SWAGGART MINISTRIES v. CALIFORNIA BOARD OF EQUALIZATION
California law required retailers to pay a 6 percent sales tax on in-state sales of tangible personal property and residents to pay a 6 percent use tax on such property if purchased out of state. Jimmy Swaggart Ministries, incorporated in Louisiana, sold religious materials to California residents through several direct and mail-order "evangelistic crusades." After auditing his ministry, the California Board of Equalization ("Board") told Swaggart that under California law he had to register his ministry as a seller so the Board could collect the appropriate sales and use taxes. After paying the taxes, Swaggart petitioned the Board for a refund. When his petition was rejected, Swaggart challenged the Board in state court. Following two unfavorable rulings below, the U.S. Supreme Court granted Swaggart's petition for certiorari.
Did California's imposition of a sales and use tax on the sale of religious materials violate the Free Exercise or Establishment Clauses of the First Amendment?
Legal provision: Free Exercise of Religion
No. Basing its unanimous decision on the fact that California's sales and use tax was not a flat tax, affected only a small portion of retail sales, and was neutrally applied, the Court found the taxes constitutional. Moreover, since the taxes were not imposed as a precondition to spreading any given message and were due regardless of registration, the Court rejected Swaggart's claim that California's no-fee registration requirement acted as a prior restraint on his religious organization. Finally, the Court held that any administrative burdens associated with the payment of taxes did not give rise to an establishment conflict since they did not cause excessive entanglement between the government and Swaggart's organization.
Argument of Michael W. McConnell
Chief Justice Rehnquist: We'll hear argument now in Number 88-1374, Jimmy Swaggart Ministries v. the Board of Equalization of California.
Mr. McConnell: Mr. Chief Justice, and may it please the Court:
In Walz v. Tax Commission this Court observed that the hazards of churches supporting government are hardly less in their potential than the hazards of government supporting churches.
The circumstances of this case bear out the Court's warning.
The tax in this case is imposed directly on the most central and protected of activities by religious organizations, namely the dissemination of religious doctrine and worship.
At issue are sermons that have been preached from the pulpit and then presented both in printed form and in the form of tapes, religious books, such as the Life-Changing Prayer Manual, bible study aids, religious tracts, religious music, both instrumental and choral, and various bibles prepared for specific purposes by the ministries for the use of its... of its adherents.
California is the first state to assert the authority to tax materials of this sort.
Since the 1930s and '40s, when sales and use taxes came into widespread use, these specifically religious activities and transactions have consistently been held to be immune from taxation.
Now, in part this is because of the decisions of this Court and the trilogy of cases in Murdock v. Pennsylvania, Jones v. Onelika, and Follett v. McCormick, which held that the dissemination of religious materials by itinerant and other evangelists for the purpose of communicating their message is exempt even from generally applicable taxes on other commercial vendors.
Unknown Speaker: There you were dealing with a flat license tax, were you not, Mr. McConnell?
Mr. McConnell: That is right, Mr. Chief Justice, but the point of the decisions is that that flat license tax in the context of individual itinerant evangelists amounted to a very serious burden on their ability to communicate the message.
It's our position, Mr. Chief Justice, that the tax in this case, although not flat, is similarly a serious, substantial burden on the... on the communication of the materials under the circumstances today, not--
Unknown Speaker: Well, Mr. McConnell, what is the evidence that the imposition of the ordinary sales tax, I guess it is around 6 percent, would burden the Petitioner?
I assume the tax is passed on, is it not, to the purchaser?
Mr. McConnell: --Justice O'Connor, the tax can be passed on to the purchaser.
Unknown Speaker: That is the norm in... when sales tax is opposed... imposed, is it not?
Mr. McConnell: It is the norm, but, Justice O'Connor, don't get me wrong.
We are not complaining that this, that the religious organization itself necessarily has to pay the tax.
The point is that the transaction, the dissemination of religious materials, is itself burdened, discouraged, inhibited by this tax.
And you may say that 6 percent is not a lot--
Unknown Speaker: Is there any indication that sales are reduced by virtue of the imposition of the tax?
Mr. McConnell: --Justice O'Connor, the... it's almost a golden, an iron rule of economics that when the price of something is increased the number of sales are going to go down.
But, in addition to that, the very... the aspect of this tax that makes it particularly troubling to religious organizations is not so much the 6 percent, or 6.5 or 7... remember there are three different rates in California, but the... but the almost impossible administrative difficulty of dealing with the varying and changing rates of tax in some 7,000 taxing jurisdictions around the country.
And the record in this case shows that the difficulty of dealing with that kind of a burden is something that only the largest ministries could possibly deal with.
Unknown Speaker: Mr. McConnell, I assume that there is no more... maybe I shouldn't assume it.
Is there any more right to convey a religious message than there is to receive it?
Mr. McConnell: No, Your Honor.
Unknown Speaker: Well, we held... we held last term, if I recall correctly, that a state not only could impose a tax upon the sale of bibles, but indeed had to impose a tax upon the sale of bibles if it imposed a tax upon the sale of other books.
And the only difference in that case, as I understand it, is that the seller was not an itinerant or non-itinerant preacher, but was, as far as the facts of the case were involved, a regular bookstore.
Now, why wouldn't that violate the principle you are urging upon us here?
Mr. McConnell: Two reasons, Justice Scalia.
First of all, when an ordinary commercial bookstore is selling a bible simply for profit, it is not doing so for the purpose of communicating a particular religious philosophy.
Unknown Speaker: No, but I am buying it for that purpose.
