MINN. STAR & TRIB. CO. v. MN COMM. OF REV.
From 1967 to 1971, the Minneapolis Star and Tribune Company, a publisher of a morning and evening newspaper in Minneapolis, was exempt from a state sales and use tax provided periodic publications. In 1971, the Minnesota legislature imposed a "use tax" on the cost of paper and ink products consumed in publishing. In 1974, the legislature exempted the first $100,000 worth of ink and paper consumed a year. After the enactment of this exemption, the Star Tribune found itself paying roughly two-thirds of the total revenue raised by the tax.
Did the taxing scheme enacted by the Minnesota legislature violate the freedom of press guaranteed by the First Amendment?
Legal provision: Amendment 1: Speech, Press, and Assembly
The Court held that while the First Amendment did not prohibit all regulation of the press, Minnesota had "created a special tax that applie[d] only to certain publications protected by the First Amendment." Noting that there was "substantial evidence that differential taxation of the press would have troubled the Framers of the First Amendment," the Court held that when states single out the press "the threat of burdensome taxes becomes acute." The Court concluded that "recognizing a power in the State not only to single out the press but also to tailor the tax so that it singles out a few members of the press presents such a potential for abuse that no interest suggested by Minnesota can justify the scheme."
ORAL ARGUMENT OF LAWRENCE C. BROWN, ESQ., ON BEHALF OF THE APPELLANT
Chief Justice Burger: Thank you gentlemen, the case is submitted, we will hear arguments next in Minneapolis Star and Tribune against the Minnesota Commissioner of Revenue.
Mr. Brown, I think you may proceed when you are ready.
Mr. Brown: Mr. Chief Justice and Justices of this Honorable Court:
The Appellant before you is Minneapolis Star and Tribune Company, locally known in Minnesota as Star and Tribune.
It is the largest circulation daily newspaper in the State of Minnesota.
This appeal presents two levels of issues which are essentially press clause First Amendment issues.
The first issue, as we view it, is whether the State of Minnesota may tax publishers of Minnesota newspapers by imposing a tax on their consumption of paper and ink, or whether such a form of tax is prohibited by the press clause of the First Amendment in this Court's 1936 decision in the Grosjean case.
Our view of that basic issue is that it is extremely narrow, it is essentially a revisiting of this Court's decision in Grosjean, and that the tax we challenge in terms of constitutional magnitude is factually indistinguishable from the stamp taxes in England and the colonies of Massachusetts and New York imposed during the 1700s.
The second issue that we present assumes that we have lost on the first issue.
The second issue is if such a use tax on paper and ink may constitutionally be imposed on the business of publishing newspapers, then is it still constitutional when the state of Minnesota, by enacting an annual $100,000 exemption which has the effect of imposing the tax only on approximately a dozen or so of Minnesota's large circulation daily newspapers and also has the effect of removing from the burden of the tax approximately 370 to 380 of Minnesota's other newspapers who simply do not consume on an annual basis $100,000 worth of paper and ink?
The background of the tax may be summarized briefly.
In 1967, Minnesota for the first time adopted a sales and use tax program.
In 1971, through an exemption, the use tax here at issue was, for the first time, visited upon all Minnesota newspapers.
And from 1971 until January 1 of 1974, all newspapers in Minnesota who consumed paper and ink, and by definition since paper and ink are the only two physical components of a newspaper, they all did, they were all, therefore, subjected to the tax at issue.
On January 1, 1974, by virtue of the annual $100,000 exemption and thereafter, during the timeframe that is at issue here, January 1, 1974 through May of 1975, which is the refund period for which this action was commenced in the Hennepin County District Court in Minneapolis, Minnesota, the only papers in Minnesota who paid the tax were the large circulation dailies.
And the Minneapolis Star and Tribune--
Justice Rehnquist: Mr. Brown, when you say the large circulation dailies, how many of those did that cover within the state?
Mr. Brown: --Your Honor, according to the records submitted in support of Star Tribune's summary judgment motion, I think there were approximately 29 and 27.
I may be off a little bit in the numbers.
Justice Rehnquist: What was the approximate circulation of the newspaper with the least circulation which nonetheless was subject to the tax?
Mr. Brown: I think the Brainard Dispatch, Your Honor, is the one which in 1974 was not subject to the tax and in 1975 was, and it was at about 14 to 15 thousand a year.
Now, I may have those years backwards, but that's about the cutoff.
The procedural background in this case was that the action for the refund of approximately $875,000 of use taxes paid, was commenced in August of 1975.
We are dealing here with a 17-month timeframe which is the defined period for which we sued to obtain a refund.
We proceeded to move the trial court for summary judgment, and in support of our motion we submitted a fact record consisting of affidavit testimony.
There was also, as one of our fact showings, an affidavit from Mr. Shaw who ran the Minnesota Newspaper Publishers Association which sets forth the statistical basis identifying Minnesota legal newspapers and the relative circulations of those newspapers who do pay the tax, and the Minnesota Supreme Court has set forth in its formal opinion in this case the statistical data defining who was publishing newspapers and who was subjected to the tax.
The trial court granted summary judgment for Star Tribune on all constitutional issues presented.
At the oral argument before the trial court, the state orally moved for summary judgment on the basis of the fact records submitted by Star and Tribune.
And I pause to note that point, because we are here before this Court challenging the judgment of the Minnesota Supreme Court which reversed the trial court, with the same identical fact record that we had at the trial court.
And that was a fact record which the state adopted as its own in support of its motion for summary judgment.
The state has never submitted any factual showing that would in any way indicate that the factual record submitted by Star Tribune was not a thorough and accurate record on which this case may be adjudicated.
Justice Rehnquist: What's the law--
Chief Justice Burger: --tax that applied to all consumers, all the newspapers in the state, no exemption on the 100,000.
Mr. Brown: And the point being taxed, Mr. Chief Justice, is the use or consumption of paper and ink.
We challenged the constitutionality of that under the First Amendment and under a combined First Amendment equal protection strict scrutiny standard of review.
Justice Blackmun: Could I change that a little bit?
