Transcript

IN THE SUPREME COURT OF THE UNITED STATES

ARKANSAS WRITERS' PROJECT, INC., Appellant v. CHARLES D. RAGLAND, COMMISSIONER OF REVENUE OF ARKANSAS

No. 85-1370

January 20, 1987

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 10:51 o'clock p.m.

APPEARANCES:

ANNE OWINGS WILSON, ESQ., Little Rock, Ark.; on behalf of Appellant

JOHN STEVEN CLARK, ESQ., Little Rock, Ark.; on behalf of Appellee

PROCEEDINGS

CHIEF JUSTICE REHNQUIST: Ms. Wilson, you may proceed whenever you're ready.

ORAL ARGUMENT OF ANNE OWINGS WILSON, ESQ. ON BEHALF OF APPELLANT

MS. WILSON: Mr. Chief Justice and may it please the Court:

This case is on appeal from a decision of the Arkansas Supreme Court which upheld the validity of the application of the Arkansas sales tax to sales of Arkansas Times Magazine when newspapers and certain types of magazines are exempt from taxation.

The Arkansas Times Magazine is a monthly city and regional type of magazine, very similar to this city's Washingtonian. It's distributed throughout the state of Arkansas, has a distribution of between 25 and 30,000, four fifths of which are through subscription sales.

It has articles on a variety of topics. It has short stories, articles on politics, religion, fashions, food, leisure activities, other articles of that type. It does have articles on sports, religion, professional things, and so forth, and I mention that particularly because that's one category of publications that the Arkansas sales tax exempts from taxation.

There are two exemptions. First of all, the Arkansas sales tax is imposed generally on sales of tangible personal property. There are two exemptions which are particularly apropos.

One is exemption (f), which exempts all gross receipts or gross proceeds from the sale of newspapers. The other one is exemption (j), which exempts religious, professional, trade, and sports journals, and/or publications printed and published within the state when sold through regular subscriptions.

Now, just from reading exemption (j) one would think that that might extent to cover all publications printed and published within the state of Arkansas, and in fact that's what the chancellor who first heard the case found.

But the Department of Revenue appealed the case to the Arkansas Supreme Court, and the Arkansas Supreme Court construed exemption (j) extremely narrowly, finding that it only exempted sales of religious, sports, professional, and trade journals.

QUESTION: While we're on the subject of the lower court's holding, I think that I understand the lower courts here to have held that under Arkansas law even the non-subscription sales of these so-called exempt magazines are exempt?

MS. WILSON: That is correct, Your Honor.

QUESTION: It doesn't turn an whether the sale is by way of subscription or not?

MS. WILSON: That's right. He found that the words "when sold through regular subscriptions" were words of description rather than limitation, and that since Arkansas Times was a publication that was regularly sold through subscriptions that all sales of Arkansas Times Magazine were exempt from taxation.

It is our contention that, because newspapers are exempt from taxation and because these other very specific types of publications are exempt from publication, that sales of Arkansas Times should also be exempt from publications or that the other publications should be taxed, that there should not be discrimination.

QUESTION: Well, Ms. Wilson, I guess we don't even have to look at the newspaper question if we focus on just the particular types of magazines that are exempt. Presumably we could answer this case by answering that question alone, quite apart from the newspaper exemption question.

MS. WILSON: That is correct if the remedy were necessarily to be to extend the exemption to sales of Arkansas Times Magazine. But if the case went back to Arkansas courts and the court found that, rather than extending that exemption, that it would simply delete it and tax all sales of magazines regardless of content, there would still be discrimination between magazines and newspapers.

And it is our contention that any distinctions that exist between newspapers and magazines are constitutionally invalid and --

QUESTION: Ms. Wilson, excuse me. That same thing could happen even if we rested our decision on discrimination between magazines and newspapers. The same thing could happen. So it seems to me we don't prevent against that deprivation of relief by resting our decision on the newspaper discrimination, rather than on the magazine discrimination, do we?

MS. WILSON: I'm not sure I understand your question.

QUESTION: Well, I'm not sure I understood your answer to Justice O'Connor. Justice O'Connor asked why couldn't -- why do we have to reach the newspaper issue so long as you're discriminating between this magazine and other magazines, isn't that enough?

And you said yes, it would be, so long as when it goes back what happens is that the exemption is extended to your magazine, rather than the exemption for other magazines being eliminated, right?

MS. WILSON: That's right. So long as --

QUESTION: But that same thing could happen even if we rested our decision on the discrimination between your magazine and newspapers. Likewise, when it goes back, likewise when it goes back, unless we say something about it, the court could say, instead of extending the newspaper exemption to your magazine, we'll eliminate the newspaper exemption.

MS. WILSON: That is correct.

QUESTION: Okay. So that issue has nothing to do with whether we base this decision on the magazine exemption or on the newspaper exemption.

MS. WILSON: Well, again, if this Court were to find that the discrimination between newspapers and magazines was unconstitutional and the Arkansas court then found that the remedy was to delete the exemption, the result would be that all publications would be treated the same, whether they be newspapers or magazines or sports journals or whatever, and that would end the discrimination and we'd have a constitutional result at that time.

