LEATHERS v. MEDLOCK
In 1987, Arkansas amended its Gross Receipts Act (GRA), imposing a tax on cable television but not on print media. Cable companies and others filed suit in the State Chancery Court, alleging that taxing cable services, but not print and satellite broadcast services, violated their First Amendment expressive rights and 14th Amendment equal protection rights. In 1989, after the Chancery Court upheld the amendment, Arkansas again amended the GRA, extending the tax to satellite broadcast services. On appeal, the State Supreme Court upheld the GRA. However, the court ruled that the First Amendment prohibits differential taxation among members of the same medium. Therefore, because cable and scrambled satellite television services are essentially the same, the tax was unconstitutional when it applied only to cable services.
Does differential taxation of different media violate the First and 14th Amendments? Does differential taxation of members of the same medium violate the First and 14th Amendments?
Legal provision: Amendment 1: Speech, Press, and Assembly
No and no. In an opinion delivered by Justice Sandra Day O'Connor, the Court held 7-2 that without the intent or effect of suppressing expression, the First Amendment allows differential taxation of different media and differential taxation of some members of the same medium. Specifically, the Court held that the GRA was a generally applicable sales tax, and that its burden on cable television, while exempting the print media, was content- neutral, not directed at a select few, and not intended to interfere with expression. The Court went on to rule that the First Amendment allows a differential tax burden on some members of pay television services (that is, a tax on cable but not satellite services), if the tax is not intended to suppress expression. The Court ordered the State Supreme Court to address the 14th Amendment claim on remand. Dissenting, Justice Thurgood Marshall, joined by Justice Harry A. Blackmun, argued that the First Amendment non- discrimination principle prohibits a heavier tax burden on one medium and not other media.
Argument of William E. Keadle
Chief Justice Rehnquist: We'll hear argument first this morning in No. 90-29, James C. Pledger v. Daniel Medlock, and 90-38, Daniel Medlock v. James C. Pleasure... Pledger, I'm sorry.
Mr. Keadle: Mr. Chief Justice... Mr. Chief Justice, and may it please the Court:
Arkansas law provides for gross receipts tax of general applicability to sales of all tangible personal property in Arkansas in certain services.
The law also provides for certain enumerated exceptions, one being an exception for sale of newspapers.
The... since 1987 the tax has been applied to sale of cable television services, and in 1989 the gross receipts tax law was amended to add to the sales tax the service of descrambling of satellite services provided to home dish owners.
The same general gross receipts tax is applied to many businesses, like cable TV service, that being home video rentals, books, magazines, admission to sporting events.
The respondents in this case, who are the petitioners in 90-39, have challenged the Arkansas tax because an exemption, as is extended to newspapers, is not also extended to the sale of cable television service, citing that there is a similarity between the two services.
The law does not in fact violate the First Amendment for the reason that cable television service is a distinguishable medium from the newspapers.
The State is not arguing that cable television is not entitled to some First Amendment protection.
It's just that the ability to tax one of the medium, one of the media is not necessarily binding the State to tax the other medium in the same way.
The tax involved does not single out the press, nor is it content based.
The taxpayer would have you believe that it should be compared to newspapers to be actually a group within the press that is being singled out for special treatment.
Unknown Speaker: The Supreme Court of Arkansas, Mr. Keadle, said that the tax was invalid insofar as it applied to cable TV operators but did not extend to satellite dish operators?
Mr. Keadle: Yes, Mr. Chief Justice, that's correct.
Unknown Speaker: And you're appealing--
Mr. Keadle: That is the issue that the State is appealing.
Unknown Speaker: --You're appealing that ruling?
And then you're defending the ruling of the Supreme Court of Arkansas when it held that it was not invalid to distinguish between cable operators and newspapers?
Mr. Keadle: Yes, Your Honor.
Unknown Speaker: Is the satellite issue still in the case?
Mr. Keadle: Well, Your Honor, the--
Unknown Speaker: The law has been amended?
Mr. Keadle: --Yes, it has.
After the... approximately 11 days after the trial court made its ruling--
Unknown Speaker: I see.
Mr. Keadle: --upholding the tax, the law was changed.
Now, this was before--
Unknown Speaker: But you would still like to argue that it was not invalid prior to amendment?
Mr. Keadle: --Yes, Your Honor.
Unknown Speaker: Okay.
Mr. Keadle: --somehow inconsistent, but the basis of our argument is--
Unknown Speaker: The legislature might go back, if you want.