Suppose you had a general sales tax to which newspapers were subject?
Would you be here or would you challenge that tax?
Mr. Brown: We would, Mr. Justice Blackmun, but let me say that we would--
Justice Blackmun: You would or would not?
Mr. Brown: --We would, sir, but we would do so first, with the acknowledgement that in no way does Star and Tribune challenge the power of the state of Minnesota or any other state in the exercise of its broad general revenue-raising tax powers, to impose broad forms of taxation equally and non-discriminatorily on all businesses which are fairly classified together with one caveat, and that is that if there is anything left of Murdock and Follett, we believe that broad form, non-discriminatory taxes as applied in certain First Amendment activity may be unconstitutional because as applied, they improperly burden the exercise of First Amendment activity.
Justice Rehnquist: Could that be rephrased to say the Star Tribune has no objection to the state of Minnesota taxing any business except the newspaper business?
Mr. Brown: I don't think so, Your Honor.
I think that's over-statement because the record that we submitted to the trial court and that's before this Court affirmatively establishes that Star Tribune pays income taxes, real property taxes, payroll taxes, all business taxes of broad form.
Justice Rehnquist: I imagine 3M does the same.
3M, if it sells at retail probably has to pay a sales tax.
Mr. Brown: That's correct, Your Honor.
The distinction is that Star Tribune has First Amendment rights under the Press Clause, but 3M does not.
Justice Marshall: Mr. Brown, back in the days of the liner type, could Minnesota tax all users of lead?
Mr. Brown: Of lead.
Justice Marshall: This is back when you had liner type.
Mr. Brown: --Well, not all that ancient.
Your Honor, I think that that type of tax generally applicable to the consumption of lead as it applies to the newspaper business probably would have been constitutional because I can find nowhere in the stamp tax cases in the 1700s in England or in this country, direct historical reference points for taxes on knowledge which were imposed on the consumption of lead.
Unidentified Justice: It would be like a payroll tax.
Mr. Brown: I don't think it would be like a payroll tax as applied to the business of publishing a newspaper, Your Honor.
Chief Justice Burger: Did I understand your response to mean that only newspapers have First Amendment rights?
Mr. Brown: No, Your Honor, I don't mean to suggest that at all.
Chief Justice Burger: Well, you suggested that 3M didn't have any First Amendment rights.
Mr. Brown: 3M does have First Amendment rights when it exercises speech, but 3M's products... I thought Mr. Justice Rehnquist was saying if they were taxed, wouldn't they be identical to the tax on paper and ink here at issue.
And my point is that the tax on paper and ink here at issue is a tax imposed on the consumption of those two commodities by newspapers.
And in that context, I don't think 3M has a Press Clause First Amendment right.
I think Star Tribune clearly does.
Chief Justice Burger: Now, would you apply that to Minnesota Mining's advertising?
I suspect... in fact I know they have a tremendous volume of paper going out... paper with ink used to print the message.
Is that First Amendment protection?
Mr. Brown: Your Honor, dealing with the tax here at issue, the statutory phrase that is pivotal is the phrase "publications".
That's the way the Minnesota legislature chose to classify it.
Our proof here endeavored to demonstrate that that tax is only paid by Minnesota newspapers, and by virtue of the $100,000 annual exemption, only large circulation Minnesota newspapers.
In the case of 3M, I've got to believe, Mr. Chief Justice, that if 3M had ever been subjected to Minnesota's use tax on paper and ink, that fact would appear here in this record because it was in the self-interest of the state in meeting our arguments to prove that kind of fact.
There are no such facts in this record.
The only facts in this record are that the tax which the legislature imposed on publications is, in fact, only, during the period of time at issue, a newspaper tax.
Unidentified Justice: This tax would apply to a textbook manufacturer, too, would it not?
Mr. Brown: No.
Unidentified Justice: How about the West Publishing Company?
Mr. Brown: --I think their products, Your Honor, wind up being taxed on the sales at retail.
You see, you have exempt publications under the dichotomy of the sales and the use tax scheme that Minnesota has established.
Unidentified Justice: Well, West Publishing Company must use almost as much ink and pulp as most of the newspapers, don't they?
Mr. Brown: Substantial, Your Honor.
Clearly, they do and yet, they do not... they are not, by statute, subjected to the use tax because they don't meet the statutory definition of "publication".
Unidentified Justice: Well, the case was judged in the Minnesota Supreme Court on the basis... was upheld on the basis that it just applied to newspapers.
Mr. Brown: The Minnesota Supreme Court--
Unidentified Justice: And only certain newspapers.
Mr. Brown: --That's what they did, Judge.
And they accepted... the Minnesota Supreme Court accepted our proof that this is a newspaper tax--
Unidentified Justice: Well, that's the construction given of this statute by the Minnesota Supreme Court.
Mr. Brown: --That seems to be what they tell us.
And they tell us, nonetheless, it does not violate the constitutional protections of the First Amendment under the Press Clause.
They also tell us that because... and this is a very telling point to at least me... they say because one of the purposes of the statute is to raise revenue, that in itself insulates it from the constitutional challenge that we present.
Well, all the stamp taxes in England were enacted to raise revenues.
The stamp tax of 1712 was imposed on various articles of commerce including the paper that printers had to buy to lawfully communicate with their readers.
Unidentified Justice: Mr. Brown, would you hazard a guess as to why the Minnesota legislature imposed the $100,000 exemption?
Mr. Brown: Your Honor, any guess I would hazard would go beyond the record of this case.
For as we point out in our brief, there is no legislative history that the Minnesota legislature sought to create to explain why it did what it did when it did it.
In terms of my speculation, I would only invite the Court to look to the effect of the tax.
We have established, we believe, that the effect of the tax is to tax only newspapers, and the effect of the $100,000 exemption is to limit the impact of the tax on only a dozen or so of Minnesota's largest circulation newspapers.
Unidentified Justice: And 95 percent of it on two.
Mr. Brown: That's correct, Your Honor, the Minneapolis and St. Paul newspapers.
