You asked (1) how the sales tax on cable TV service came to cover that part of a subscriber's bill that is attributable to the gross earnings tax on cable TV companies (i. e. , a tax on a tax) and (2) how the law would need to be amended to undo this.

Cable TV companies were subjected to the gross earnings tax under CGS § 12-256 under legislation passed in1965. By law, cable TV companies must pay a tax of 5% of their gross earnings, minus the assessment the company pays for the Department of Public Utility Control's administrative costs. While the law does not require cable TV companies to pass this tax on to their subscribers, in practice they do.

Cable TV service was subject to the sales tax under CGS § 12-407 under legislation passed 1989. Since the sales tax is based on the retailer's gross receipts, the sales tax applies to that part of a subscriber's bill that is attributable to the gross earnings tax. The legislation (PA 89-231) subjected a wide range of services to the sales tax and made many other tax and fee changes. It does not appear that the legislature specifically discussed the "tax on a tax" issue with regard to cable TV service in passing this legislation.

The law could be amended to (1) exempt from the sales tax that part of a subscriber's bill that is attributable to the gross earnings tax or (2) exempt from the gross earnings tax that part of a subscriber's bill that is attributable to the sales tax. Legislation to accomplish the first option has been introduced in each of the last four sessions, and has been favorably reported by the Energy and Technology Committee each year. This year, the committee reported the bill to the Finance, Revenue and Bonding Committee, which took no action on it. The Office of Fiscal Analysis estimates that this change would reduce tax revenues by $ 2. 1 million per year.

KM: ro