QUESTION: But that wouldn't defeat your right to a refund, would it?

MS. WILSON: I don't know whether it would or not.

QUESTION: You couldn't go back and collect the tax retroactively from all the others?

MS. WILSON: That -- yes, I think to bring us even we would have to get a refund of past taxes.

QUESTION: So the case isn't a moot case just because the -- just because the exemption could be eliminated.

MS. WILSON: No, not as to the taxes collected up through the time of the decision, that's correct.

QUESTION: Yes, all right.

MS. WILSON: The discrimination obviously in the magazine exemption and also in the newspaper exemption is based almost entirely on content. It's based entirely on content when the state favors sports journals, religious journals, and so forth. It's based primarily on content --

QUESTION: Ms. Wilson, you know, when we think of a discrimination based on content in the freedom of speech area, we think of the state as trying to suppress or disfavor certain kinds of content. You know, maybe communist propaganda or something like that.

Here one would have to assume that the legislature had it in for your kind of magazine and wanted to somehow discourage its circulation. And yet, that just doesn't seem to be a very rational assumption. I mean, do you think the legislature was out to kind of censor or suppress your magazine?

MS. WILSON: No. On the contrary, just the timing of it shows that it's not, because the Arkansas Times didn't even begin publication until seven years after these exemptions were in effect.

Nevertheless, it is discriminated against, regardless of the purpose of the legislature and regardless of whether it was trying, deliberately trying, to suppress this kind of speech. It does burden the Arkansas Times Magazine where other types of publications are not burdened.

QUESTION: Yes, I can understand that argument. But when you go on and say it's a content-based discrimination, usually the reason we talk about a content-based discrimination is you infer from that that there was a desire of the legislature to suppress the content that it's discriminating against.

And I just don't see that that is a permissible inference here, and I gather you agree with me.

MS. WILSON: Well, the recent cases that the Court has decided where there was content-based discrimination were really not cases where the government was trying to suppress a particular point of view or anything of that sort. On the contrary, the government in each case was really trying to favor one particular type of speech.

As in Carey versus Brown, the government was trying to favor any type of picketing related to labor issues. The same thing in Moseley versus City of Chicago, and that was found to be content-based discrimination, even though the purpose of the government in each case was to favor the labor picketing and not to, particularly to suppress the -- well, of course, the intent was to suppress everything but the labor picketing.

QUESTION: Here you think the intention of the legislature is to consciously favor religious, professional trade and sports journals, at the expense of other kinds of journals?

MS. WILSON: That's what the Arkansas Supreme Court found when it decided the case, that's correct.

We don't have -- I don't know why the legislature wanted to favor those, and the state has not given any reason why those particular types of publications would be favored.

QUESTION: Well, when you look into some of these sales tax laws, I think you have a question in your mind in almost every one of them as to how certain exemptions came to be on the books. You know, maybe there are amendments on the floor of the legislature.

You know, if you subject them to any sort of a strict scrutiny or even a fairly rough rational basis approach, a lot of them probably wouldn't survive. Now, maybe they shouldn't. But we have said in some of our tax opinions that the scrutiny on equal protection in tax cases is the least demanding in any area of the law; that if there's anything to uphold the thing it'll be upheld.

MS. WILSON: Well, that's certainly true with things which don't -- with taxing statutes which don't involve First Amendment rights. But when First Amendment rights have been implicated, the strict scrutiny standard has been applied, as in the case, the Minneapolis Star case, being the most apropos recent case.

But the Court has not applied the rational basis standard to taxes which implicate fundamental freedoms, such as the right to speech and the press.

QUESTION: Well, Ms. Wilson, you argue that the legislature in its sales tax cannot distinguish between magazines and newspapers. Now, if that proposition is correct, then would it mean, for example, that books have to be exempt because magazines are, or that videotapes have to be because magazines are? Theater tickets?

How far do we go?

MS. WILSON: It's possible that the state could assert some interest that would justify a discrimination between videotapes, for example, and newspapers. I don't know whether it could or not.

QUESTION: A state interest, a compelling state interest? I mean, you'd require a compelling state interest?

MS. WILSON: I don't know what kind of interest the state could show in that type of discrimination. I have some doubts as to whether --

QUESTION: Well, we're asking about the legal standard. Does it have to be a compelling state interest or just a rational basis for the distinction?

MS. WILSON: I think it depends on the nature of the tax, how general the tax is, you know, the nature of the exemptions, and many other factors. I don't -- I think generally it's the compelling interest. Where the First Amendment rights are implicated, it has to be the compelling interest.

And I would think it would be unlikely that a state could show that there was a compelling interest in that type of --

QUESTION: Well, the Court has traditionally given a great deal of leeway, has it not, to state taxing schemes and to let the state distinguish among objects of tax?

MS. WILSON: Yes, Your Honor, that is correct, except in the area where it has burdened First Amendment rights.