Justice Rehnquist: With respect to the Brainard and the Austin and the Mankato papers that apparently are also subject to the tax, would you say that they are a homogeneous class, if one can speak in those terms, with the Minneapolis and St. Paul dailies?
Mr. Brown: I wouldn't call them homogeneous; I would call them competitors, because the circulation of the Twin Cities newspapers of Minneapolis and St. Paul extends throughout the state of Minnesota and into adjoining states.
They are homogeneous, Your Honor, in that they are all newspapers.
They are homogenous in that they are all in the business of publishing newspapers, and to the extent their circulation levels are sufficient to consume enough paper and ink to exceed the annual exemption, they are homogenous in that they all have to pay some amount of tax.
Justice Rehnquist: But then I take it that you're not suggesting that there was anything other than an economic or tax-oriented, tax policy-oriented reason for the $100,000 cutoff.
Because a lot of other newspapers that wouldn't pay under the $100,000 cutoff also are published dailies, they consume newsprint and that sort of thing.
Mr. Brown: I'm afraid I can't go that far.
Perhaps my experience in 20 plus years of practicing in Minnesota, watching the Minnesota political scene and appearing before my home court states courts has tended to make me a little more suspicious than that, Your Honor.
And my suspicion, it would seem on the record of this case, is confirmed.
Most of us in common daily life are judged by the consequences of the acts that we perform, and that's really the standard that we'd seek to have this court apply to the judgment of the Minnesota Supreme Court that this is a constitutional tax.
Unidentified Justice: Is it a realistic proposition that a substantial majority of the Minnesota legislature have of the local newspapers that are not subject to this tax?
Mr. Brown: That's clearly the case with the makeup of the Minnesota legislative bodies, the Senate and the House, Your Honor.
However, I don't want my comments to the questions that have been put to me to be interpreted that I think, or that Star Tribune thinks, that legislative motive or intent is critical to a First Amendment analysis of the tax here at issue.
We have taken the position in our brief, and we stand by it, that the illicit or bad legislative intent is not the basis for the holding in Grosjean.
Justice O'Connor: Well, of course, there are decisions that have so interpreted Grosjean, are there not?
Mr. Brown: You're absolutely correct, Justice O'Connor, and to that extent I believe those lower court decisions have misinterpreted Grosjean.
If I may give you two reference points from the transcript in Grosjean, and I think we only need two, there is no doubt that the parties in Grosjean knew what they were fighting about.
At page 45 of Louisiana's brief after discussing at some length various forms of taxes of general application which in the brief they say, we could have enacted those kinds of statutes and had a lawful test.
They said, the tax levied by the Louisiana legislature is not such a tax; the legislature could have levied such a tax but it did not do so.
Instead, it imposed the tax on the business of selling or making any charge for advertising or for advertisements.
So the position of Louisiana was we have the power to impose that form of tax on the business of publishing a newspaper.
At page 30 of the appellee's brief in that case, the counter-point is presented.
These appellees are not discussing the burden of the particular tax; rather, they assert that the legislature does not have the power to levy a tax on their business such as it has levied.
I believe that the holding in the Grosjean case is simply and narrowly that there are certain forms of taxes which legislatures of the various states are prohibited from enacting.
Very narrow forms such as the taxes on knowledge which seek to impose direct taxes on circulation revenues, on advertising revenues or on the consumption of paper.
Justice Rehnquist: Mr. Brown, I take it, then, that you adhere to what I think is your position that if the Minnesota legislature sits down and says 50 percent of our gross revenues are raised by sales/use tax combinations on people in business to make money, and we're looking at the present structure and we see there's a sales tax on almost every business entity in the state.
Most of the ones that we can't hit with a sales tax we hit with a use tax.
Traditionally, it's been very tough to collect a sales tax on newspapers because so many of them are sold from boxes or by carrier boys, and we think newspapers should furnish their fair share of sales tax revenue to the state, so we're going to tax them with a use tax on ink and paper, which is going to turn out to be less payment by them than if we tried to tax their retail sales of newspapers.
You say that's prohibited by the First Amendment?
Mr. Brown: We do, Your Honor.
But we say so in perhaps a better context than I think was your question, because the way you phrased your question it left me with the impression that you feel that if the state of Minnesota lacks the power to impose this form of tax, somehow the large papers in Minnesota are going to get away with something.
And if that is Your Honor's impression, I would urge you to go back over the historical references that we have cited, because taxes on paper, Mr. Justice Rehnquist, were one of the three pressure points by which the newspapers in England were regulated through the direct taxing power.
Justice Rehnquist: But were those taxes on paper in England part of a scheme whereby sales and use of implements and products were generally taxed?
Mr. Brown: They were not, Your Honor, because--
Justice Rehnquist: Well, isn't that quite a difference?
Mr. Brown: --Not really because prior to 1791 there were no sales or use taxes.
Sales and use taxes are relatively new; they're Depression taxes.
Justice Rehnquist: Well, true.
But I think one could read the First Amendment to feel that if you simply singled out newspapers and taxed them and didn't tax 3M for its sales, or any other Minnesota commercial entity for its sales, you would have a real First Amendment problem.
But if the newspaper as a commercial entity is simply being made to pay a fair share of the use tax load in the state, everyone's entitled to their own opinion about what the First Amendment says, but I think those are two different cases.
Mr. Brown: Your Honor, my response, if you had a question within your response to my--
Justice Rehnquist: Well, it was something of a rhetorical question.
Mr. Brown: --My response nonetheless would be this.
We thought we demonstrated through our factual proof at the trial court that Star Tribune is a good dues, tax-paying citizen of the state of Minnesota, and there's no evidence to the contrary.
To characterize this tax as a normal form of use tax, I respectfully submit is to totally mischaracterize--
Justice White: Mr. Brown, you did seem to indicate that both the sales tax on the newspapers and this tax at issue here would be invalid.
But I would suppose that you could sustain the sales tax without sustaining this tax.
Mr. Brown: --You could, Your Honor.
However, the sales tax issue is not part of this case.
Justice White: That's right, that's certainly right.
And, of course, in the sales tax, at least theoretically, it makes the newspaper more expensive, but supposedly you collect it from the buyer.