Mr. McConnell: That may--
Unknown Speaker: And you acknowledged that I have as much right to receive a religious message as someone else has to convey it.
So long as I want to buy it for my own religious edification, why shouldn't that be exempt as well?
Mr. McConnell: --The constitutional protection here has to do with the longstanding relationship between religious institutions and the government, under which religious institutions are both immune and exempt from various forms of regulation and taxation, and also ineligible for subsidies and other forms of support.
The principle here is that the government must leave religious organizations alone insofar as they are engaged in the dissemination of religious materials.
When B. Dalton sells a bible, it is not... it is not part of that tradition.
Unknown Speaker: Well, do you say, Mr. McConnell, that the government must exempt churches from real property taxation?
Mr. McConnell: I think it would be a mistake for this Court to try to paint with too broad a brush.
Various taxes have very different impacts.
Unknown Speaker: Well, but I think it is you who are painting with a broad brush, when you say that the government must simply stay away from all religions, and I got the implication, perhaps not tax any aspect of them.
Mr. McConnell: What I mean by that, Mr. Chief Justice, is that the government must leave the churches alone in their dissemination of religious doctrine and in their worship activities.
I don't know how, ultimately, a property tax would come out if the state or local government were to... were to abolish the exemptions that have existed throughout our constitutional history, but this Court in Follett, and in... and in Murdock, indicated that there might well be a distinction.
And several lower courts have held in the context of personal, not real, property taxes that there is a distinction.
And if I might inform the Court of the distinction that those courts have found, there, the principle is... is that property is not itself a religious act, that the Free Exercise Clause is concerned with the exercise of religion, that is, the actual transmission of religious doctrine and the worship of religion.
Property... the ownership of property that might be used in the course of that is one step removed.
It is something that might be useful for the exercise of religion, maybe even necessary in some cases, but it is not the act of religion itself.
Unknown Speaker: Why can't you say the same thing about the receipt of money?
This is just a tax when you sell religious material, not when you distribute it.
And the state is saying, you know, if you want to proselytize and ask for contributions, that is one thing.
But if you sell something, if it is a quid pro quo, that is no religious act.
Mr. McConnell: First of all, Justice Scalia, it is not clear that there is a quid pro quo in the sense that... and that the record shows that it is a policy of Appellant to distribute these materials, whether they receive the price or not.
But the other... but the other thing to consider is that there are two sides.
The two sides of this transaction are on the one hand the ministries, which is trying to communicate the gospel as it understands it, and at the same time to try to defray the cost of doing so.
And on the other hand, the receiver is both engaged in receiving the message and also in supporting the conveyance of this message to further believers at the same time.
The... the monetary aspect of the transaction is completely tied to the... to the communication of the message.
As this Court quite clearly held in Murdock, the fact that money changes hands in the course of the transaction does not transform this religious practice, which is of millennia, literally millennia old, into a purely commercial transaction.
Unknown Speaker: Mr. McConnell, the Court certainly sustained in Lee a rather substantial burden on the exercise of religion.
Do you think this imposes a greater burden than the burden in Lee, which the Court upheld?
Mr. McConnell: Greater, but most importantly, very different.
The tax that was upheld in Lee was a tax upon secular employment by a farmer, by farmers working in agricultural labor.
Their objection to the tax was its use.
They objected to the Social Security system because of their religious tenets, and therefore believed that they should not have to pay the tax.
We are not contending that there is anything about the tenets or doctrines of the ministries that entitle them to an exemption.
It is the fact of being a religious organization--
Unknown Speaker: Well, it would seem to me that would be, that would be an even stronger claim than yours, would it not?
Mr. McConnell: --Well, I don't think so, Justice O'Connor, because the separation of church and state has to do with the institutional relationship between religious organizations and government.
It doesn't hinge upon whether, upon the particular ecclesiology or view of church/state relations that any individual church organization has.
It goes back to the basic principle that James Madison advocated and that this Court has come back to in case after case, which is that the civil jurisdiction has no cognizance over the... over the practice of religion.
And that is going to hold true for all religions and not just... not just those with particular tenets.
Unknown Speaker: Do you think that a general sales tax can be imposed on the sale of newspapers?
Mr. McConnell: I think that a general sales tax can be imposed upon profit making corporations in the sale of newspapers.
Unknown Speaker: Does the ministry make a profit on any of the items it sells?
Mr. McConnell: The ministries is a nonprofit organization, and so in the technical tax sense there is no profit at all.
If by that you are asking whether the cost of the materials exceeds the revenue directly from that... the record is... is not very clear on the point.
In the record, however, you will find of the Form 990, the federal income tax returns from the ministries, which indicate that insofar as you are looking specifically at the... at the pure sales, the I'll send you $10 and you send me a sermon tape, that kind of a pure sale, that in fact the materials, the cost of the materials falls, is, greatly exceeds the revenue that is generated.
It is only when you take into consideration the contributions that are received in connection with the distribution of these materials and other activities of the ministries that this is... that they are able to keep their heade above water.
Unknown Speaker: Mr. McConnell, did I understand you to say a moment ago, or perhaps to suggest, that the government could not tax a nonprofit corporation which published a newspaper?
Mr. McConnell: The Court... I was in a sense summarizing the Court's holdings.
In Breard v. Alexandria, the Court confronted the question of sales by a profit-making magazine distributor, and this was shortly, this was just ten years after Murdock, and the Court distinguished between for profit businesses and non-commercial businesses... non-commercial speakers in the context of disseminating their messages.