QUESTION: Well, did Minneapolis Star indicate that a general sales tax would be different, and that we wouldn't have the same concerns?

MS. WILSON: Minneapolis Star did indicate that a general sales tax could be generally applied to publications, as to all other items of commerce. That's not the case here. The tax is not applied generally to items of commerce anyway, and it's certainly not applied generally to publications.

The state picks and chooses between publications in applying this tax.

QUESTION: Well, do you think that the price and frequency and the volume of newspaper sales in general is different from that of magazines, and that that difference might justify the difference in the tax application?

MS. WILSON: The state has not shown any information whatsoever concerning the volume and so forth of newspapers. It has asserted an interest in raising taxes. And to me it seems that the most effective way for it to increase its tax revenues would be to tax everything generally, including newspapers and other publications.

Again, this is not a general tax in Arkansas. It's -- as to publications, it's a very special tax.

QUESTION: Ms. Wilson, what if a state exempts from the general sales tax subscriptions to publications by charitable organizations -- boy scouts, churches, museums, and so forth? Could it do that?

MS. WILSON: That type of publication, it might be able to show that the state had an interest which was strong enough to justify the discrimination.

QUESTION: Oh, it needs a compelling state interest to do that?

MS. WILSON: Well, yes, I think it does need -- either a compelling state interest or to have some other rights implicated, such as possibly religious, the right to religious freedom or something of that sort? It might be able to present a strong argument.

But the general standard --

QUESTION: You're comfortable with that, that the state can't except the boy scout publications or museums publications from its sales taxes unless there's a compelling state interest?

MS. WILSON: That would be the general principle, Your Honor, unless they could assert an interest which was sufficient to justify the discrimination.

QUESTION: Well, how do you -- how does the state justify exempting charities from taxation at all, then?

MS. WILSON: Okay, you mean just generally, like exempting charities from property tax?

QUESTION: Yes, yes. They don't -- a charity doesn't pay income taxes, its property isn't subject to real estate taxes. How does the state justify that?

MS. WILSON: Well, I'm not saying that the Court has to -- that if it exempts anything, it has to also exempt the press. I think that, you know, in most states churches and so forth are exempt from property tax and publications are not exempt from property tax.

But it would be improper for --

QUESTION: Well, if the state can exempt a charity from taxation, why can't it exempt the sale of its magazines from sales tax?

MS. WILSON: Exempt the sale of a church or something?

QUESTION: No, exempt the sale of its magazines from sales tax.

MS. WILSON: Well, it might be able to do that.

QUESTION: Well, it might? Would it or would it not? And how would you test it? By just, would you say a strict scrutiny?

MS. WILSON: I would say that it should be scrutinized closely, yes. But the normal rationale for charities is that they provide services that the state would otherwise have to provide and things of that sort. So you know, the state can frequently justify an exemption for a charity which it possibly couldn't justify otherwise.

QUESTION: Let's assume -- you ended it earlier than I thought you would. I had assumed you would say that the state could do that so long as -- without a compelling state interest, so long as it was not demanding that the magazine sold by the boy scouts have a particular content.

See, that was going to be my second question. Assuming that you can say sales of museum magazines or boy scout magazines are okay, could the state then say, however, you can't qualify if you start selling Time magazine, you know, published by the Arkansas Museum of Art, that that won't be allowed if you're trying to become a general purpose publication.

But since you think that you can't even exempt boy scout magazines and museum magazines at all, much less dependent on their content, I guess the second question has no relevance.

MS. WILSON: No, I really wouldn't say that. I would say that if you had a truly generally applicable sales tax which exempted a very narrow classification of publications that the state had identified as being particularly in the public interest or of the type that particularly should not be taxed, then I don't think the same constitutional arguments would apply.

But here we have a situation where nearly all periodical publications in Arkansas are exempt from publications, with at the time that this went to trial possibly the single exemption of Arkansas Times Magazine.

It seemed to at that time be the only publication subject to sales tax on any topic.

If the Court has no further questions, I'd like to reserve the rest of my time for rebuttal.

CHIEF JUSTICE REHNQUIST: Thank you, Ms. Wilson.

We'll hear now from you, General Clark.

ORAL ARGUMENT OF JOHN STEVEN CLARK, ESQ. ON BEHALF OF APPELLEE

MR. CLARK: Mr. Chief Justice and may it please the Court:

Realizing that the Appellant relies heavily on this Court's decision in the Minneapolis Star case, I submit to this Court that this case, Arkansas Writers versus Ragland, is clearly distinguishable. The facts in this case does not give rise to a First Amendment violation.

The Arkansas tax is not a tax on a publisher, but rather the ultimate purchaser, the consumer. The Minnesota tax was applied to the publisher.

The Arkansas legislature in granting a tax exemption, a benefit, as a part of its general taxing scheme -- and that scheme in development was not to single out and did not single out or target the press. That's not true with the Minnesota statute.