Mr. Brown: That's correct.
Whereas this tax, Your Honor, comes out of the pocket of the newspaper.
Justice White: You're entitled probably to pass it on.
But nevertheless, the incidence, the sales tax, isn't on the press.
Mr. Brown: That is correct.
Under Minnesota's sales tax approach, Star Tribune and other sellers would be prohibited from paying the tax or absorbing it as part of their cost--
Justice White: So I don't know why you wouldn't argue that even if the sales tax would be valid, this tax is invalid.
Mr. Brown: --Well, we do argue that, Your Honor.
The only reason we ever got into the sales tax issue in our brief was with great reluctance because the Minnesota Supreme Court appeared to us to endeavor to justify the constitutionality of the tax at issue with the assumption that a sales tax on the sale of newspapers would also be constitutional.
It is clearly not an issue before the court; the parties agree on that.
And it is clearly not an issue that needs to be resolved or affected by the--
Justice Stevens: Mr. Brown, let me be sure I understand your answer to Justice Rehnquist's question.
If you assume, contrary to your position, that a sales tax on newspapers would be permissible,... uniform as to all comparable businesses... why then is a use tax, which is less burdensome and designed to replace the sales, then why is that unconstitutional?
Mr. Brown: --Your Honor, our position is this.
Justice Stevens: And leaving out the exemption for a moment.
Mr. Brown: All right.
Our position is that certain forms of taxes historically have been proven to be the vehicle by which legislatures attempt to exercise control or restraint over the press.
That is true of all the stamp taxes that were imposed on paper.
The legislators of the 1700s were less inhibited in stating their true reasons why they imposed taxes, and the historical references make clear that the stamp taxes were imposed to restrain and control the press.
It is because, Your Honor, the form of the tax being placed on the only two physical components of the newspaper that creates the danger that if the power to impose such taxes is recognized, then the regulation thereafter is gone.
Whereas, when you're dealing with a general sales tax there is at least the comfort that the newspapers in Minnesota find themselves in bed with all of the other taxpayers with a common view that no one likes to pay taxes.
Justice White: Mr. Brown, you sound like you're making an intergovernmental immunity argument.
Mr. Brown: I don't mean to, Your Honor.
Justice White: Anyway, it's understandable, against that background.
Mr. Brown: It's a difficult issue when you talk about a sales tax of general, non-discriminatory application and the position that the newspapers may take at some point in time in the future.
I don't mean to over-emphasize the point, but I have been asked questions about it and I have to preserve the position that we maintain.
I'd like to, if I may, Mr. Chief Justice, reserve the time for rebuttal.
Chief Justice Burger: Very well.
ORAL ARGUMENT OF PAUL R. KEMPAINEN, Esq. ON BEHALF OF THE APPELLEE
Mr. Kempainen: Mr. Chief Justice, and may it please the Court:
In 1971, the state of Minnesota was engaged in fashioning one of its most important social and political programs in its history.
The result was a comprehensive tax and financial reform act which took up over 116 pages.
Over half of this volume of the Minnesota Special Session laws for that year.
Enacted as part and parcel of this law and yet taking up only one-half of a page in it, was the basic use tax on paper and ink that we have here.
Now, all one has to do is to read this large tax reform measure in order to understand that its basic purpose was revenue raising, its basic purpose was a social program of creating more equal educational opportunities for Minnesotans.
The basic thrust of the 1971 law, of which the basic use tax here was a part, was to lower the overall property tax burdens in Minnesota which were very high at the time, and to make up for the subsequent loss in revenue through increasing the statewide income tax and the statewide sales and use tax, and then to redistribute that revenue back to the local governments and particularly, back to local school districts for the purpose, the avowed purpose, of equalizing educational opportunity throughout Minnesota at that time.
It was an important social experiment in Minnesota and it happened to be a successful one, at least in the early 1970s when it became popularly known as the Minnesota Miracle.
This legislative background, which we feel the appellant has given inadequate treatment to, as well as the statutory language of this tax on its face shows that Minnesota's use tax on paper and ink, the basic use tax, is purely and simply a revenue-raising measure.
No other purpose either has been or can be ascribed to it under this record.
This history as well as the statutory language also shows that Minnesota's use tax on paper and ink is an integral part of a general system of taxation, and that it is tied to the general sales and use tax rate.
In 1971 it was imposed at the same sales and use tax rate, 4 percent, as all other sales and use taxes in Minnesota.
And today it is still tied to that same general rate.
Therefore, the rate of tax upon paper and ink cannot be increased without also raising the rate upon all other businesses subject to the sales and use tax in the state.
I think it's also important to point out that this legislative history and the statutory language on its face shows that this tax was imposed at the lesser wholesale value of the paper and ink and not at its retail value when it's finally incorporated into the final product.
Which would have been the case if a general sales tax had been imposed upon all newspapers.
I think the Minnesota legislature back in 1971 was seeking to achieve a revenue-raising purpose and tailored its statute so as to achieve that revenue-raising--
Justice Marshall: Mr. Attorney General, if it was a revenue-raising act, why leave out all those newspapers?
Mr. Kempainen: --Your Honor, the $100,000 exclusion was, admittedly, not for a revenue-raising purpose.
Instead, we contend it was for another purpose, and that purpose was to establish this taxing scheme as being more equitable, taking into account the special problems dealt with by small publishers through a device, I would point, which is an exclusion that applies equally and with the same benefit to even the large publishers across the board.
This history, as well as the statutory language, also points out... and especially the statutory language, in response to Justice White's question of the appellant... is that this does apply to all publications across the board... publications as they are defined in the Minnesota statutes.
When Minnesota first enacted its sales and use tax in 1967, it did not exempt all printed matter per se, even though all printed matter, obviously, is subject to First Amendment protections.
Instead, it created a specific class of printed matter which it deemed to be publications, and that definition of what consists of publications is printed matter which is set out at intervals of three months or less.
Justice White: Who has paid the tax?
Who has ever paid this tax?
Mr. Kempainen: On this record, Your Honor, we only have evidence that the newspapers have paid the tax.