I don't really know what a nonprofit newspaper would be like, but if, for example, you might be referring to a political organization that would be distributing, let's say the Sierra Club might sell a book, not just for the purpose of making money on it, but because it contains information that they want to get out to the public, I think that is a difficult question, but--
Unknown Speaker: What is difficult about it?
Mr. McConnell: --Well, it is difficult because the Sierra Club is not a religious organization and there is no requirement of separation between the government and what the Sierra Club is doing.
If the government wanted to give a direct subsidy to the Sierra Club to produce and disseminate that book, the Constitution would not be offended.
The government is permitted to subsidize the Sierra Club's dissemination of it doctrine.
It is not permitted--
Unknown Speaker: But you haven't yet pointed out what the... you're saying where the difficulties aren't.
Where is the difficulty?
Why can't the government, if it taxes all other sales of magazines, tax the sales of a nonprofit corporation?
Mr. McConnell: --I am suggesting that it probably could, and that the difference is that... is that a religious organization is any... stands in a different footing.
A religious organization may not be... may neither be subsidized, nor may it be taxed, for the dissemination of its message.
Whereas, I think that most other non-commercial organizations could.
Whether there might be some argument under the Free Speech Clause, I don't know, but those issues are not... if so, those issues are not being raised here.
The key, the key point that I would like to emphasize here is that it is simply not the case in our constitutional tradition that religious organizations are to be treated the same way as commercial book sellers, or even as other nonprofit organizations.
That has not been the case for 200 years, and the reason is that the obligations of separation, of a division of the spheres of authority, and those with respect to religion and government, that that has been kept, that has been kept carefully apart by the First Amendment and by the practices of the states in compliance with the First Amendment and their own constitutions in the years since then.
That this tradition is different from the tradition ascribed to commercial businesses, and it has to be that way.
Because the government is able to regulate, and indeed even put out of business, an ordinary commercial business.
Other than any limit, any remaining tinges of substantive due process that there might be in the economic sphere, essentially the government can do what it wants with commercial businesses.
The same thing is just not true of religious organizations.
With religious organizations, the... the requirement of the Constitution is that the government keep its hands off.
It may not help them; it cannot assist them or subsidize them when... in their dissemination of religious doctrine, but it does not have the authority to... to tax them or to regulate them in those areas.
Unknown Speaker: That is not really true, Mr. McConnell, and maybe there are those of us who think some of the cases suggest going too far in both directions, both in prohibiting non-discriminatory assistance and in... and in prohibiting non-discriminatory taxation.
Certainly, a municipality can station policemen in front of a church on a Sunday, just as it would station policemen in front of any theater that is having a major opening.
It can provide normal, municipal services to, even for purposes that are directly related to religious worship, just as it can provide it to other businesses.
Indeed it must, I... I would suppose.
Mr. McConnell: That is right.
This Court has carefully--
Unknown Speaker: So why can't it apply a non-discriminatory tax similarly?
Mr. McConnell: --This Court has carefully distinguished between various forms of municipal services that indirect... that provide indirect benefits to religious organizations, along with all others, and direct subsidies of cash, even when those direct subsidies of cash are being distributed on a... on a general and completely neutral basis.
Take, for example, the Court's recent decision in Bowen against Kendrick, in which religious organizations were allowed to participate in... in the adolescent family life act programs.
But this Court held, and I believe rightly, that none of those organizations participating in that could be permitted to use any of that money, or even their own money in the course of the program, to disseminate religious doctrine in the course of administering that.
Even though... even though secular organizations are being treated perfectly equally, religious organizations are under a special constitutional disability to use government funds for the... for the dissemination of religious doctrine.
I would suggest to you that separation is a two way street.
It is not true that churches are only separate from the government when it comes to subsidies.
They are also separate from the government when it comes to the government calling upon them to support the government, when that support is based upon their spreading of the gospel as they understand it.
It is... the... a religious organizations carrying out its religious function may not be used as an occasion for fund raising by the state.
Unknown Speaker: But isn't the difference between the two that one is prohibited by the Establishment Clause, and you are making a free exercise claim, aren't you?
Mr. McConnell: Well, Justice Stevens--
Unknown Speaker: I mean, the subsidy is an establishment problem.
Mr. McConnell: --That is right, but subsidy and penalty are two sides of the same coin, just as free exercise and establishment are two sides of the same coin.
The principle is one of separate jurisdictions, that... and I'm going... I'm referring now, again, to James Madison's original formulation of this theory in his Memorial and Remonstrance, which this Court has referred to dozens of times in explicating the, the religion clauses.
The point is that the civil jurisdiction does not have authority over religion, whether to subsidize it or to... or to penalize it, or to tax it or to regulate it.
Only, the only--
Unknown Speaker: But I think you acknowledged that if you had sales, say you sell sacramental wine or vestments or something like that to a church organization for use in purely religious ceremonies, I don't think you deny that a tax could be imposed on those, do you?
Mr. McConnell: --I do not deny that a secular wine producer who produces the sacramental wine could be taxed--
Unknown Speaker: But the burden would be passed on to the--
Mr. McConnell: --that a transaction between the church and commercial entities is subject to tax.
When the church is going in... is dealing with profit-making, non-religious bodies, that transaction is not an exercise of religion.
When, however, a ministry is providing a bible to one of its believers, even if it is receiving money in return, that is a... that is the exercise of religion, and that is what is protected by the First Amendment.
The most important point here, then, is that... is that the state's simple position that so long as commercial businesses are being treated the same way, that it does not... that their tax simply doesn't raise a constitutional question, I think has to be rejected.