The Arkansas tax does not affect specifically identifiable individual taxpayers. It could not have. As Ms. Wilson has pointed out to you, it was adopted in 1948, long before the Arkansas Times as a publication ever came into existence. It does not single out any individual members of the media or of the press. That was not true of the Minnesota statute.

It's been well established by this Court that the press is not immune from any of the ordinary forms of taxation that support ordinary governmental functions. The Arkansas general sales tax scheme was adopted in 1935 and has been amended many times since then to promote the general welfare of our state through free public education, free text libraries, and protection of wards of the state.

QUESTION: General Clark, the statute, though, does seem to prefer certain journals -- sports, religious, professional, and trade journals -- on the basis of their content, does it not?

MR. CLARK: No, Your Honor, I submit to this Court it does not. The general taxing scheme provided for some exemptions, some benefits. Among those which were three; one to newspapers, which were exempt from sales tax on the sale of that product. The reason behind that --

QUESTION: Well, could we talk about the exemption of certain types of journals, please?

MR. CLARK: Yes, ma'am, Your Honor. The provision that dealt with the four generic types of publications -- sport, trade, professional, and religion. The Arkansas General Assembly, I submit to this Court, in its effort in adopting that standard was to promote those publications, realizing that they did not have the same revenue base in terms of advertising that an publication like the Arkansas Times might have, which also enjoys an exemption from sales tax on advertising space sold which contributes from 60 to 90 percent of the income of those type publications.

With these four generic types, Your Honor, the Arkansas General Assembly in its wisdom I believe determined that there was not an advertising base because of a low subscription interest.

QUESTION: Well, is it a type of content-based treatment? It's only journals dealing with sports and religious matters and trade and professional journals that qualify for the exemption?

MR. CLARK: Your Honor, it's only those four generic types of publications. It does not deal with content; it deals with a classification as to a generic description, a type of description the Arkansas General Assembly tried to apply to a host of publications.

It is a matter of fact that in Arkansas there is no publication -- there are no publications of which we are aware that has ever benefited from this classification as a religious, a trade, a sport, or a professional publication. There are none that we are aware of who have made requests for that benefit and have received it.

QUESTION: So the exemption has never been applied?

MR. CLARK: That is correct, Your Honor.

QUESTION: Is it true that the Arkansas Times is the only one that's ever been taxed?

MR. CLARK: No, Your Honor. There are two other publications. That information was part of the lower court record and the protective order, the two others who do qualify for general taxation as does the Arkansas Times.

QUESTION: Does the record show -- just to be sure, the record shows that the exemption has never been applied?

MR. CLARK: Your Honor, the exemption -- we have gone back to our tax administrator and reviewed all of our records. We can find no evidence.

QUESTION: But was that evidence -- but does the record show that? I'm not questioning the accuracy of what you tell me, but --

MR. CLARK: No, Your Honor, the record does not. As you recall, in the lower court the Arkansas Times stipulated that it was neither a newspaper nor one of these four generic types of publications.

QUESTION: Right.

MR. CLARK: The only affidavit from the state tax administrator was to the effect that there were other publications subject to this general sales tax other than the Arkansas Times. He was not asked and did not produce information as to whether the exemption had ever been applied.

QUESTION: Are there any magazines sold in Arkansas that would qualify for the exemption?

MR. CLARK: Your Honor, I think the answer to that is yes. They just --

QUESTION: Well, do they just out of the kindness of their heart collect the sales tax?

MR. CLARK: Your Honor, I do not know the reason why they do not seek this benefit. But the record --

QUESTION: Well, your answer is that they do collect the sales tax when they sell?

MR. CLARK: There are three publications, Your Honor, for which the sales tax is to be collected and remitted back to the state, the Arkansas Times being one and there are two others.

There may be publications in the state that would fall under these generic classifications --

QUESTION: That do not what?

MR. CLARK: That in fact would be exempt from the tax.

QUESTION: And they don't collect it?

MR. CLARK: But they have not applied for the exemption, and so it's not applied to them. The only way we know whether they're collecting tax and remitting is if they have asked for a sales tax permit. If they have we audit them, and that's the process; we know whether they're collecting and remitting tax.

So there may be publications that fall within the exemption, Your Honor. There may be some that need to be taxed and are not collecting and remitting taxes. It's just a failure of enforcement on the part of the state.

QUESTION: Well, not a failure of enforcement. You mean it's just a failure to insist that they apply for an exemption.

MR. CLARK: Under our sales tax scheme, Your Honor, all sale of tangible personal property is subject to tax unless a benefit is granted through an exemption. All persons who are to make such sales must apply for --

QUESTION: Well, I find it difficult to believe that people collect the tax when they don't have to.

MR. CLARK: Well, Your Honor, as I said, the record reflects no one has asked for that benefit of that exemption.

QUESTION: Well, are you saying that under Arkansas law one cannot simply read the statute, if you're in the business of selling tangible personal property, and say, look, I'm exempt, so I won't collect the tax? You have to apply for the exemption?

