DirecTV loses S.C. tax appeal, must pay $8.5 million in back taxes, penalties

Satellite television provider DirecTV will have to pay more than $8.5 million in back taxes and penalties after failing to convince a judge that subscription fees paid by South Carolina customers should not count as taxable revenue.

Administrative Law Court Judge Ralph King Anderson reduced the penalty DirecTV must pay to the S.C. Department of Revenue last week, but he affirmed an earlier ruling that found the company must pay state taxes based on the revenue it collects from South Carolina subscribers.

El Segundo, Calif.-based DirecTV had argued that its revenue comes from national marketing, content development, broadcast operations and customer service — business activities that are conducted outside of South Carolina. The company said its subscriber fees are the result of those revenue-producing activities, but aren’t revenue-producing activities in themselves.

King, in his order, rejected DirecTV’s claim, saying the company’s “income-producing activity is the delivery of the signal into the homes and onto the television sets of customers,” adding that “all of those income-producing activities related to South Carolina customers occurred entirely within South Carolina.”

In addition to the $8.5 million in back taxes, which covers tax years 2009 to 2011, King denied DirecTV’s request for a refund of the nearly $6 million in taxes it paid from 2006 to 2008.

DirecTV generated more than $2 billion in subscriber fees and $136 million in set-top box rental fees from South Carolina customers between 2006 and 2011, according to testimony during the court hearing. That is about 2 percent of DirecTV’s nationwide revenues during that period.

Gregory Roberts, a lawyer for DirecTV, could not be reached for comment. Bonnie Swingle, a spokeswoman for the S.C. Department of Revenue, said the agency has not received any notification that DirecTV plans to appeal the decision.

DirecTV has 30 days from the receipt of Anderson’s order to file an appeal.

Reach David Wren at 937-5550 or on Twitter at @David_Wren_