This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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Satellites, Government Tax Lawyers and Moving Vans
By Greg Turner

When government tax lawyers thought it OK to tax objects 22,000 miles above the earth’s surface, they unleashed a thunderstorm of protest, national attention (not the good kind) and offers of relocation expenses from other states to those newly taxed.

At issue are commercial satellites in orbit above the earth’s equator. They are privately owned and provide direct television broadcasting, cable uplink and downlink capability, and data transmission. California is perhaps home to the world leaders in the ownership and operation of these commercial satellites.

Recently, Los Angeles County Assessor Rick Auerbach, armed with the opinion of his county counsel, suggested that these orbiting satellites were subject to property tax as “movable property” under Property Tax Rule 205. Moreover, because the companies that owned these satellites were commercially domiciled in L.A. County, government lawyers said the property was subject to tax in L.A. County. To his credit, Mr. Auerbach didn’t go it alone. He asked the opinion of staff at the State Board of Equalization who affirmed the advice of his counsel. What Mr. Auerbach apparently didn’t foresee was the ensuing firestorm of state and national criticism.

The opinions of both the Los Angeles County Counsel’s Office and legal staff of the BOE are legally and constitutionally deficient on several grounds:

• First, although a satellite is “movable” in the sense that it is rocketed into orbit, once it reaches its assigned Federal Communications Commission geosynchronous orbital slot, which is a fixed parking spot, it normally does not move from its location other than to be excessed as space junk into outer space at the end of its useful life. Once in its assigned FCC geosynchronous slot, the satellite is no longer “movable property.” As such, it is highly questionable whether Rule 205 applies to such property.
   
• Second, once launched into space, the satellite never comes back to earth, let alone Los Angeles County. Due Process Clause and Commerce Clause jurisprudence dictate that there must be minimum contacts, a substantial nexus, between the taxing authority and the object sought to be taxed. It is also clear that property tax is justified as being in return for the property receiving some tangible benefit from the county in the way of governmental services. It is questionable how a satellite in geosynchronous orbit over the equator will ever receive fire protection services from the Los Angeles County Fire Department, or any other county services.
   
• Third, there are both federal preemption and space law concerns involved in this attempt to grab tax revenue of an object located in a realm that is clearly regulated by federal law and international treaties.

Thankfully, the elected members of the State Board of Equalization have stepped in to stop the madness. On June 20, the BOE’s Property Tax Committee held a hearing to review the situation. On a 3-2 vote, the board directed the Property Tax Department to send a letter to Los Angeles County advising that the issue was under BOE review and the legal staff’s opinion could not be relied upon to support property taxation of satellites located in geosynchronous orbit. The board subsequently directed staff to begin drafting a new Property Tax Rule 206 to provide simply that “an artificial satellite permanently located in outer space does not have a tax situs in this state.”

Which brings me to the title of this not-so-subtle commentary. What do the objects in the title all have in common? After reading this, I hope the answer is obvious. They can all assist in moving business out of California. This is yet another example of how business can be driven from California to the many other states and foreign countries we compete with on a daily basis that are more than happy to exploit our mistakes to their own benefit. Attracting and retaining business is important for all Californians because California business means California jobs. Other states in the space business like Florida, Texas, Colorado, and Washington get that. Why is California having such a hard time?

Greg Turner 
is general counsel and legislative director
of the California Taxpayers’ Association.