MR. CLARK: Yes, Your Honor. If you're to sell tangible personal property, you are to apply for a sales tax permit. In the procedure at that point indicating what you are selling, a decision would be made as to giving you a tax permit number for collecting and remitting your tax or, in the event you were determined to be exempt through the tax administrator's decision, you'd get a letter stating such.

QUESTION: May I ask, what would happen to a publisher who was perfectly -- talked to a lawyer and the lawyer said, oh, you're clearly exempt because this is a religious publication, and he said thank you and started to publish, and didn't -- he published a purely religious thing they sent out every Sunday or something like that.

And he just never paid the tax and never applied for an exemption. What -- could he be put in jail or penalized in any way?

MR. CLARK: Your Honor, he could be penalized through civil penalties for failure to pay those taxes.

QUESTION: No, but he doesn't have any tax. He clearly would qualify for an exemption if he went through the procedure. He does nothing but publish a religious publication, and he's been doing this for five years and somebody in the tax department finds out and says: Hey, you should have filed for an exemption. And he says: I'm sorry; I'll do it now.

What would happen to him for the past five years?

MR. CLARK: He would not be penalized for that conduct for the publication that was exempt from the sales tax on the sale. Now, that publisher would be paying sales tax on the materials in the process of publication, but not from the sales tax of the sale.

QUESTION: Well, I was just going to say, it seems to me the fact that no exemptions have been granted in this category, as you've explained to us, does not mean that it is not entirely possible that there are a lot of religious publications that simply didn't bother to apply for the exemption because they realized they wouldn't get into any trouble.

MR. CLARK: Your Honor, I think the answer to that is yes, there are a number of religious publications that are not printed and published in Arkansas, but circulated there, and they wouldn't qualify for the exemption. We're aware of at least a couple.

QUESTION: No, I'm talking about those that would qualify for the exemption. It seems to me that you haven't really satisfied me that there may not be publications in Arkansas that would qualify for the exemption that this publisher would not qualify for.

MR. CLARK: Your Honor, I believe that there may well be publications in Arkansas who would qualify for the exemption, but just never have made application.

QUESTION: Right.

MR. CLARK: And the penalty -- there would be no penalty assessed in the sense of confinement or jailing. And since they were exempt from tax --

QUESTION: Or any other sense.

MR. CLARK: Or any civil penalty that would be assessed.

QUESTION: Well, usually somebody who is supposed to collect the tax and doesn't is going to have to pay the tax.

MR. CLARK: When they have the responsibility to collect the tax.

QUESTION: Yes.

MR. CLARK: In this instance, Your Honor --

QUESTION: Yes. Well, I take it these magazines had a responsibility to collect it unless they got an exemption. If they don't apply for the exemption and they don't collect the tax, why shouldn't they have to pay the tax themselves?

MR. CLARK: Your Honor, there are none that have applied for the exemption. I just don't know the answer to that, other than -- why they didn't. I just know they didn't.

QUESTION: How many people -- how many firms are in the same position as petitioner?

MR. CLARK: Pardon me, Your Honor?

QUESTION: How many are in the same position as the petitioner?

MS. CMASL: Where are two others. There are three totally, the Arkansas Times and two others.

QUESTION: It's a total of three. And about how much money is involved?

MR. CLARK: For the Arkansas Times, $15,800. With the other one, about $500 or $600 on an annual event; and the other one, also $500 or $600.

QUESTION: I just wanted to know.

MR. CLARK: All the state of Arkansas, I submit to this Court, needs to demonstrate is that there is some rational basis for these four generic classifications found in the exemptions granted. A frustration which I feel and I know this Court must also face is the frustration that the record is devoid of any legislative explanation for the granting of these exemptions in 1948.

I would speculate that in granting these exemptions for any publications -- and exemptions were granted, as I said, for newspapers, for general interest publications much like the Arkansas Times, as well as for these four generic types of publications -- that the purpose behind these exemptions was to foster communication in what is basically a rural state.

And within our general scheme of taxation, that sales tax is applied, as I said, to the sale of all tangible personal property. A comprehensive section of exemptions, however, was adopted that dealt with First Amendment outlets.

As I mentioned to the Court, for newspapers Arkansas, like 37 other states, created an exemption from sales tax on the sale of that paper, the reason being, I submit, because of the unique means of distribution, young boys and young girls, independent contractors, and the difficulty in administering and collecting that tax.

The Arkansas legislature created for publications like newspapers and like the Arkansas Times an exemption from sales tax on advertising space sold, which comprises, as I have said to this Court, 60 to 90 percent of the base revenues for such publications. The Arkansas Times, having a circulation of 25,000 to 30,000 in terms of subscription and sales at $1.75 per volume, simply can't support itself on subscriptions and over the counter sales.

That exemption from that sales tax on advertising space sold, which comprises the bulk of their operating bases, gives those type publications the opportunity to publish for profit and foster the communication and the information and ideas that they would carry.

The four generic types of publications enumerated I submit that the Arkansas legislature created for the reason that these types of publications did in fact -- or would not in fact have anything other than a limited advertising base because of their specialty of interest.