Mr. Keadle: --Well, that could well happen, but, Your Honor, we are arguing that the tax as it stood in 1987 was constitutional due to the fact that, although evidence was presented that these two media provided similar types of services, that there was a difference in the two media that would justify the different, different tax treatment.
Unknown Speaker: How much is involved in that interim period, between 1987 and 1989?
Mr. Keadle: Between 1987 and 1989, at the time the taxes were escrowed in the case it was approximately $6.2 million.
At present, after the Arkansas Supreme Court ruled in the case, the respondents went back into court and asked that the escrow account be reestablished.
Instead an agreement was reached between the parties whereby the State would reserve an amount in one of its refund accounts to compensate for the $6.2 million plus accumulated interest.
I believe now it stands at somewhere around $8.1 to $8.5 million.
Unknown Speaker: And if this Court were to reverse the Supreme Court of Arkansas and say that the statute in effect before the legislative amendment went into effect was constitutional, the State would recover some money, then?
Mr. Keadle: Well, Your Honor, it is not a true escrow in that sense.
There is not... it's more rather that the State would not have to make that refund out of its existing refund accounts.
Unknown Speaker: Oh, I see.
So that, that is the tangible dispute, whether the State has to refund taxes that it collected?
Mr. Keadle: Yes, Your Honor.
On one hand there will be a refund of taxes collected prior to the 1989 change, and in the other instance the tax is ongoing.
There will be a request for refund of that money, too.
As I had stated before, there is really no First Amendment violation in terms of treating two like entities differently for tax purposes--
Unknown Speaker: Well, is that because they don't compete?
Mr. Keadle: --Well, Your Honor, in some sense they do compete for viewer dollars, consumer dollars.
It's more of a fact that physically they are different services.
In the cable situation you have a process--
Unknown Speaker: Well, I suppose we can tell when... you can read a newspaper, and you watch a television screen.
They're dissimilar in that... in that respect.
But for purposes of our determining the scope of the First Amendment, can't we say that these media are in competition?
I take it cable offers a wide variety of news broadcasts in Arkansas, including 24-hour news, I suppose, on some channels?
Mr. Keadle: --Your Honor, I think it's clear that in fact evidence presented at the trial showed that many of the types of programs that cable offered were indeed similar to those provided by newspaper.
But the difference here is in the physical make up of the two services and how does this burden on the Government to--
Unknown Speaker: Well, but didn't the Arkansas Supreme Court say that there was no competition between the two, or am I wrong about that?
I thought the Arkansas Supreme Court said well, we... they're not really competing in the same way.
Mr. Keadle: --That is between cable and newspaper?
Unknown Speaker: Yes.
Mr. Keadle: Yes.
That statement was made, and that is what is at issue here.
Unknown Speaker: Was that based on some factual findings?
Mr. Keadle: Well, I think it was more a review of past cases of this Court that had not necessarily made the distinction between cable and newspapers as being competing interests, even though, even though the evidence presented was they are similar types of programs.
They are still different... different entities.
The tax involved in this case--
Unknown Speaker: Mr. Keadle, what, what is your theory of the law?
Do you acknowledge that it is contrary to the First Amendment to tax differentially two media that are in competition with one another?
That the test is whether they are competing, and if they are competing, you cannot tax one differently from the other?
Is that a--
Mr. Keadle: --Your Honor, I don't think the basis--
Unknown Speaker: --proposition you accept?
Mr. Keadle: --No, I don't believe it's whether the two are competing necessarily.
That may be a factor in the determination, but--
Unknown Speaker: Well, what is it?
Mr. Keadle: --other aspects have to be looked at.
Unknown Speaker: Oh, I see.
Well, what is the criterion, if it's not that?
I mean, that one I understand.
What is it if it's not that?
Mr. Keadle: Well, the criterion that the State is arguing and that we're looking at is the type of burden that is placed on the Government by the two types of services.
In your newspaper situation you don't have certain aspects that you have in cable, like the stringing of the cable along the public rights-of-way on wires, underground, the basic interference with the Government function, and also--
Unknown Speaker: Well, that's a difference between the two, and there are a lot of other differences between the two.
So I... is what you're saying is that, as with any other tax, a rational basis distinction between the two is enough to support a differential tax?
Mr. Keadle: --Yes, Your Honor.
When we are dealing with a tax that is not content based or does not... and where the similarity between the two comes into play is when you're not dealing with two similar enough entities to make that distinction, then you do use the rational basis test.
Unknown Speaker: So it's just the same test that applies to all taxation?
