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State Franchise Authority: Franchise Fees

Reference Number: MTAS-1398
Reviewed Date: 12/16/2022

Franchise Fees
The law requires the statewide certificate holder to pay a franchise fee equal to 5 percent of the holder’s gross revenues derived from subscribers located within cities and counties, advertising services, and commissions for cable and video home shopping services. (This requirement may differ for incumbent providers. See discussion of incumbent providers.) Revenues received from nonsubscriber services, such as advertising and home shopping commissions, are computed by multiplying the ratio of subscribers located within a municipality to the total number of the company’s subscribers.

Franchise fees must be paid to the municipality within 45 days of the end of the quarter to which the payment applies. A city may audit the business records of the holder of the state certificate, but only for time periods within the previous three years. These audits may occur only once annually. All records reviewed by agents or employees of a municipality during the audit are confidential and not open to the public under the open records law. Each party must bear its own costs incurred in connection with these audits, although some relief is provided to local governments that must send agents or employees out of state to review records when the out-of-state audit results in a final determination that the holder underpaid the franchise fee by more than 10 percent. In these cases, the holder of the certificate must reimburse the city for travel costs incurred by the auditors or reviewers.

The law provides that complaints relating to the payment of franchise fees may be filed with the Tennessee Public Utility Commission by local governments or by certificate holders seeking refunds. The holder of a state-issued certificate may request a refund of fees paid to a city within five years of the end of the latest quarter. Either party may file an action in court to determine the correct amount of franchise fees due to a city within six months after a final determination by the Public Utility Commission or within one year after the complaint is filed with the Commission. A city may contract with the comptroller of the treasury or a third party to audit or review records. The law forbids compensating either the comptroller or third party on a contingency fee basis.

Incumbent or Current Franchise Holders
Companies currently providing cable or video services under a local franchise agreement that has expired may either negotiate a new franchise agreement with the city or apply for a state-issued certificate of franchise authority. By applying for a state-issued certificate, the provider receives interim authority to continue to provide services in the area.

An incumbent cable service provider operating under a franchise agreement on July 1, 2008, may terminate the local franchise agreement by filing an application for a state-issued certificate for that service area. The local agreement will be terminated on the date the certificate is issued to the applicant. Large companies operating under franchise agreements in numerous jurisdictions may operate under a state-issued certificate in some markets while continuing to operate under local franchise agreements in other areas. The law permits cable or video services providers to terminate specific franchise agreements without canceling all local agreements.

In an effort to “level the playing field,” the law provides that cable or video services providers seeking permission to provide services to an area in which an incumbent provider operates may simply adopt the terms of a negotiated franchise agreement between the incumbent and local government. The city is required to enter into agreements having the same terms and conditions with any service provider making such a request. These agreements entered into after July 1, 2008, remain effective through the expiration date without the option to terminate that the law provides to incumbent service providers.