Cablevision 2012 Annual Report Download - page 206

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share amounts)
I-78
the terms of the settlement. On October 24, 2012, the parties filed a joint stipulation of discontinuance,
thereby dismissing the lawsuit with prejudice.
Tax Disputes
The Company was under examination by the New York State Department of Taxation and Finance
("NYS") for sales tax with regard to the Optimum Voice business for the period June 1, 2006 through
November 30, 2007. In March 2009, NYS concluded its audit and issued a proposed assessment
("Notice") totaling approximately $16,000, including tax, interest and penalties. The foregoing amount
did not include any amounts which could have been assessed for periods subsequent to November 2007,
including additional interest and penalties. The principal audit issue was the amount of Optimum Voice
revenue that should be subject to tax. The Company collected and remitted sales tax on its VoIP revenue,
based in part on the provision of New York state law that specifically excludes interstate and international
telephone service from tax and its reasonable calculation of subscriber interstate and international usage.
NYS had asserted that all Optimum Voice revenue, less embedded sales tax included in the subscriber
fee, bad debts and other customer adjustments, should be subject to sales tax. In April 2012, the
Company reached an agreement in principle with NYS to settle the Notice and all other sales tax matters
relating to the Optimum Voice business for the period June 1, 2006 through November 30, 2011, for
$11,571 (the "NYS Settlement"). This settlement was amended to include the period December 1, 2011
through February 29, 2012 and was finalized in a written agreement dated May 24, 2012. Beginning in
2006, the Company recognized reserves for certain New York State sales tax matters relating to the
Optimum Voice business but unrelated to the Notice, which amounted to $8,598 as of December 31,
2011. Accordingly, as a result of the NYS Settlement, the Company recognized a net incremental
expense of $2,973 in 2012.
The Montana Department of Revenue ("MT DOR") generally assesses property taxes on cable companies
at 3% and on telephone companies at 6%. Historically, the cable and telephone businesses of Bresnan
Cable, an indirect wholly-owned subsidiary of CSC Holdings, have been taxed separately by the MT
DOR. In 2010, the MT DOR assessed Bresnan Cable as a single telephone business and retroactively
assessed it as such for 2007 through 2009. Bresnan Cable filed a declaratory judgment action against the
MT DOR in Montana State Court challenging its property tax classifications for 2007 through 2010.
Under Montana law, a taxpayer must first pay a current assessment of disputed property tax in order to
challenge such assessment. In accordance with that law, Bresnan Cable paid the disputed 2010 property
tax assessment of $5,384 under protest, which Bresnan Cable expensed when the payments were made.
In the fourth quarter of 2011, Bresnan Cable paid and expensed the first half of the 2011 protest
assessment of $5,456, and in the three months ended June 30, 2012, Bresnan Cable paid and expensed the
second half of the 2011 protest assessment of $5,456, which is included in technical and operating
expense. No provision for additional tax for 2007 through 2009, which could be up to approximately
$15,000, including interest, has been made. On September 26, 2011, the Court granted Bresnan Cable's
summary judgment motion seeking to vacate the MT DOR's retroactive tax assessments for the years
2007, 2008, and 2009. The MT DOR's assessment for 2010 was the subject of a trial which took place
the week of October 24, 2011, in Billings, Montana. On July 6, 2012, the Court entered judgment in
favor of Bresnan Cable, ruling that the MT DOR's 2010 assessment was invalid and contrary to law,
vacating the 2010 assessment, and directing that the MT DOR refund the amounts paid by Bresnan Cable
under protest, plus interest and certain costs. The MT DOR filed a notice of appeal to the Montana
Supreme Court on September 20, 2012 and filed its opening brief on January 15, 2013. Bresnan Cable's
response is due March 15, 2013. The judgment is not final until it is affirmed on appeal. Pending entry
of a final judgment, the MT DOR continues to hold Bresnan Cable's protest payments for 2010 ($5,384)
and 2011 ($10,912) in escrow and continues to assess Bresnan Cable as a single telephone business for
2012. Bresnan Cable continues to make additional protest payments until a final judgment is entered and