There has to be a rational basis between the two, you say, so long as you're not discriminating on a subject matter basis?
Mr. Keadle: That's correct, and I believe this Court's decision in another Arkansas case, the Writer's Project case--
Unknown Speaker: Yes, but what about a tax on ink and typesetting?
Mr. Keadle: --Your Honor, I believe this Court has also stated that an effect on a newspaper, that particular... that particular example in the Minneapolis Star case, that when you examine it and see that the effect is had only on a few members of the press, in that case a small group, a use tax on publishers, rather that it was shown--
Unknown Speaker: Yeah, but surely there was a rational basis to distinguish publishers from other people.
I mean, they're different from other people in a lot of ways.
They put different burdens on the State's economy, and so forth.
Wasn't there a rational basis there to distinguish between?
I mean, I want to tax ink, and I don't want to tax non-ink.
Ink is different from non-ink.
Mr. Keadle: --Your Honor, I believe there was a rational basis there--
Unknown Speaker: But we struck it down anyway.
Mr. Keadle: --The Court struck it down because the tax in effect targeted a small group within one entity.
Unknown Speaker: In other words a group within an entity that was competing with each other.
So we're right back where you say we aren't.
Mr. Keadle: Well, in effect it was the same entity.
Unknown Speaker: Pardon?
Mr. Keadle: It was the same entity, as opposed to competing entities.
Unknown Speaker: The same as opposed to competing?
The same in what sense?
Mr. Keadle: The same in the sense that--
Unknown Speaker: They're different newspapers.
Mr. Keadle: --the tax was on publishers.
Yes, they're different newspapers, but they are newspapers.
They are a member of the print media, and the distinction we're making here is they're two different types of media.
They are competing, but the differences are physical.
Unknown Speaker: So in one-half of the case it depends on whether scrambled television systems are really the same media as unscrambled television systems, is that's your criterion, right?
That's the question before us, whether they are like two different newspapers or not?
Mr. Keadle: Well, Your Honor, I believe in that situation you can actually distinguish between the satellite service and the cable TV service in that... in that basically the way the program is received in the home, in one instance, satellite service, can be distinguished from cable.
Cable, again, uses public ways and performs a type of intrusion on the Government, while the... in the satellite dish situation the signal is beamed directly into the home and there is not, there is not a basis to distinguish on in that instance.
Unknown Speaker: May I ask, don't the newspapers use public property to sell their newspapers?
Mr. Keadle: --Yes, Your Honor, to some extent that is true.
Unknown Speaker: Then how... what happens to your distinction?
Mr. Keadle: Well, I believe the distinction is still there.
A look at other types of Government protection afforded to cable, cable service, such as franchises, rate regulation--
Unknown Speaker: Of course they pay for the franchises, don't they?
Mr. Keadle: --Well, Your Honor, it's true there is some payment for the franchise, but I don't think it's clear also that that is necessarily full compensation for that service.
Unknown Speaker: But isn't it true the newspapers don't pay anything for the newsstands on public property?
Mr. Keadle: That's true, Your Honor, and that may... and the distinction there may well be more of a basis upon how administratively easy it is to collect the tax from newspapers as opposed to cable.
I believe the evidence in the case shows that the collection of tax from, or the collection of revenues for the satellite service was actually to some extent being conducted by the cable operators themselves.
It does not appear at any fee.
I think this becomes important when you look at the fact that the Arkansas legislature changed the law before the Arkansas Supreme Court ruled that these were similar.
Unknown Speaker: Yeah, but administration of a sales tax on newspapers probably isn't any harder than sales tax on candy bars, is it?
Mr. Keadle: Your Honor, that may well be true.
I know that that is a distinction the Court has brought out at times, specifically, I believe, your concurring opinion in the Minneapolis Star case, that based a distinction that there is at least some administrative inconvenience in collecting the tax of newspapers.
Admittedly, maybe it's similar to others, but that distinction has been made.
Unknown Speaker: In Arkansas, what do... what public property does the... do the cable companies use?
Mr. Keadle: Well, in effect they use both, both the wires, the wires and underground conduits.
They make use of the public streets to lay these... lay these wires.
And that not only... not only causes problems necessarily in traffic and other means, but there is actually a physical use of phone wires--
Unknown Speaker: Do they use telephone poles?
Mr. Keadle: --Yes.
Yes, they do.
I think in Arkansas both methods of using the above ground poles and underground conduits are used.
Unknown Speaker: Did the Arkansas Supreme Court find that cable television pays a franchise fee for the use of the public right-of-way?