Justice White: Well, that's all, isn't it?
Who's ever paid the tax.
Mr. Kempainen: No, not necessarily, Your Honor.
And in any event--
Justice White: Didn't the Minnesota Supreme Court judge this case on the basis that this was just a tax on newspapers who consumed more than $100,000?
Mr. Kempainen: --No.
I would respectfully disagree, Your Honor, it did not.
And I was getting to that point.
In the very beginning of the Supreme Court's opinion on the Appendix to the Jurisdictional Statement, A2, the State Supreme Court said, that this tax is paid by some newspapers and publications, but not all.
Therefore, at the very beginning of its opinion it recognized--
Justice White: You just told me that there wasn't any evidence that anybody but newspapers paid the tax.
So what's the--
Mr. Kempainen: --The evidence is the basic statute itself, Your Honor.
Justice White: --What's the evidence that other publications have paid it?
Mr. Kempainen: There was no evidence, Your Honor, and we did not submit any.
We did not feel it was necessary since it was on the face of the statute itself that this applied to all publications and not just to newspapers.
Justice Rehnquist: When Justice White asks you about evidence that other publications paid the tax, do you interpret that to mean evidence from the receipts department of the Taxation Division to the effect that they had receipts from such-and-such a taxpayer, or whether the tax is intended to cover other publications?
Mr. Kempainen: I take it that Justice White's question... and correct me if I'm wrong, Justice White,... is that the evidence is that particular taxpayers other than newspapers did pay this tax.
Which would have been difficult--
Justice White: My question was directed... the submission is that this is a tax on newspapers.
Mr. Kempainen: --The submission by the Star Tribune, Your Honor.
Justice White: And no one else pays this tax.
And you say that this is a tax that on the face of it,... and we must assume it's true because the Supreme Court of Minnesota recited it... is a tax on all publications, if they consume enough paper and ink.
Mr. Kempainen: That's correct, Your Honor.
Justice White: And I suppose the next question is with the exclusion of the $100,000, who else but newspapers consumes that much paper and ink?
Mr. Kempainen: I think the example that was previously given of 3M and its advertising certainly--
Justice Marshall: That would probably be the biggest, wouldn't they?
West publishing Company certainly uses more.
Mr. Kempainen: --West Publishing Company, Your Honor, does not... their end product, their books that the West Publishing Company prints, their end product is subject to sales tax at the retail level and, therefore, is not considered a publication.
Justice Marshall: But it does use as much paper and ink as a newspaper does.
Mr. Kempainen: Oh, it certainly does, Your Honor.
Probably more so.
Justice Marshall: I should think so.
Mr. Kempainen: And the paper and ink that is used by West Publishing is already being subjected... was already being subjected to the sales tax itself, because the end product, the books of West Publishing Company, were subjected to the retail sales tax.
And therefore, the value of the paper and ink was being taxed at that point in the commercial flow.
And getting back to a point that I just made, what the legislature did here, instead of imposing this tax at the point of the retail sale which might be considered too close to actual communicative acts, the communicative act of printing and disseminating a newspaper, instead it went back a step and it tried to get away from... as far away from the communicative act as possible by instead taxing the wholesale purchase of paper and ink by a commercial publication.
Justice O'Connor: Under Minnesota law, do you agree that the sales tax where it's imposed is passed on to the purchaser?
Unidentified Justice: Is that a requirement?
Mr. Kempainen: Yes, Your Honor, it is.
Unidentified Justice: And it may not be absorbed.
Mr. Kempainen: The sales tax may not be absorbed.
There is no requirement, at least that I am aware of, Your Honor, that this use tax has to be absorbed.
The use tax on paper and ink can be included and passed... in the price of a publication passed on to the ultimate consumer.
Justice O'Connor: But there's also no requirement that it be passed on.
Mr. Kempainen: No, Your Honor, that's up to the commercial publication in their own discretion.
Justice Stevens: May I ask a question... I may not have followed... on what a publication is within the meaning of the statute.
As I understood the statute, the term "publication" is defined just to include newspapers.
Is that right?
Mr. Kempainen: No, that's not correct, Your Honor.
The term "publication" is any printed matter which is sent out at regular intervals of three months or less.
So it would include news magazines, trade journals, serially-issued comic books... there's a whole laundry list of publications besides just newspapers that this applies to.
Unidentified Justice: Wouldn't that encompass West?
Mr. Kempainen: No, Your Honor, because most West books do not come out at average intervals of three months or less.
Unidentified Justice: They come out a lot faster than that, as far as I can see.
Mr. Kempainen: No.
The West Book... I believe you're talking about the Federal 2nd and so forth, the Supreme Court Reporter.
That's not considered... that's considered a one-of-a-kind edition.
Each one of those volumes is considered a one-of-a-kind edition.
So when it comes out, it's considered a printing, a single printing, each volume.
Unidentified Justice: And besides, isn't it subject to the sales tax?
Mr. Kempainen: Yes, it is, Your Honor.
Justice Stevens: Well, the term A77 of the... I guess I just must have just misread it.
I thought it just covered newspapers and supplements and enclosures with the newspaper.
Mr. Kempainen: I think a greater definition, Your Honor, perhaps in less formal statutory language can be found in the Minnesota regulation dealing with the statute, which is found in JA 30, the Joint Appendix.
And there it goes down the laundry list of what is included in a publication.
Justice White: Does that include any publication that is subject to a sales tax on the end result?
Mr. Kempainen: No, it does not, Your Honor.
In order to perhaps put this in greater perspective in case there's any confusion on this point, in 1967, Minnesota carved out publications, which was a broad class but nevertheless, less narrow than "all printed matter".
Those publications which are published at average intervals of three months or less.
There was no sales tax on the retail sale of those publications.
Everything else was subject to sales tax.
And therefore,... and what Minnesota did in 1971 when it was searching for additional revenue, instead of eliminating the total exemption from the sales tax for publications, it instead went further back in the commercial flow of this transaction and instead imposed this use tax which we have here on the wholesale value of the paper and ink.