It is a somewhat more difficult question whether, once... once we recognize that the special status of religious organizations in their carrying out of religious functions requires special treatment, whether this particular... or where does one draw the line.
Does this particular side of transactions warrant constitutional immunity?
And it is here where I think Justice Stevens' question is... is most important, because our position is not that religious organizations are exempt or immune from taxation with respect to everything that they do.
And in fact, religion... it has been the religious community, particularly the National Council of Churches and the United States Catholic Bishops Conference, which has insisted in the federal area that that... that that is intolerable and unconstitutional a claim.
Churches should not be exempt in everything that they do.
What churches should be exempt in is their actual dissemination of religious doctrine and their carrying on of worship with those who choose to receive their message or participate in their worship services.
And it's that narrow claim, the same claim that was upheld in Murdock and Jones and Follett, that we are defending here today.
In addition to this, there is a separate ground of objection that we have to the imposition of tax in this particular case, which would apply even if the Court were not to conclude that religious organizations are immune from taxation--
Unknown Speaker: --Let me just pursue a minute, because I want to be sure I thoroughly understand your answer to my previous question.
The sale of a tape recording of a sermon by a minister, that a person would listen to sometime later at his or her leisure, the sales transaction, you say, is the same as if the person were attending?
What is the dividing line between a commercial transaction and a religious transaction?
Mr. McConnell: --The distinction is... is the purpose of providing this thing, this tape, to spread the word or is it to make a buck.
And the record here makes it very clear--
Unknown Speaker: Well, it's to spread the word and to get the money for the religious ministry, both, always, I suppose.
Mr. McConnell: --But the record here is very clear, and the state has not challenged that the reason why the ministries is distributing these materials is to get them out to the public.
That is the whole purpose of it.
Now, to be sure, getting the word out requires... requires money, just as it required money in Murdock and Jones and Follett.
But the... but this ministry is not in the business to make money; it is in the business to spread the bibles and the religious tracts and sermon tapes and so forth to people who are interested in hearing the word.
Unknown Speaker: Suppose that the tape costs $10 to make, and it was sold for $50.
Mr. McConnell: That would be a question that goes to income tax rather than sales tax, because a sales tax is collected on the whole--
Unknown Speaker: Still exempt from sales tax in your view?
Mr. McConnell: --Oh, yes, yes.
And indeed exempt from income tax under the federal income laws as well.
In a sense what I am suggesting here is that the Congress, in devising its federal income tax laws, is essentially drawing the line that the First Amendment had already drawn at a constitutional level, when the federal income tax code taxes churches for their income that they receive in the course of businesses that are not related to their religious purposes, but exempts them from the income that they receive on activities that are related to their exempt purposes, namely the carrying out of their religious activities.
Was there... did I cut off a question?
Unknown Speaker: xxx emphasis that they weren't interested in the buck.
Mr. McConnell: Your Honor, the record is quite clear as to each and every one of these items.
There is testimony in the record as to precisely why it was developed, what function it plays in the... in the ministry, and that the purpose of all of this is to spread the gospel.
Now, all of us can be somewhat cynical, and with good reason, that there are those engaged in the practice of religion that have, that do that for their own private purposes.
But the law accounts for that in prosecution such as we have seen recently.
But, unless that kind of... unless we are going to say that all religious leaders are charlatans, we have to recognize that a distinction... has to be... has to be made.
And if there is a suggestion that this is being done for private profit rather than for the religious purposes, the laws of every state allow for the state to challenge the exemption on that basis.
Unknown Speaker: There are people involved that draw substantial salaries--
Mr. McConnell: The record--
Unknown Speaker: --and those salaries come from the sale of these books.
Mr. McConnell: --Your Honor, the record shows that at a time--
Unknown Speaker: Am I correct?
Mr. McConnell: --The record shows that at a time when the annual revenues of this ministry were $28 million, the total... the total compensation for all officers and directors was $110,000.
And Jimmy Swaggart himself was getting a salary of $20,000.
Mr. Chief Justice, I have reserved the remainder of my time for rebuttal.
Unknown Speaker: Very well, Mr. McConnell.
Argument of Richard E. Nielsen
Mr. Nielsen: Mr. Chief Justice, and may it please the Court:
Before I start addressing points I would like to make today, I want to clarify a few points made by Mr. McConnell.
The record does show that the items taxed in these matters involve a quid pro quo.
On page 178 of the Joint Appendix... 171 on the Joint Appendix, their witness testified that, with respect to donations and money sent in, that only in the instance when money was sent in and could be identified to a book or a tape or some tangible personal property--
Unknown Speaker: Mr. Nielsen, you referred us to a page of the record.
Now, what question and answer are you talking about there?
Mr. Nielsen: --Starting with the question about the middle of the page, where it says if they ask for the item and you know the price of the item, could you break that out.
The response was if they use the order form, those that use the order form we could.
So the evidence is that, with respect to their internal records, they have segregated sales of tangible personal property from donations.
The next question was, and those that did not use the order form, what was the procedure.
The response is, the procedure that the organization followed was that it was charged to a donation.
So in the situation where they were not clear as to what amount was being given for tangible personal property, they charge it to donation.
The evidence in the case is that when they arrived at the taxable amounts in this case, they only went to the items that were directly set up on their books as sales.
So there is no question here that we are going after any donations, there is no--
Unknown Speaker: Now, wait, wait, wait.
I don't think that that at all establishes what you want it to establish.
