New tax certificate program proposed

Senator John McCain (R-Ariz.), Chairman of the Senate Commerce Committee, has introduced a bill that would bring back “tax certificates” for those who sell communications companies, including broadcast stations, to qualified small businesses. Tax certificates allow the seller to defer paying a portion of the taxes related to a sale. For many years tax certificates were granted to those who sold broadcast stations to minorities but, due to abuse, the program was eliminated by Congress.

Senator McCain's bill, entitled “Telecommunications Ownership Diversification Act of 2003,” is designed to encourage companies to sell communications properties to women and minorities, and to financially assist women and minorities to purchase the properties. Some believe the tax certificates would encourage large broadcast companies, which would otherwise trade stations with each other to avoid taxes, to sell for cash to women and minorities who have few or no stations to trade. They also believe the lower taxes provided by the tax certificates would allow sellers to sell broadcast properties at a lower price, making it easier for women and minorities to enter the broadcast business.

While the apparent goal of the legislation is to benefit women and minorities, the bill's language avoids the terms “women” and “minorities,” and instead speaks of “economically or socially disadvantaged businesses.” This circumlocution is likely intended to avoid the argument that the legislation constitutes improper “affirmative action” or “reverse discrimination.”

The term “economically or socially disadvantaged business” is not defined in the bill; instead, the bill leaves that particular hot potato to the Secretary of the Treasury. The only indication of that term's intended meaning is the requirement that the “economically or socially disadvantaged class” be “underrepresented in the ownership of the relevant telecommunications business.” Of course, the notion of “underrepresentation” is problematic because it can be argued that any effort to establish a level of supposedly adequate “representation” may be deemed a constitutionally impermissible “quota.”

The bill does make clear that the businesses it seeks to benefit are not necessarily “small” businesses. For example, an entity could still be eligible if it owns television stations with an aggregate national audience reach of up to five percent. On the radio side, otherwise eligible entities could own as many as 50 radio stations nationally. McCain introduced similar bills in the past two Congresses and neither moved out of the Finance Committee.

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