of Legal Services for Revenue

Department of Revenue of the

Commonwealth of Kentucky

P.O. Box 423

Frankfort, KY 40602-0423

Counsel for Respondent Mark Treesh