Mr. Keadle: Your Honor, I believe that--
Unknown Speaker: I thought that was included in their findings?
Mr. Keadle: --Your Honor, that was indeed mentioned in the findings, but I would submit that that finding is not completely correct, given the fact that this Court in the Preferred Communications case has at least sent that case back down for more evidence on how that fee is collected and how it is used.
Unknown Speaker: So you don't support the opinion of the court below on that point, is that it?
Mr. Keadle: Your Honor, I believe that the evidence that we have can allow us to make a decision without necessarily addressing that portion.
I would have to say that I do recognize that there is a franchise fee paid and what it goes to.
But that it's not necessarily a full compensation for the intrusion of the public rights-of-way.
I believe the Arkansas Supreme Court said that the fact that there was a franchise fee fully satisfied the problem.
Therefore they rejected the public rights-of-way argument.
Unknown Speaker: Mr. Keadle, I suppose the State of Arkansas can impose a tax on candy and not impose a tax on ice cream if it wanted to, couldn't it?
Mr. Keadle: Your Honor, I would think so.
Unknown Speaker: And you wouldn't have to show that candy used public facilities or the public streets more than ice cream or anything of that sort?
Mr. Keadle: No, Your Honor, I think--
Unknown Speaker: You'd just come up here and you'd say candy is different from ice cream, right?
Mr. Keadle: --Well, Your Honor, the--
Unknown Speaker: So why... what you're saying today is that cable is different from scrambled... un... you know--
Mr. Keadle: --Well, the difference in the two examples, one being the candy and the other being the difference between cable and newspaper and cable and scrambled satellite services is to what extent the respondents' First Amendment rights are being violated.
Unknown Speaker: --Well, I understand, but what I don't get from you, what I don't understand is what your theory is.
Do you acknowledge that in order to make a distinction between two media, a State must show a compelling State interest?
Do you acknowledge that?
Mr. Keadle: No, Your Honor, I do not.
Unknown Speaker: Well, if it's not a compelling State interest that has to be shown, what must be shown beyond what has to be shown in the candy and ice cream illustration?
Anything other than the two things are different and we chose to tax... choose to tax the one and not the other?
Mr. Keadle: Your Honor, I believe on one hand this Court has recognized that the need for the State to raise revenue is a rational basis for making any decision to tax a certain subject.
Unknown Speaker: Well, on that instance I suppose you could have taxed the press and exempted cable?
Mr. Keadle: Yes, Your Honor.
I submit that we would very well probably be up here trying to make another distinction, but I believe that the cases indicate that we could, we could make that distinction and reverse around.
Unknown Speaker: I thought there was language in some of our opinions that when a tax is placed on the media in what appears to be some discriminatory fashion, that the State has to come up with a strong State interest for making that differential tax.
Mr. Keadle: Well, Your Honor, that--
Unknown Speaker: Is that right, that there's some heightened scrutiny when the First Amendment is involved?
Mr. Keadle: --Well, Your Honor, that does bring to mind the O'Brien case that in effect stated that the interest should be... should be important or substantial.
That may well indicate that a higher level of scrutiny should be used.
I believe it goes to--
Unknown Speaker: How about Arkansas Writers and Minneapolis Star?
You don't think that those cases indicated that some form of heightened scrutiny was being employed?
Mr. Keadle: --Yes, Your Honor, I feel that that was suggested in a case where, as in Arkansas, that, that interest was needed to justify a content based discrimination.
In this instance the tax is levied on all cable operators, regardless of the content of what they provide.
Unknown Speaker: But it's also a State sales tax, isn't it?
Mr. Keadle: Yes, Your Honor, it's applied to--
Unknown Speaker: That applies not just to the press, I mean not just to the media--
Mr. Keadle: --Oh, it applies to all similarly situated businesses.
Unknown Speaker: --Yes.
Mr. Keadle: The newspaper, in effect, is part of a limited number of exemptions.
Unknown Speaker: Exactly.
Mr. Keadle: And the fact that--
Unknown Speaker: So the real issue is whether you can distinguish between one form of communication and another?
Mr. Keadle: --Yes, Your Honor, I feel it's very clear here that not only is that content based--
Unknown Speaker: Now, sales of newspapers and magazines sold by subscription are exempt?
Mr. Keadle: --Yes, Your Honor.
Unknown Speaker: And cable services are generally sold by subscription, I take it?
Mr. Keadle: Yes, Your Honor, that is correct, too.