QUESTION: General Clark, is the exemption for religious, professional, trade, and sports journals -- is that conditioned by the fact that they're published in Arkansas?

MR. CLARK: Yes, Your Honor, they must be published and printed within Arkansas and sold by subscription.

QUESTION: And your argument is that a sports magazine would have a less general advertising base than a general interest magazine?

MR. CLARK: Your Honor, a think a general sports magazine, the example being Sports Illustrated, might have a broader base than one which deals with duck hunting or deals with fox hunting or deals with bass fishing.

I think the legislature in 1948 contemplated that certain types of sports journals would have a very limited audience and a very limited --

QUESTION: So limited that no one might ever try to publish them, it sounds like.

(Laughter.)

MR. CLARK: Yes, Your Honor, that could well be true.

The legislative motive in dealing with these exemptions was to deal with the type and the kind of publication. It was not to deal with what was to be contained in the articles in these publications.

If the state of Arkansas had applied this exemption, for instance, in the four generic categories to only accepted religious publications, it would have been impermissible. That's not the standard. If the state of Arkansas had applied the exemption for advertising space only to those publications that advertise the sales of cigarettes or liquor, it would have bee impermissible, I submit to this Court.

If the state of Arkansas had said to newspapers that it only applied the exemption to sales tax on the sale if those newspapers published a liberal philosophical agenda, that would not be permissible.

But the Arkansas taxing scheme is not that. It is not a selective exclusion based on content alone. And since 1948, as I've stated, we have no record of any publication which has availed itself of this benefit.

QUESTION: But General Clark, I guess it does involve content to this extent. I don't suppose you could publish Time magazine and just label it "local sports magazine" and just say everything else is unimportant. You wouldn't qualify as a sports publication just by calling it sports, would you?

MR. CLARK: No, Your Honor, I don't believe that you would. These four generic definitions -- I submit the Arkansas General Assembly were struggling and somewhat inartfully, I would be willing to admit to this Court, to come up with broad categories of types of publications, generic types of publications.

And in reaching those, it tried to have a broad-brush stroke in terms of application. And then some determination is made by the tax administrator if you were to file a tax permit and a determination is made of exemption. Then you have ordinary courses of appeal through the appellate process at the state level and then on into the court system.

QUESTION: But you said the purpose basically is to foster communication by magazines that would not otherwise be able to make a profit, in effect.

MR. CLARK: Your Honor, think that was the original legislative purpose with all of these types of publications, to foster this communication in our rural state of the printed word, whether it be newspaper, general interest publications, or these four generic types of publications that might only have, say, a limited audience, a limited advertising base, and have difficulty in administering a tax of $400 of $500.

But it was to foster that communication.

QUESTION: But then it's to foster some communication and not others, for a purpose that is not evident on the face of the statute. At least that's clear, because I suppose there could be other -- other than these four categories, there could be economically marginal publications that would not get the same benefit.

MR. CLARK: Yes, Your Honor, I think there could be. I'm at a loss to describe some, and we have worked to try to describe some, but feel that there may be some means to fit those -- virtually any type of publication --

QUESTION: Say publications on how to play poker, or publications on how to do lots of things that aren't necessarily one of those categories.

MR. CLARK: As I said, the legislature inartfully drafted this statute. But in response to your question, Your Honor, for instance a how to do publication might fit under trade, in terms of how to do plumbing or how to do carpentry or how to do electrical work.

The contention that --

QUESTION: What about the very publication we've got before us in this case? Why doesn't it need the same kind of help? I guess it doesn't make millions.

MR. CLARK: Well, Your Honor, I think that one thing that this Court should consider is the fact that this case might be ripe for remand on the basis that we have such an incomplete record, and that the Arkansas Times by stipulation stipulated it was not a newspaper. It also stipulated it was not one of these four generic kinds of magazine, without a determination being made by the state.

It might well fit in one of these categories.

QUESTION: Well, hadn't it been denied the -- or the state was assessing the -- you say it had never applied for the exemption, is that what it amounts to?

MR. CLARK: Your Honor, the Arkansas Times did not. It applied for a sales tax permit initially, it began to collect and remit the tax, protested that tax, and went through the administrative hearing, went to the lower court in Arkansas, and then settled, with the contingent that if in fact this Court or other courts were to determine a different standard they could then challenge the tax again.

At the lower court hearing -- they challenged it with the tax administrator. He denied their exemption. At the lower court hearing, the Arkansas Times stipulated, we are not a newspaper, we are not one of these four generic types of publications, which took that out of the realm of having some determination of whether or not our tax administrator had made a proper determination. Then --

QUESTION: Yes, but they must have made that stipulation at your request, at the tax authority's request. It must have asked them to make that acknowledgment.

MR. CLARK: Well, Your Honor, they made that acknowledgment on their own.

QUESTION: They did? That's kind of a surprise, for somebody who's trying to avoid taxation -- well, okay.

MR. CLARK: I would submit to this Court --

QUESTION: You did say that they have substantial revenue from advertising?

