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"Tax allowed is determined by subtracting distributions from allowed return and adding the amount of capital contributions." For nonC corporations like Maryland Cable, if the amount of retained earnings is  S- xgreater than $75,000 but less than $10 million, the statutory federal corporate tax rate of 34% applies._/" {O-ԍSee, Internal Revenue Code, 26 U.S.C.  11(b)._  S- xLThe relevant Maryland statutory corporate tax rate is 7%.b0 {O-ԍSee, Md. Ann. Code art. TaxGeneral,  10105(b).b Even though Maryland Cable paid no taxes and made no distributions in 1994 or 1995, it still may adjust its rate of return using these rates.  S8- ` #x12.` ` The City's reliance on Section 76.922 of the Commission's regulations is misplaced. That  S- xsection outlines the adjustments made to an operator's service rates, not its equipment and installation  S- x[rates.k1F yO -ԍEquipment and installation rates are addressed in 47 C.F.R. 76.923.k While service rates and equipment rates combine to constitute an operator's maximum permitted  S- x>rate, they are unbundled for purposes of individual calculation.T2 {O6-ԍSee, 47 C.F.R. 76.923(b) (Unbundling).T Section 76.922 allows recovery for  xexternal costs, including state and local taxes, but this recovery only applies to taxes "applicable to the  Sp- x/provision of cable television service."H3ph  yOx-ԍ47 C.F.R.  76.922(f)(1)(i). H Determination of external costs does not affect an operator's permitted rate of return on its equipment basket.  S - ` `x13.` ` The City also cites Section 623(b) of the Communications Act to support its position.  xSection 623(b) directs the Commission to prescribe cable rates, taking into account factors like "direct  S - xLcosts (if any) of obtaining, transmitting and otherwise providing signals carried on the basic service tier."  S - xMThe City states that Congress used the phrase "if any" to emphasize that costs must exist before the  SX- xLCommission may take them into account, and costs do not exist if they are not incurred.>4X  {O-ԍOpposition at 5.> Additionally,  xLSection 623(b)(2)(C)(v) directs the Commission to prescribe rates which take into account the "allocable  S- xLportion of ... any other fee, tax, or assessment of general applicability imposed by a governmental entity  xapplied against cable operators or cable subscribers." The City argues that a tax must be "imposed" before  S- xzit can be included in rates, and no tax has been imposed on Maryland Cable.>5  {O-ԍOpposition at 5.> The City's argument is  x]erroneous because the absence of actual taxation may have nothing to do with an operator's actual  x?customer equipment cost experience. For instance, operating losses may arise from an operator's  xunregulated or noncable activities. In such situations, the City's approach would match the consequences  xMof unprofitable and unrelated operations to customer equipment circumstances, which, by virtue of a  xstatutory rate of return and dollarfordollar indemnification of operating expenses, would lead to a  x>substantial distortion. Such inconsistency violates the matching principle under Generally Accepted  xAccounting Procedures (GAAP), which requires a proper matching of revenues and corresponding  xexpenses. As previously noted, in some years an operator may recover more in taxes than it pays, but in  SP- xother years it may recover less. A grossup methodology, based on normalization of taxes, recognizes that"P5,`(`(88"  S- x=the incurring of an income tax liability and the timing of the payment are often not the same.6  yOh- x,ԍSuch timing differences are often attributable to the use of different asset depreciation methodologies for book  xpurposes than for income tax purposes. This results in deferred income taxes. Using normalization provides for a  xmore equitable distribution of the tax liability associated with the use of the asset over all ratepayers benefitting from the use of the asset, regardless of when the liability is actually paid. Contrary  xto the City's arguments, the use of the statutory rate in a normalized tax scheme does take into account the direct costs of providing service and the generally applicable taxes imposed by governments.  S`- ` x14.` ` The City incorrectly interpreted its regulatory latitude when it stated in the Second City  xyOrder: "Although the Federal Communications Commission Cable Services Bureau has determined to use  xa uniform rate for whatever reason, regardless of the business form of the operator, the [City] believes that  S- xit is appropriate to use the actual taxes paid by the operator."?7 yO8 -ԍSecond City Order at 3.? Franchising authorities must adhere to the  xMmathematical principles underlying the benchmark approach of regulating rates, as established by the  S- xjCommission, in their determination of rates for basic service and associated equipment.b8@ yOx-ԍTCI Cablevision of St. Louis, Inc., 9 FCC Rcd 2141 (1994).b The applicable  xprinciple here is the application of statutory income tax rates to the permitted rate of return that are  SH - x>outlined in the Cost Order and the Instructions to Form 1205, as discussed above. The City has not  xreasonably applied the Commission's regulations. We remand the decision for further consideration  S - xconsistent with the terms of this Order, particularly regarding the recognition of the statutory tax rate.9  {Oj-ԍSee, Rate Order, 8 FCC Rcd at 5731; Third Recon., 9 FCC Rcd at 4346.  S - V.XxORDERING CLAUSES (#  S -  SZ- ` x15.` ` Accordingly, IT IS ORDERED that Maryland Cable's appeal of the City's local order  S2- x= IS REVERSED AND REMANDED to the City for resolution in accordance with the terms of this Memorandum and Order.  S- ` x16.` ` IT IS FURTHER ORDERED that Maryland Cable's petition to use statutory tax rates  S-on FCC Form 1205 IS GRANTED .  SB- ` x17.` ` IT IS FURTHER ORDERED that Maryland Cable's Petition for Stay IS DENIED as moot.  S- ` x18.` ` This action is taken by the Deputy Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's rules. 47 CFR  0.321. XxX` ` X XXhhX@FEDERAL COMMUNICATIONS COMMISSION(# XxX` ` X XXhhX@John E. Logan(# XxX` ` X XXhhX@Deputy Chief, Cable Services Bureau(#