All this establishes is that where they had a fixed price for the book, they would set that separately.
But that doesn't at all speak to whether the person who paid the price believed he was making a donation or believed he was engaging in a strictly commercial exchange.
I mean, that... that's a matter of intent of the parties, it seems to me, not of how they carry it on their books.
Mr. Nielsen: --That is correct, it's a matter of the intent of the parties, Your Honor.
In this case there were advertisements, there were order forms.
The order forms provided that if you wanted three tapes for $7, you sent in the $7.
Unknown Speaker: I thought Mr. McConnell's point was that the cost of the tapes to them exceeded the sale price, not that it was a donation, but just that they didn't charge as much for the thing as it cost them.
Mr. Nielsen: That was another point, Your Honor.
The first point was he, there was a question about quid pro quo, and he said there necessarily wasn't any evidence of that.
And I was trying to point out there was.
The second point, there was a question as to whether what they were selling exceeded the cost.
And with respect to that, on page 203 of the Joint Appendix, with respect to the answers to interrogatories number 15, they indicated the factors considered in determining the price, number 9, are the cost of the item and the prices of similar items in the marketplace.
They also, further down below, said amounts given away were never significant.
Over on page 204 near the bottom, under--
Unknown Speaker: What does the first one prove?
I don't see how that proves that they're making a profit on it.
It just proves how much we choose to lose depends to some extent upon, you know, how much we got to lose.
Mr. Nielsen: --Well, I'm following in on page 204, Your Honor, on the bottom of number 12, it says with respect to other items, that prices... the last phrase is prices were not reduced below cost.
It is correct, and I believe there is other testimony that I can't point to right off hand, that they basically said the tapes usually sold for $7 or $8, and they only cost about $1 to produce.
So, I think the record indicates there is a profit.
But that is not the key in this case.
The sales tax is not determinative on whether a profit is or is not made.
Sales tax applies when there is a transfer of tangible personal property for a consideration.
Unknown Speaker: Mr. Nielsen, does the state tax also, for example, the sale of votive candles in the Catholic churches in California?
Mr. Nielsen: That is... that is an interesting question, because I believe it came up in another case recently.
The answer to that is it depends on whether there is a transfer of tangible personal property for sale.
You've got to look at the definition of sale.
If you get possession of that candle, then that would be a taxable sale.
But generally, I think the example you are--
Unknown Speaker: Well, is California taxing these things or not?
Mr. Nielsen: --I have no reason to believe that they are not.
Unknown Speaker: Do you think California can levy a generally applicable property tax on property owned by religious institutions?
Mr. Nielsen: I think so.
California, in its 1946 Watchtower decision, the California Supreme Court upheld an ad valorem property tax on items similar to those in question here.
So, I believe as long as there is not a constitutional, unconstitutional burden, such as a flat tax or differential taxation or discrimination, if it is a general tax that applies to all property in the state alike, I believe it could.
Unknown Speaker: What about sales of literature in the vestibules of churches.
They just have books up there, bibles, tracts, and what not, and they have little prices under it, you know, $2, $1.50.
Is that taxed?
You're going to tell me you have no reason to believe it is not.
Do you know that it is?
Mr. Nielsen: I personally do not.
The Board of Equalization--
Unknown Speaker: Do you know that the candles are?
Mr. Nielsen: --The candle situation, Your Honor, I believe, in order to follow up on the other question, is generally in that situation.
You go in and you put the money into the receptacle and you light a candle.
Unknown Speaker: And you leave the candle there.
Mr. Nielsen: There is no transfer of property.
Unknown Speaker: You are buying the fire, I suppose, aren't you?
Mr. Nielsen: I think that--
Unknown Speaker: You're buying something, I suppose.
What about seats in synagogues on high holy days, which--
Mr. Nielsen: --That is not tangible personal property.
Unknown Speaker: --I see.
It's only tangible personal property.
But you think the state could tax that, no doubt?
Mr. Nielsen: No.
Unknown Speaker: Could not?
Mr. Nielsen: No.
Unknown Speaker: Why not?
Mr. Nielsen: Because you are not... you are not getting possession or buying property.
You are occupying a space.
Unknown Speaker: Well, it has another kind... it has a rental tax.
Anybody who rents anything has to pay--
Mr. Nielsen: Yes, I believe an occupancy tax--
Unknown Speaker: --So it could?
Mr. Nielsen: --a general occupancy tax, that would be broad enough to encompass any type of activity, yes.
If it is just attending a religious service--
Unknown Speaker: So they just don't, haven't thought of that tax yet, but if they thought of it, they could do that.
Mr. Nielsen: --The legislature in states have many mean of raising taxes, and I believe that is why it is very critical in this case that you have to look that this is a general, non-discriminatory revenue-raising tax.
It is broadly based, and if you start carving out exceptions, you are basically, you're going to have to force the legislature to raise the rate or to think of other taxes.
The question presented--
Unknown Speaker: Maybe you could take back a suggestion to the state?
Mr. Nielsen: --The question presented is whether the imposition of the California sales tax and the responsibility to collect the use tax on a religious organization concerning its sales of religious materials violates the First Amendment free exercise rights.
California sales and use taxes are generally applicable, non-discriminatory taxes, imposed when there is a sale and use of tangible personal property in the state.
As I previously pointed out, the Board of Equalization has consistently held since the 1930s, when the sales and use tax was enacted, that sale of tangible personal property by religious organizations are not immune from tax.