MR. CLARK: Yes, Your Honor.

QUESTION: Which is exempted under another provision of Arkansas law?

MR. CLARK: Yes, Your Honor.

QUESTION: To that extent, your response to Justice Stevens' question could have been that would seem to indicate that this is not one of those publications that needs the kind of help that the narrow categories do.

MR. CLARK: Yes, Your Honor, that would be correct.

QUESTION: How much advertising? Is that in the record, how much?

MR. CLARK: No, Your Honor, it's not. General interest magazines of the kind of the Washingtonian, the Arkansas Times, rely in advertising, sale of advertising space, for anywhere from 60 percent up to higher percentages in terms of how they publish profitably.

As I indicated, the Arkansas Times has a circulation of 25 to 30,000 in our state, principally among all 75 counties. But that alone at $1.75 per issue would not sustain the publication as it is presently published and distributed.

QUESTION: Would you just clarify one thing, because I didn't quite follow it. If they were to take the opposite position and say, well, we are one of these exempt publications and therefore -- and you agreed -- and therefore we're entitled to be exempt from the sales tax, would they lose the exemption from the advertising tax?

MR CLARK: No, Your Honor, they would not.

QUESTION: So really, it would be in their interest just to get out of the four -- to get into that category?

MR. CLARK: Yes, Your Honor. They would then be exempt from sales tax on the sale, but they would not lose their exemption from sales tax on the sale of advertising.

QUESTION: So if we have a marginal sports publication, it can get both the advertising exemption and the sales tax exemption?

MR. CLARK: A marginal publication?

QUESTION: Yes, it fits one of the four categories, sports or religion for example.

MR. CLARK: If it were sport, and determined on these four generic categories, it would be exempt from sales tax on the sale. To get an exemption from sales tax on the advertising, Your Honor -- well, excuse me. If they sold advertising space, it would get that, too, yes. I'm sorry.

QUESTION: It would get both.

MR. CLARK: The answer is yes.

QUESTION: So the advertising space, if there is discrimination here, the advertising exemption really doesn't have any effect on the discrimination in the sales tax area, if it does exist, because everybody gets the advertising exemption?

MR. CLARK: Everyone would get that, yes, Your Honor. I think the distinction that the Arkansas General Assembly was attempting to make in 1948 was that with these four generic types of classifications there might not be advertising revenue that could be generated.

QUESTION: So that what they should have done is describe the category they tried to protect as those publications who don't have substantial advertising revenues. That would have accomplished their purpose in a neutral way.

MR. CLARK: That certainly would have clarified it some, Your Honor. I think the General Assembly may have moved away from that for fear that what is that standard and how do you apply it, what is substantial advertising revenue.

QUESTION: It seems to me that's easier to apply than this four-pronged standard they came up with.

MR. CLARK: If this Court were to decide that the Arkansas statutory scheme of general taxation fails, then 45 states like Arkansas, I submit, are at a loss to impose a constitutionally approved taxing scheme on the sale of any commercial commodities that have any ties to any First Amendment outlet.

Therefore, I would ask this Court to affirm the decision of the Arkansas Supreme Court below or, in the alternative, to remand this case back to the Arkansas court, since by virtue of the Appellant's stipulation that they are not a newspaper and they're not one of the four generic types of publications exempted, that they've precluded a state determination or consideration as to whether they would fall into one of these categories and they've actually precluded the state courts from determining the parameters of those exemptions.

This Court I believe should not be asked to decide a major constitutional issue on an incomplete record, and that the better position or decision would be, if this decision cannot be affirmed, would be for this Court to exercise restraint and remand this case for development of the record fully.

Thank you.

CHIEF JUSTICE REHNQUIST: Thank you, General Clark.

Ms. Wilson, do you have something more?

REBUTTAL ARGUMENT OF ANNE OWINGS WILSON, ESQ., ON BEHALF OF APPELLANT

MS. WILSON: Yes, if it please the Court.

Attorney General Clark did make reference to a number of facts which are not in the record, and I did want to bring them to your attention. One is he stated that there are two other publications in the state of Arkansas that also have paid sales tax. There was nothing in the record to indicate that and I don't know where that came from. I don't know which publications those could be.

QUESTION: He didn't volunteer that. That was in response to a question.

MS. WILSON: Yes. I think, though, that -- I mean, if there are two publications, I think the situation was that one of them was taxable, admittedly taxable, but it hadn't had any revenue, so it hadn't actually paid tax.

The other I believe was a cockfighting magazine, which would have fit under the sports exemption. And I really think that the taxes that it paid were on sales of cocks and cockfighting paraphernalia and not on the publications. But I don't know, because the record was never developed on that point.

QUESTION: Cockfighting?

MR. CLARK: Cockfighting, yes. I think that's correct.

Another fact that he mentioned that's not of the record and I don't know whether it's a fact or not is that 60 percent or more of a publication's revenue is from advertising. There certainly is nothing in the record to that effect, and I don't actually know what the proportion of revenue from advertising versus subscription sales is in this particular case or in the industry generally.

