A satellite television provider was required to include:
– satellite equipment in its property factor based on location of subscribers; and
– receipts from sales of broadcast satellite television services in its sales factor based on subscriber location.
The taxpayer owned membership interests in three single-member limited liability companies (LLCs) owning property in Pennsylvania. Through one of the LLCs, the taxpayer provided direct broadcast satellite television services to customers in Pennsylvania.
Are Satellites Included in the Property Factor?
Pennsylvania performed an audit and adjusted the taxpayer’s property factor. The auditor included a portion of the satellite values from the taxpayer’s federal return. The amounts were assigned to Pennsylvania based on the ratio of Pennsylvania subscription fees to subscription fees everywhere. The amounts were included because satellites were:
– owned by the taxpayer; and
– used in Pennsylvania to provide satellite television service.
Where Did the Income-Producing Activity Occur?
The taxpayer had to include the sales of providing satellite service in its sales factor. The taxpayer failed to show that the greater portion of its income-producing activities were preformed outside Pennsylvania, based on the costs of performance. The taxpayer argued that the majority of the cost of providing satellite television services to its customers occurred in Wyoming, Arizona and Colorado. The taxpayer’s primary uplink equipment and corporate headquarters were located in those three states.
However, the uplink satellite equipment and satellite based transponders were costs of providing a service for sale. Additionally, Pennsylvania determined that the cost of receiving equipment leased to customers and the cost of maintaining Pennsylvania service locations constituted costs of income-producing activities.
In Re: Dish DBS Corp., Docket No. 1713444, Board of Finance and Revenue, May 14, 2018, ¶204-654