California sales and use taxes place no prior restraint on Swaggart's practice of religion, nor do the taxes conflict with any asserted religious belief of Mr.... of Swaggart.
The taxes are of general application and are not a special tax on religion.
Swaggart is asking this Court to do what it has held state legislatures cannot do, create an exemption based solely on religious grounds.
There is no--
Unknown Speaker: What do you respond to Mr. McConnell's point that that is only fair because it works that way in the other direction?
The State of California wants to give money to particular organizations that do good things, it can, but it can't give money to a church that does those good things in the course of its ministry.
I mean, that's correct, isn't it?
Mr. Nielsen: --I think that is an improper distinction, because I think what they are comparing is basically apples and oranges.
What they are saying is if you can't give a subsidy of cash or, as Texas Monthly held, an exemption, therefore you can't tax them.
I would agree to the extent if you can't have a special--
Unknown Speaker: Seems fair to me.
Mr. Nielsen: --If you can't have a special exemption, you also cannot have a special tax aimed selectively at a religion, just like in Minneapolis Star and the other cases where you have differential taxation or selective taxation, that follows.
But, if you have... I think this Court has recognized that if you have a general exemption for, let's say, books, and if there are religious books, that that would not violate anything.
And on the other side, if you have a general tax, which is what we're saying, if you have a general tax that applies to all tangible personal property in the state, then there is no unconstitutional problem with that.
Unknown Speaker: So the state can tax these candles, but if it decides it is going to have a candle distribution program to all organizations that want candles, you don't have any doubt that it couldn't give candles to a... to a church that is going to use them for devotional purposes.
Mr. Nielsen: That is similar to distribution of books to schools and so forth.
Yes, that is correct.
There is no burden on California to demonstrate that its sales and use taxes on religious materials are the least restrictive means of achieving a compelling state interest.
Swaggart wants this Court to extend its compelling state interest test to situations not involving coercion or prohibition of religious beliefs or practices.
Swaggart urges application of the test to situations involving any government burden rather than unconstitutional burdens.
This Court in Lyng, and most recently in Frazee, held that the compelling state interest test is applicable when individuals would be coerced or penalized by government action into violating their religious belief.
No such coercion or penalty flows from the application of the California sales and use tax.
This Court observed in Lee that not all burdens on religion are unconstitutional, and in Murdock that religious groups are not free from all financial burdens of government.
Recently in Lyng this Court observed that only government action that prohibits one from free exercise of his or her religion is subject to the compelling state interest test.
The Board submits that the California sales and use tax does not prohibit the practice of religion.
The taxes in question are not fixed in amount, but are related to the realized revenues; they are minimal... 6 percent, and they are payable after the sale occurs.
There is no cumulative effect of the taxes, and it can be passed on to the seller.
Unknown Speaker: What if the rate were so high that the evidence showed it prevented some adherents of the faith from obtaining religious materials they wanted for their worship?
Mr. Nielsen: Your Honor, I believe the Court has addressed that in Minneapolis Star and in some other cases where it held that absent differential or discriminatory taxation, the concern... the... of crippling an organization is addressed basically through the political process.
I believe, if you... that the rate in and of itself, although high, would not be a defect.
Unknown Speaker: xxx idea in any case that no person who would otherwise have bought one of these bibles or tracts, was dissuaded... would be dissuaded by the additional six or seven percent?
Mr. Nielsen: There is not only no evidence in the record about that, there is also no evidence in the record that Swaggart, the organization, was affected in how... in distributing... except for the argument that if you have less funds you can't do as much as you would normally do.
But in this case the tax can be passed on.
Unknown Speaker: Except for the argument that the higher the price the lower the number of purchases.
Is that an extraordinary argument?
You don't challenge the iron--
Mr. Nielsen: That's with respect to the individual.
Unknown Speaker: --Isn't your opponent quite right that that is an iron rule of economics?
You cannot raise the price and have the number of sales be precisely the same.
Mr. Nielsen: I believe it follows that obviously when you make a decision, anybody who makes a decision to buy something looks at the price.
Unknown Speaker: Sure.
And that even a small increment will discourage some sales.
I mean, you really have to make that assumption, don't you?
Mr. Nielsen: Yes.
On that point, the incidental economic impact of the tax may make it more costly for one to practice his or her religion, but it has no tendency to coerce Swaggart into acting contrary to any asserted religious belief.
Swaggart below challenged the taxes on the basis that the burden caused by having less funds available after paying the tax unconstitutionally burden its right to spread the gospel.
Now it has apparently abandoned this ground, and even concedes that taxes on alleged secular transactions are lawful, even if they result in less funds.
Also, Swaggart recognized that it does not have to absorb the taxes in question, as they can be passed on to the buyer.
Administrative burden has now been emphasized by Swaggart as the unconstitutional burden.
But again Swaggart fails to realize that said burden is not unconstitutional, or every religious organization's compliance with the government regulation or tax would be deemed an unconstitutional heavy burden.
Such compliance is deemed a substantial burden in California's broad public interest in having a uniform and comprehensive general revenue-raising tax, with as broad a base as possible, would constitute a compelling state interest.
California sales and use taxes account for over 30 percent of the state revenue.
Accommodation of religion in this system would unduly interfere with the high government interest as a myriad of forced exceptions would compromise the system.
Unknown Speaker: On that point, may I just ask you, do you agree with your opponent that this is really the first time that this particular kind of levy has been imposed by a state?
If it is, it is kind of strange to say it is going to destroy your revenue resources not to be able to do something nobody else has ever done.