QUESTION: Ms. Wilson, could I ask you about your thesis that the state cannot in its management of its fisc, in either the imposition of taxes or, I suppose it would follow, in its disbursement of state funds, favor one subject over another, like sports or what-not.

That's essentially your thesis. What do you do about, let's say, the Kennedy Center, which receives federal funds? Now, that is solely subsidizing one form of speech, right, the dramatic arts? Presumably it's also favoring only particular subjects, namely the subjects of the particular plays and shows that are presented at the Kennedy Center.

Now, is that as much a violation of the Constitution as you say granting a tax exemption for sports is?

MS. WILSON: Well, the Court has made a distinction between subsidies of that sort versus classifications which burden types of speech. And probably the best example of each of those is Regan versus Taxation with Representation on the one hand and on the other hand Regan versus Time, Inc., where the Court found that the government could not discriminate on the basis of the type of content in allowing publications to publish pictures of dollar bills in that case.

And in Regan versus Taxation with Representation, where organizations which engaged in lobbying were denied 501(c)(3) exemptions, the Court in that case found that that type of benefit was not subject to a compelling state interest, but rather to a rational basis, and that the government could provide subsidies for the Kennedy Center, the Smithsonian Institute, things of that sort.

QUESTION: Well, why is this different? Could Arkansas provide a subsidy to have a sporting show in Little Rock?

MS. WILSON: Yes, I think it could, yes.

QUESTION: At which there would be, you know, speeches and all the communication that goes with that. It's essentially a communicative activity.

MS. WILSON: Certainly.

QUESTION: Well, why can't it foster the sales of sporting magazines then, if it wants, so long as it's not trying to stamp out your magazine?

MS. WILSON: Well, it probably does subsidize the Razorback magazine or something like that, in that there is probably a sports publication at the University of Arkansas which is subsidized by the state.

The state subsidizes student newspapers and things of that sort. It's a very common thing to do that, and that's certainly very different from something which burdens people, you know, that are similarly situated, people in the same marketplace.

QUESTION: But they're not burdening anybody. They're just granting them an exemption. You mean it would be okay if they taxed all of them and then gave money only to sports publications? That would be all right?

But the vice here is, instead of collecting the tax from anybody and then handing over some of it to sports publications and the other ones that they mention, they simply short-circuited it and they said, instead of, you know, having it come back in and out, just don't pay the tax? That's what's wrong?

But they could have done the same thing had they imposed the tax generally and then distributed a subsidy?

MS. WILSON: Well, I think a systematic program of the government where it systematically favored publications that espoused a particular point of view and then denied the same benefits --

QUESTION: Not a particular point of view, a particular subject: sports, I don't know, politics. The federal government requires special provisions to be made for matters of public interest by radio and television stations. Isn't that content discrimination?

MS. WILSON: Well, again, it's an enhancement rather than a burden on some elements of speech. It's really just -- it's just a different classification of -- you know, there's kind of two lines of cases, and one is where the government is allowed to enhance, you know, something like the Smithsonian or the veterans organizations in Regan versus Taxation with Representation; and on the other where it burdens one element of the press versus another, as in Minneapolis, as in the Minneapolis Star case.

This really falls clearly into the areas where the government has sought to distinguish, to burden, one speaker and allow another not to be burdened. I don't think --

QUESTION: It's a general tax. It's not a tax just on your company. It's a general tax. What they have given is a benefit to some special magazines.

MS. WILSON: Well, of course, the benefits that they've granted are such that I still assert one publication is singled out for taxation, where every other publication is exempt from taxation.

One thing I wanted to mention that's just an example of how, well, really irrational these classifications are is again, you know, who decides what a trade publication is? I guess the state of Arkansas does, some official with the department of finance and administration.

Take a computer publication. Some people use computers in connection with their hobbies and some people use computers in connection with their trade or business. Now, should a computer magazine get an affidavit from a subscriber as to whether he is purchasing it for his trade or purchasing it for his hobby?

You know, and of course in the sports category, Arkansas Times publishes plenty of articles about sports; it publishes religious articles. Because it doesn't publish enough religious articles, the state wouldn't classify it as a religious publication.

QUESTION: But you don't really know that, do you? You don't know whether, if you submitted those arguments to the state, whether you might be able to get an exemption? Or did you make that argument to the commissioner?

MS. WILSON: We did not argue that it was a religious publication or a sports publication, no, Your Honor. We stipulated with the state that it was not any one of those four classifications and that it was not a newspaper.

And I might add in that regard, the state now wishes the case remanded for development of further facts. That was a joint stipulation that was agreed to. Both sides felt that all the facts that were necessary for the court to decide the case were in the record.

And the facts as they are in the record do clearly show that the state had no interest and no justification in making the distinctions that it's made in taxing publications.

If there are no further questions.

CHIEF JUSTICE REHNQUIST: Thank you, Ms. Wilson.

The case is submitted.

(Whereupon, at 11:42 a.m., oral argument in the above-entitled case was submitted.)