Cox Cable of Omaha, Inc. v. Nebraska Department of Revenue

Citations: 578 N.W.2d 423; 254 Neb. 598; 1998 Neb. LEXIS 128Docket: S-97-083

Court: Nebraska Supreme Court; May 8, 1998; Nebraska; State Supreme Court

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The Nebraska Department of Revenue issued a notice of deficiency to Cox Cable of Omaha, Inc. on June 30, 1992, for sales and consumer's use tax applicable from May 1, 1988, to May 31, 1991. Cox contested parts of this deficiency determination through a timely petition for redetermination. On December 13, 1994, the Tax Commissioner upheld the Department's determination and dismissed Cox's petition. Subsequently, Cox appealed, leading to a reversal by the Lancaster County district court. The Department and Tax Commissioner appealed this reversal.

The Supreme Court of Nebraska concluded that the Tax Commissioner had appropriately interpreted the relevant statutory provisions regarding the assessment of use tax. As a result, the court reversed the district court's judgment and remanded the case with instructions to affirm the Tax Commissioner's order.

Cox is licensed by the FCC and authorized by Omaha to provide cable television services, utilizing satellite dishes and antennas, distributed via fiber optics and coaxial cable. For service provision, Cox installs "house drops," requiring various materials and labor, which can involve either Cox employees or independent contractors. While Cox pays sales tax on the materials used, the compensation for contractors is based on a piece-rate system that varies with the installation's complexity. The standard installation charge assessed to subscribers does not consistently reflect actual installation costs, as Cox sometimes reduces or waives these fees for marketing purposes.

Cox's primary contention in its petition for redetermination was that the payments made to independent contractors for the installation of tangible personal property related to the provision of cable services should not be subject to consumer's use tax.

On December 13, 1994, the Tax Commissioner upheld a deficiency determination against Cox and dismissed its petition for redetermination. Cox appealed this decision to the Lancaster County district court, which reversed the ruling, concluding that only the entity providing actual cable service under a franchise or permit is liable for use tax on installation services. The Department and the Tax Commissioner appealed this decision, arguing that the district court erred by exempting Cox from use tax on payments made to independent contractors for cable installation services.

The standard of review involves statutory interpretation, where an appellate court independently assesses legal questions. The relevant statutes indicate a two-percent use tax on gross receipts from community antenna television service operators and those involved in the installation of such services (Neb. Rev. Stat. 77-2703). If sales tax is paid, the liability for use tax is extinguished (77-2703(2)(a)). The Department contends that Cox is liable for use tax under 77-2703(2), which necessitates a reference to 77-2703(1), which outlines the sales tax obligations. Additionally, Neb. Rev. Stat. 77-2702(4)(b) defines gross receipts for community antenna television service operators, including installation and connection services. An amendment in 1989 expanded the statute's applicability to include regulations governing cable television service by counties and municipalities (Neb. Rev. Stat. 23-383 to 23-388 and 18-2201 to 18-2205).

It is unlawful for individuals or entities without a permit or franchise to construct, install, operate, or maintain cable television services, as outlined in statutes 18-2202 and 23-384. Since the 1986 amendment of statute 77-2703 to include taxes on cable television services and installations, the Department has interpreted this statute to apply taxable charges to consumers receiving cable installation services, including those who contract with third parties for such services. While the Department's interpretation is not binding, it is given considerable weight, especially in the absence of legislative action to amend it.

Statutory construction principles dictate that clear and unambiguous language should be understood in its ordinary sense. Courts aim to ascertain the intent of the Legislature by examining the entire language of statutes, considering related provisions to ensure consistency and coherence. 

In reviewing the roles of independent contractors and Cox employees in connecting cable services, both perform identical functions. The district court recognized the involvement of independent contractors in connecting wires for cable transmission but mistakenly concluded that statute 77-2703(1) applies only to franchised entities. The tax imposed by 77-2703(1) encompasses gross receipts from both franchised operators and those involved in the installation and connection of regulated television services, reflecting legislative intent to tax a broader range of service providers beyond just franchised entities. Additionally, statute 77-2702(4)(b)(iv) defines "gross receipts" to include income from installation and construction related to regulated cable services, indicating that the tax applies to all who derive revenue from these activities, regardless of franchise status.

The tax imposed by Neb. Rev. Stat. 77-2703 applies to the gross receipts of independent contractors who install house drops under contracts with Cox. This interpretation aligns with regulatory statutes that restrict unfranchised individuals from providing cable services. Cox is responsible for the installation, whether done by its employees or independent contractors, and these contractors must adhere to Cox's guidelines to be compensated. Their gross receipts from these services are subject to use tax, which Cox, as the service consumer, must pay. Cox's argument that it cannot pass these costs to consumers does not affect the imposition of the use tax on contracted services. The previous case, T-V Transmission v. County Bd. of Equal., which classified installed house drops as fixtures rather than tangible personal property for property tax purposes, does not apply here. The relevant issue is whether the use tax applies to payments made to contractors for materials and services related to connecting Cox's cable system. Consequently, amounts paid by Cox to independent contractors for these installations from May 1, 1988, to May 31, 1991, are subject to use tax. The district court's judgment is reversed, and the case is remanded with directions to affirm the Tax Commissioner's order.