Mr. Nielsen: --Well, I think the analogy in this case is that made in Lee, that it is not... the impact of having to create forced exemptions, whether it is for this basis or for other basis, will hinder the system.
Unknown Speaker: But his point, I think one of his points is that we have been in this business for a couple hundred years, and the systems have gotten along perfectly well without ever... with just precisely the kind of exemption he is asking for here.
Mr. Nielsen: Well, in other states that is possibly true, but in California it has held since 1930 that sales of all tangible personal property, except those carved out specifically by the legislature, are taxable.
And I think that is the point this Court has emphasized in dealing with states.
That it doesn't want to start getting into the province of what state legislatures should or should not do.
And the other side of the coin is--
Unknown Speaker: So your answer, I guess, is that in California the rule has always been the same; we just have a new kind of religious ministry that is selling articles that generate this kind of revenue.
Mr. Nielsen: --That is correct.
Unknown Speaker: That is what's new, not the... not a new law.
Mr. Nielsen: That is correct.
Unknown Speaker: Maybe, but you, you don't know... you cannot say of your own knowledge that in fact churches that sell tracts in their vestibules or that sell candles or other things have been paying this tax.
Do you know that they have?
Mr. Nielsen: I have no reason to believe they are not We... California makes the best compliance effort as possible to go out and audit... it is a self-assessed tax.
We don't have an auditor to go out and look at every taxpayer to see that something is being done.
We have no... we have rulings that have held that transfers of tangible personal property, which would include that, are taxable.
And absent a specific case, I can represent that I am not aware of a specific case where that has come up.
Unknown Speaker: Well, one doesn't have to pay a self-assessed tax one believes is unconstitutional.
And it may well be that all the churches in California have been proceeding on the same basis that Mr. Swaggart proceeded on, that they didn't have to pay for these things.
I frankly find it, you know... maybe you do have agents who walk into the vestibules of churches and check out how many of these things are being sold.
Mr. Nielsen: With respect to that specific example, from my own personal information, being a Roman Catholic, is usually what is said in the vestibule of the church is the literature is there for the taking, whether you leave something or not.
And in a situation like that, where the intent, again getting back to your question regarding isn't it the intent of the parties that sort of determine a quid pro quo and so forth, the same thing here.
The intent of the church in that situation is to let someone come in and freely take that pamphlet or brochure, whatever, irrespective of whether there is a transfer of money or not.
In that situation, most likely, it is not a sale.
The church is probably a consumer of that property and Swaggart has concede that when you buy property that you should pay tax on it to the wine maker, or to whatever.
So in the situation I think you are referring to, Your Honor, is that it is probably not sale.
Swaggart's primary administrative burden arguments relate to determining what price items are sold for, and complying with a potential 7,000 jurisdictions.
Both arguments are overstated and contradicted by the evidence in the record.
Taking the last point first, California and Baton Rouge are the only ones taking Swaggart's sales.
So this risk is minimal.
And if it ever developed, there is evidence that Swaggart's computer system could be programmed to handle it.
Swaggart's other concern regarding donations versus sales is likewise overstated.
Swaggart was able to ascertain sales amounts for the period in question, and even though his records were not set up for said purpose.
Certainly for the future the evidence indicates that Swaggart can design an adequate system to comply for reporting purposes.
He can design forms.
Organizations deal with this problem for internal revenue service purposes, as recognized in Hernandez.
This Court recognized in Breard that the fact that periodicals were sold did not put them beyond the protection of the First Amendment, but the selling, however, brought into the transaction a commercial feature.
This does not mean that religious organizations are to be treated as commercial businesses, but only that when a religious organization seeks to raise funds by selling tangible personal property, it may become subject to non-discriminating general revenue-raising statutes such as the California sales and use tax law.
Swaggart also contends that another administrative burden in complying with the sales and use tax laws would be entanglement, caused allegedly through intrusive monitoring, on-site investigations, audits, allegedly all touching on religious matters of significance.
The record clearly doesn't support this and neither does common sense.
In fact, there would be more of a risk of improper entanglement if an exemption based solely on religious grounds is mandated.
The briefs of this case reflect a debate of what is and isn't religious, and what is and isn't core.
Swaggart has conceded that tax is due on t-shirts, mugs, pens and other items that it says
"do not have specific religious message content. "
Should courts be burdened with lawsuits to determine what items are core or contain religious message content.
Would symbolic items qualify: instrumental music, bumper stickers, making such determinations would clearly involve entanglement concerns under the First Amendment.
If the Board is compelled to grant exemptions based on religious content, then the potential for discrimination against religious... religions, could exist due to administrative decisions as to what is or isn't religious.
This potential for discrimination has been disfavored by this Court, especially when exercised on a case-by-case basis.
My next point is that the Board's position is not inconsistent with Murdock and Follett, as asserted by Swaggart in his reply brief.
It is correct the Board does not rely on the privilege analysis undertaken by this Court in Murdock, because it was effectively overruled by this Court in Complete Auto.
As a proper analysis, it is based upon the nature of the tax rather than its label.
Contrary to Swaggart's assertion in his reply brief, the Board distinguishes Murdock based upon the difference between all the facts in that case from those present in this case.
Murdock involved a special occupation tax, a flat tax, payable in advance, unrelated to receipts or income of the solicitor, and imposes a condition to solicit.
It was a prior restraint.
None of these facts exist in this case.
As this Court observed in its footnote 9 in Minneapolis Star, a generally applicable sales tax is distinguishable from the taxes in Murdock and Follett.