Which the record shows only takes up between 20 and 25 percent of the final product, the final newspaper's value.
Justice Stevens: Of course, that really is irrelevant, isn't it.
Mr. Kempainen: Oh, yes.
Justice Stevens: If your position is right, you could have imposed the full 4 percent.
Mr. Kempainen: Well, that's correct, Your Honor.
We take the position, although we feel it's not an issue here, that Minnesota could have imposed its full sales tax on the publications.
And the fact that it did not and instead imposed this use tax on paper and ink I think is probably one of the things that got the state of Minnesota into a little bit of trouble here.
It was intending to be solicitous of First Amendment rights and instead it got into this litigation.
And the next step two years further down the line, when the $100,000 exclusion came into effect, that again was a point where the legislature was attempting to be solicitous of First Amendment rights, especially the First Amendment rights of small publications who would generally have less of an ability to pay, who impose fewer social costs upon society and therefore, the legislature could reasonably conclude that it would be more inequitable to have them pay this tax, the full measure, than it would be for a larger publication.
But it did not do so through a technique which simply exempted the small publications and then left the full measure of the tax on the larger newspapers such as the Star and Tribune.
Instead, it did so through--
Justice O'Connor: Has the legislature made any changes since this litigation began?
Mr. Kempainen: --No, it hasn't, Your Honor.
The $100,000 exclusion has remained the same.
And the $100,000 exclusion applies equally and with the same benefit to the Star and Tribune that it does to the small publications.
The effect of the $100,000 exclusion was to give the Star and Tribune an $8000 lessening of a tax bill, a credit on its tax bill.
And we simply fail to see how that, in the first place, can be considered any kind of a penalty--
Justice Stevens: Mr. Attorney General, suppose instead of an $8000 credit or a $4000 credit, you gave them, say, a $25,000 credit.
Then there'd be only two or three papers that would pay the tax.
Mr. Kempainen: --Well, the--
Justice Stevens: Would that be constitutional?
Mr. Kempainen: --I think the decisions of this Court, Your Honor, I don't think necessarily take it that on a general law that would otherwise be valid imposing valid classifications, is necessarily unconstitutional because it applies to only one person.
Justice Stevens: In Illinois they have a practice of exempting all counties under 500,000 from a lot, which is a way of legislating about Chicago.
And I suppose you could do the same sort of thing here with an exemption of, say, $35,000.
It's perfectly neutral on its face, but people wouldn't have much difficulty figuring out who would have to pay the tax.
Mr. Kempainen: Well, that's true, Your Honor, but that happens in a lot of cases.
In the state of Minnesota, to take an example like you had from Illinois, we had a tax on taconite tailings that were dumped into bodies of water.
Well, the only taconite plant in the state of Minnesota that did that was Reserve Mining Company.
Reserve Mining challenged that, also, on equal protection grounds and lost.
Justice Stevens: Well, what about my question?
Do you think if you did raise the exemption as I suggested, it would still be constitutional?
Mr. Kempainen: I'm sorry, I didn't quite understand.
Justice Stevens: The question is if the exemption or the credit, whatever you call it, instead of being $4000 was $35,000, so the only two left were the papers in Minneapolis and St. Paul.
Mr. Kempainen: Yes, Your Honor, I think it would still be constitutional.
As long as it was non-content related and as long as there was no evidence of suppressive legislative intent, which there is none in this case.
And my point about being non-content related I think brings me to the uncontested fact in this case that Minnesota's use tax on paper and ink is non-content related.
It applies equally and across the board to whoever comes within its act, and it makes no difference what the subject matter of the publication may be.
Justice O'Connor: Do you think the court in Grosjean would have reached the same result absent Huey Long's activities in Louisiana at that time?
Mr. Kempainen: I think assuming... I think the result in Grosjean, Your Honor, was a result of many factors.
One of the factors was the legislative intent which was... and the suppressive intent was... evidence of that was overwhelming in the Grosjean case.
And this Court mentioned it in its opinion.
It mentioned it twice, that it was that purpose, it was that legislative intent which had a bearing on its decision.
Perhaps, though, the main part of the decision was the fact that the legislative enactment in the Grosjean case, the Louisiana statute there on its face was discriminatory and was directly tied to a level of circulation which made it entirely too close to the British taxes on knowledge.
Justice O'Connor: Do you think this Court has to look at the potential for abuse or control of the press in the tax scheme in determining its validity?
Mr. Kempainen: I think that's true to a certain extent, Your Honor.
But I think it's also well to point out that in a couple of cases in the past which upheld otherwise valid general schemes on regulation... and I'm speaking now about Associated Press versus National Labor Relations Board and I believe the other one was Associated Press versus United States.
The dissents in those cases also looked at future impact.
And they were concerned and they said so in their dissents that application of the National Labor Relations Act and application of the Sherman Antitrust Act to newspapers would open up a small crack that may not seem like much now, but then it would widen out and pretty soon we wouldn't have any First Amendment left whatsoever.
Of course, here we are over four decades later and the National Labor Relations Act still applies to newspapers and the First Amendment is just as strong as ever.
I think you just have to... it's a consideration, but I don't think it's all that important a consideration.
And especially in a case such as we have here where there is absolutely no evidence whatsoever that the legislature had any sort of suppressive intent or was intended or out to get newspapers, or even big newspapers.
Unidentified Justice: Of course, in your state you have no formal legislative history ever, do you?
Mr. Kempainen: That's correct, Your Honor.
The state of Minnesota does not make a practice, like Congress does, of keeping a legislative history on any formal basis.
Unidentified Justice: It would be helpful sometimes if they did, I think.
Mr. Kempainen: That's true, Your Honor, if they had the money to do so.
But I think state legislatures, unlike Congress, don't have the vast sums at their availability and many states, Minnesota perhaps and New Hampshire in particular I would think, the general politics of the state just would make it impossible for a legislature to spend the amount of money that it would take to build up a legislative record on every single piece of legislation that came through it.
Unidentified Justice: Some states do.
Mr. Kempainen: Some states do, Your Honor.
The larger ones, in particular.
