Comcast bid to throw out $25M tax bill relating to failed 1999 MediaOne bid rejected in California

Comcast Labs in Philadelphia.

A California appeals court has rejected Comcast’s bid to throw out a $25 million tax bill relating to its failed attempt to buy MediaOne back in 1999.

A 40-page decision posted by the Second Appellate Court in Los Angeles last week upheld a lower court ruling in favor of California Franchise Tax Board. That ruling stipulated that Comcast was on the hook to pay state taxes on a $1.5 billion termination fee, which was paid to the Philadelphia cable operator when MediaOne ditched its $60 billion merger agreement with Comcast and instead agreed to be purchased by AT&T.

(Comcast eventually acquired all of MediaOne’s systems when it purchased AT&T’s cable assets.)

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For its part, Comcast argued that it wasn’t subject to state tax, because the termination fee wasn’t part of its regular business in California conducted by its Pennsylvania-headquartered main cable operation. The purchase was conducted by “Comcast Investment Holdings Inc.” of Delaware, which doesn’t charge state taxes on “intangible” corporate income. 

The court, however, ruled that Comcast’s essential operations reside in Pennsylvania, which does tax such income. According to the Philadelphia Inquirer, Pennsylvania officials are also looking into whether Comcast has tax liability for the termination fee in their state. That tax total could come to around $150 million, the paper said. 

"We are evaluating our options regarding California and the $25 million," John Demming, a Comcast spokesman, said in an email to the Philadelphia Inquirer