Justice Brennan in Texas Monthly observed that the sales tax there was equal to a small fraction of the value of each sale, and in view of its generality, could not be viewed as an attempt to curtail religious activity.
My final point concerns exhaustion of administrative remedies.
Swaggart asserts that it was not required to exhaust administrative remedies regarding Nexus because the California courts did not always follow said rule.
Swaggart misstates California law on this point.
Sales and use tax matters, this Court, in Richfield Oil Corporation v. State Board of Equalization, a 1946 case, recognized the jurisdictional procedural requirement for filing a claim and setting forth the grounds in said claim.
The court of appeals analysis in Swaggart below clearly states California law on the issue of exhaustion.
California sales and use tax law achieves a religious neutrality in its application because sales of tangible personal property are subject to tax, irrespective of the contents or who is selling or who is buying that property.
Swaggart is using the Free Exercise Clause as a sword to claim an exemption that it does not mandate, and that California would otherwise be prohibited to give a religious organization under the Establishment Clause.
I think it is interesting in this case that Swaggart concedes that the individual that goes to a bookstore has to pay tax, to a commercial bookstore, or I guess now even a nonprofit bookstore.
But its only concerns are whether Swaggart is involved in the transaction or not.
I think that is a line that just doesn't seem reasonable.
These... as pointed out by one of the judges, when someone reads a book or buys a book, is he not doing it for basically the same purpose when he is buying it from Swaggart?
Initially in their brief they started out with a proposition that religious organizations are exempt from tax.
Then throughout their brief they sort of moved away from that position and narrowed it down to only when they sell religious material.
Initially they started this case saying because they had less funds that was a burden, but they concede that by paying other secular taxes on other types of materials that they use they have less funds--
Unknown Speaker: Well, they have lost all along the line.
It would be strange if they didn't change their argument, wouldn't it?
Mr. Nielsen: --That's the point.
Unless there is any questions, I have concluded.
Unknown Speaker: Thank you, Mr. Nielsen.
Mr. McConnell, do you have rebuttal?
You have four minutes left.
Rebuttal of Michael W. McConnell
Mr. McConnell: Thank you, Mr. Chief Justice.
Just a few points.
It is interesting to hear my friend talk about California's commitment to no exemptions from its sales tax, and how long this practice has been in effect.
I have here the Sales and Use Tax Law, Chapter 4 Exemptions.
There is a page and a half of them, beginning with gas, electricity and water, gold monetized bullions, vessels, ice, bottled water, bracelets commemorating American prisoners of war and, most importantly, newspapers and periodicals, the value of which in total is many times the value of religious materials.
The state is evidently engaged in riddling its tax code with exemptions.
It is just not interested in the free exercise of religion.
However, there is also the problem that perhaps this is a new-found proposition.
My friend says that this practice of the state of taxing religious articles goes back to the '30s or the '40s, but, as we have cited in our brief, the... an official opinion of the state attorney general issued in 1980 which flatly contradicts that proposition.
Now, I gather that there is some difference of opinion between the Board of Equalization and the state attorney general, but at least his opinion, upon which we relied during the tax period, would seem to stand as some kind of an authoritative statement of the state's position on this.
I might add that after the administrative proceeding in this case, a different appellant court and a different division in California, and the Institute for Basic Youth Conflicts, also held that as a constitutional matter California could not impose a sales tax on religious organizations disseminating religious material.
So this is not such a long-standing practice.
The final observation I would like to make is that I don't want the Court to forget, just because it hasn't been a subject of the argument today, that there is the second problem of the chilling effect on an out-of-state ministry of the way California calculates Nexus.
Because under the Commerce and Due Process Clauses, California would not be able to require a ministry located in Louisiana to pay any of this tax at all, but for the fact that the ministries conducts occasional worship services, evangelistic crusades within the state--
Unknown Speaker: Well, did the... did the court below pass on your Nexus argument?
Mr. McConnell: --It was presented to the superior court--
Unknown Speaker: Did it pass on it?
Mr. McConnell: --and it did not pass on it.
No, Your Honor.
The impact here is quite plain, if you, if you are conducting a national ministry and you have mail transactions with your adherents throughout the country, you had better not go and conduct any worship services in California.
It could be a very costly thing to do.
It is that kind of chilling effect that we believe that the Free Exercise Clause prohibits.
The general theme of my friend's presentation is his statement, and I quote,
"The concern of crippling a religious organization is left to the political process. "
Your Honors, I submit that that is not true, that the concern for crippling religious organizations at the hands of the state was this very subject of the First Amendment.
Chief Justice Rehnquist: Thank you, Mr. McConnell.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 88-1374, Jimmy Swaggart Ministries versus Board of Equalization of California will be announced by Justice O’Connor.
Argument of Justice O'Connor
Mr. O'Connor: This case comes to the court on appeal from the Court of Appeals of California.
In an opinion filed today, we hold that California’s imposition of sales and use tax liability on a religious organization’s sale of religious materials does not contravene the religion clauses of the First Amendment.
The collection on payment of a generally applicable sales and use tax does not violate the Free Exercise Clause because such a tax imposes no constitutionally significant burden on an adherence religious practices or beliefs.
Neither does such a tax violate the Establishment Clause because a state does not foster excessive entanglement with religion simply by imposing these generally applicable administrative and record-keeping duties on religious organizations.
Because the issue is not decided below, we do not reach the claims that imposition of the tax on certain mail order sales violates the Commerce and Due Process Clauses.
The judgment of the California Court of Appeal is affirmed and the decision of this Court is unanimous.