Justice Rehnquist: Why would it be particularly difficult for New Hampshire?
Mr. Kempainen: Oh, I just mentioned that, Your Honor, because they're very much... I was reading an article recently about--
Unidentified Justice: Their assembly has 400 members.
Mr. Kempainen: --Yes, it's a large assembly, Your Honor, and they don't like taxes in New Hampshire.
There's no income tax or sales tax in New Hampshire.
And the reason I mentioned that, Your Honor, is I read an article about I believe some New Hampshire politician failed to take the traditional "no tax" pledge and lost the election.
Moving on to the Grosjean case in particular, I think the only real case that the Star Tribune has with regard to Grosjean is on this tax on knowledge issue.
And yet, Minnesota's tax is simply not like the British stamp tax, it is not like the British tax on advertisements, which were the only two taxes on knowledge that the Grosjean court mentioned in its opinion.
The Star Tribune virtually concedes as much in its own brief, that it was not a stamp tax.
Instead, it tries to bring it into the same category as the British tax on paper.
Justice Marshall: I don't understand your position to be... I understand the position to be that in England, the first set of taxes were very inocuous and they went on and on and on.
And eventually, they went too far.
And I understand the position to be that if they let down and let you start this, in years to come it might get worse.
Isn't that more what their argument is?
Mr. Kempainen: That may be the Star Tribune's argument, that's true, Your Honor, but I don't believe that the history of the taxes on knowledge would support that.
Justice Marshall: I only said I thought that was their position.
Mr. Kempainen: Oh, yes, Your Honor.
In that case, it might be.
But the history of the taxes on knowledge does not support that.
All I need do is quote two passages from the Grosjean opinion itself, which went into a very great amount of detail with regard to the British taxes on knowledge.
In the Grosjean opinion on page 246 it says, and I quote,
"The main purpose of these taxes was to suppress the publications of comments and criticisms objectionable to the Crown, does not admit of doubt. "
Later on in the same page this Court said, and I quote, that
"The taxes had and were intended to have the effect of curtailing the circulation of newspapers, and particularly, the cheaper ones whose readers were generally found among the masses of people went almost without question, even on the part of those who defended the Act. "
This is this Court talking about the history of the British stamp taxes and the British taxes on knowledge.
And it may be true that insofar as British history is concerned, their import duty on paper... or rather, duty on paper... was used with that intention in mind, and also coupled with the fact that the British taxes on knowledge granted notoriously unfettered discretion to the British administrations in the collection of those taxes, thereby making them even easier tools to use to suppress their political opponents.
Those two facts together made the British taxes on knowledge odious to American experience.
Of course, in the case of Minnesota's use tax on paper and ink, neither one of those facts are present here.
There is no intent to suppress.
Revenue raising was not given just lip service in Minnesota; it was the basic reason for this, and it was part and parcel of the Minnesota Miracle Act which was passed back in 1971.
And, of course, there is no unfettered discretion in the collection of the Minnesota use tax, as well.
Justice Stevens: But let me just explore your argument for a moment.
Supposing that in 1974, when you passed the exemption, there was evidence that there was a change in control of the legislature.
I don't happen to know anything about Minnesota politics, but suppose all the rural districts where these smaller newspapers are mostly published happened to elect people, and they then passed an exemption for the newspapers that supported them, and that could be shown.
Would that make it a different case?
Mr. Kempainen: No, Your Honor.
Although it would make it a different case if, as Your Honor says, this was an exemption.
But it's not an exemption; it's an exclusion.
Justice Stevens: Then go back to 71.
Suppose the original tax, it could be shown that the governor and the majority of the legislature were opposed by the principal newspapers who would bear the burden of the tax, and in their campaign they explicitly said, we think the newspapers ought to pay their fair share of the public burden and all the rest of it.
And then there was a political debate on the issue.
Would that make a difference?
Mr. Kempainen: I would suggest, Your Honor, that this Court could use the Grosjean decision and invalidate that tax, then.
Justice Stevens: So we have to get into the politics of the particular state to know whether a tax of this kind is bad or not, then.
Mr. Kempainen: At least the legislative history; not necessarily the politics, Your Honor.
Up until this point, we've talked primarily about the issue as it is framed in terms of a violation of the First Amendment per se, and we really haven't talked too much about the equal protection issues.
I would like to take the remainder of my time to talk about the equal protection issues as they arise here.
I would like to... Yes, Your Honor?
Justice Stevens: Could I ask just one other question about this motive problem.
Assume we had a totally non-discriminatory sales tax; that this tax that was put into effect was one that just treated newspapers exactly like all other businesses, so there was no singling out.
But it was also clear that the reason for doing it was that the legislature didn't like the dominant paper in the state.
Would that be bad, too?
How controlling is--
Mr. Kempainen: You mean they passed a general sales tax on all businesses?
Justice Stevens: --Right.
Absolutely not discriminating, but for a political motive.
When is motive controlling?
I just wonder.
Mr. Kempainen: Well, I think that would be a closer case, Your Honor, and I can only say that it's not the case here.
And I would hesitate to speculate on what would be the outcome of that case.
With regard to the equal protection issue, this was given some space in the briefs, and I think rightly so.
I'd like to mention that our primary position here, as it has been throughout this litigation, is that the anti-rational basis standard of review is the correct standard of review here to use.
This is because the thing being taxed, the wholesale commercial purchase of paper and ink, is simply not a fundamental right so closely connected to actual communicative acts that it requires the strict scrutiny standard of review.
There's certainly no more of a fundamental right than the Star and Tribune's purchase of gasoline or tires for its delivery trucks, which are subject to the excise tax, or its purchase of desks and reporters, desks and typewriters for its reporters, which has always been subject to sales and use taxation in Minnesota in any event.
Any business that buys desks and typewriters for its people, for its employees, has to pay sales tax on those desks and typewriters.
This is simply an incidental burden, an incidental item of overhead, just like those other incidental items, that any commercial business has to absorb in the state of Minnesota and, indeed, in all other states.
Therefore, we feel that it's sufficiently remote from actual communicative acts so that where we don't deny that it may have some effect upon First Amendment interests, it is not a fundamental effect invoking strict scrutiny.
But having said that, I think I still want to go on and talk about how this case can meet the strict scrutiny standard of review in any event, because if it meets strict scrutiny, it certainly meets the anti-rational basis standard.
All the strict scrutiny standard of review requires is that there be a legitimate and important government purpose served by a statute which is sufficiently tailored so as to achieve that purpose without unduly restricting First Amendment interests and actual communicative acts.
Now, the original and basic use tax in this case is so tailored.
It serves... it was enacted in 1971 to serve an important and fundamental governmental interest, which is revenue raising for an important social program, and it is sufficiently tailored so as to get as far away from the actual communicative act of printing and publishing a newspaper as possible, and at the same time achieve its revenue-raising purpose by taxing the wholesale purchase of paper and ink.
As for the $100,000 exclusion, of course, our first position there is that it's a benefit anyway, and it's a benefit that applies equally and across the board to all publications.
In fact, the Star and Tribune, by reason of the fact that during the years in question it had two editions, the morning edition and the evening edition, it received two exclusions, getting a benefit of $8,000 off its tax bill.
Justice White: At what level does the sales tax normally cut in... a penny for every dime, or is it?
Mr. Kempainen: I don't recall the actual level now in Minnesota, Your Honor, but--
Justice White: Do you think you pay a sales tax if you buy something for 20 cents?
Mr. Kempainen: --It was at 9 cents or--
It was for anything less than 9 cents you did not have to pay a sales tax.
And I'm not sure if that's still correct but there was a level at a small level like that where it cuts in.
Justice White: But do you think... you think the newspapers are normally sold at a level that's above the cutoff.
Mr. Kempainen: I know they are, Your Honor.
I buy mine all the time at 25 cents a copy.
Justice White: And anytime you buy something for 25 cents, unless it's exempt, you pay a sale tax.
Mr. Kempainen: That's correct, Your Honor.
We feel that there was a compelling reason, in any event, for the $100,000 exclusion.
Even assuming that it was discriminatory and was not... and is subject to strict scrutiny.
That compelling reason being that there was an equitable... that a need for an equitable system of taxation that took into account the special problems of small newspapers.
And the legislature achieved that by a tailored technique; namely, an exclusion rather than an exemption.
An exclusion, a tax credit, if you will, that was given equally and across the board to all papers.
Justice White: What's your... that's easy to talk about the special needs of small newspapers, but what is that?
Mr. Kempainen: A small newspaper, Your Honor?
Justice White: Yes.
What's the special need of a small newspaper that prompted the exemption?
Mr. Kempainen: Most small newspapers, Your Honor, are--
Unidentified Justice: You mean mainly, they couldn't afford it?
Mr. Kempainen: --Yes, Your Honor.
They had a hard time paying this, they had less of an ability to pay, they were mainly located in rural areas, had a smaller circulation and, therefore, had less chance for advertising revenues.
There are any number of reasons that the legislature could have drawn on in order to give a special--
Unidentified Justice: It was purely a financial break to them.
Mr. Kempainen: --Yes, Your Honor.
But it was also a financial break... I wish to emphasize... that was equally applicable to the large newspapers and the large publications.
In summary, what we have here is a simple revenue-raising statute.
It's non-content related, it's not a license tax, it's not tied directly to circulation, and it was not imposed with any improper purpose, least of all a suppressive one.
Whatever classifications there are in that statute, they were imposed with a view towards benefiting First Amendment interests and for being solicitous toward then and not with a view towards suppressing First Amendment interests.
Whether the anti-rational basis standard of review is used under equal protection, we contend that it should be the correct standard, or whether the strict scrutiny standard of review is used, as the Minnesota Supreme Court did below, this statute meets the requirements of equal protection.
It is also not violative of the Grosjean case or any other principles under the First Amendment per se.
Accordingly, we feel that the law is constitutional and respectfully ask that the decision of the Minnesota Supreme Court be affirmed.
Chief Justice Burger: Do you have anything further, Mr. Brown?
You have two minutes remaining, and we'll complete the case before lunch.
ORAL ARGUMENT OF LAWRENCE C. BROWN, ESQ. ON BEHALF OF THE APPELLANT -- Rebuttal
Mr. Brown: Thank you, Mr. Chief Justice.
Justice O'Connor, you ask Mr. Kempainen whether there have been any changes in the Minnesota sales and use tax scheme since this litigation commenced.
The legislative session which just ended a few weeks ago increased the basic sales tax rate in Minnesota to 6 percent on all articles that sell for more than 9 cents.
They left the sales tax rate on farm machinery at 4 percent, and the sales and use tax on motor vehicles at 5 percent.
I point this out simply to note that there is no comfort in the state's argument of uniform rate, because the legislature has now broken it down and rates are no longer uniform.
The other point I'd like to make is Mr. Kempainen stated that you must find bad motive in order to invalidate the tax at issue, and what you do is you look to legislative history in order to establish bad motive.
Well, we don't think bad motive is material to a First Amendment analysis, but the state of Minnesota here has created a situation where we have no legislative history.
If Mr. Kempainen's approach is correct, what it means is that by not creating legislative history, a state can insulate a tax on First Amendment activity, and if bad motive is a requisite of proof you can never prove it; therefore, you can never challenge it.
We were invited to come here--
Justice Stevens: That isn't really quite right.
We did have a case from Minnesota, the Fairmont Creamery case... that's not the name of it--
Mr. Brown: --The Cloverleaf case.
Justice Stevens: --Yes.
They found... there was a trial court finding on the motive there.
Mr. Brown: Your Honor, what that proves is when the Minnesota legislature wants this Court to have legislative history, it knows how to create it.
I would close only with the observation that we were invited to come here, as the transcript of oral argument reflects, by the Chief Justice of the Minnesota Supreme Court, and in so doing, we come here seeking comfort under Justice Holmes' admonition that the power to tax is not the power to destroy, while this Court sits.
We pray that you reverse the judgment appeal from him.
Chief Justice Burger: Thank you, gentlemen, the case is submitted.