Unknown Speaker: Could the State tax magazine subscriptions and not newspapers?
Mr. Keadle: Your Honor, I believe that that would be within the State's province to do, again subject to a challenge on why it was done.
Unknown Speaker: On the grounds that we say they're different?
Mr. Keadle: Well, that would be the first argument.
Yes, they are different.
I think a further look would have to be made at, again, if there is any legislative history as to why--
Unknown Speaker: Suppose we show... suppose it is shown that they compete for the same consumer dollar?
I'm not sure you can make that showing, but suppose that showing were made in a particular case?
Mr. Keadle: --Your Honor, I don't--
Unknown Speaker: Would that have a bearing on whether or not they are different, or is that just something we don't look to?
Mr. Keadle: --Your Honor--
Unknown Speaker: We look to some metaphysical difference between newspapers and magazines, and metaphysical difference is fairly easy to establish, I suppose.
Mr. Keadle: --Your Honor, I think that would have a bearing on the matter, again.
I think on a case-by-case basis we'd have to look at, look at other considerations.
I do not think that the fact that they compete for the same dollar alone would be, would be enough.
Unknown Speaker: What's the... in the cases, what is the standard that has been applied that, sustaining the right of localities to license cable operators but to exempt newspapers from license?
Just a rational basis?
Mr. Keadle: Your Honor, I believe that in effect is a higher point, too, when you're looking at a regulatory... well, in fact taxation, too, is a regulatory form of restriction.
But that type of restriction more goes to the absolute restriction of a media to speak at all, as opposed to a tax exemption which might have some burden, but the message is going to be conveyed as long as the tax is not content based.
Mr. Chief Justice, I'd like to reserve the rest of my time for rebuttal.
Unknown Speaker: Very well, Mr. Keadle.
Mr. Sayre, we'll hear from you.
Argument of Eugene G. Sayre
Mr. Sayre: Thank you, Mr. Chief Justice, and may it please the Court:
I would like to first state the theory of the case on behalf of the operators and subscribers to summarize the relief that we seek and then to discuss the merits of the case.
First, the theory is, as enunciated in this Court's Minneapolis Star case, that if we have a differential of taxation between different forms of the media, then, even though the Court said that it does not in essence make such a compelling force on the speaker that it totally keeps them from speaking at the time, that that presence and the threat of future differential taxation is such that it puts a burden on the State to show a higher or the compelling interest.
And in this particular case we believe that the taxpayers and the cable operators have sufficiently established that the method of delivering news information and entertainment by the cable electronic message is exactly the same as that that is delivered in the print, either newspapers or magazines, and in fact the trial court stated that our witnesses referred to this as an electronic magazine.
Now the method, or the relief that we're seeking is a reversal of the latter part of the decision and an affirmance of the first part.
As Mr. Keadle said, the Arkansas Supreme... legislature amended the law because we had established at the trial in this case that the direct broadcast satellite, or the scrambled services, were not being taxed and were delivering exactly the same type of information, news and entertainment, virtually identical, to the cable that was taxed, that for that 2-year period the tax was unconstitutional under this Court's Minneapolis Star and Arkansas Writer's Project rationale.
However, we have never had an opportunity in the second stage of the case to present any evidence to attack that, because it was after the trial court's decision.
We believe if this Court will accept the broader approach that we have suggested, and that is that print and the cable are similar, sufficiently similar, that the same tax should be applied to the same or they are unconstitutional without a compelling interest being shown by the State, then you should reverse the Arkansas Supreme Court on the approval of the second or amended law.
However, even if you find that only the electronic media is similar and that we should narrow the approach or the look to those particular entities, we have submitted the affidavits in the petition for rehearing simply to establish that there is a factual difference.
The Supreme Court of Arkansas noted twice in the opinion that the Act 769 was not before the trial court, and did not pass upon it.
And therefore we submit that even if the Court should narrow the limitation of the view in this case, that we should be entitled on remand... the Court should vacate and we should be entitled on remand to present evidence on the amended statute either in this case on remand or in another case without the threat of collateral estoppel or res judicata being raised.
Unknown Speaker: Well, I see that in your brief you refer to cases since Minneapolis Star, and you say, these courts have held that unless there is some logical reason for distinguishing between different segments of the mass communications media, cable television services should enjoy the same First Amendment rights.
Is that your standard... logical?
Mr. Sayre: Well, the... it's a compelling.
The standard, if we're applying--
Unknown Speaker: You mean logical is at least compelling?
Mr. Sayre: --Well, what I'm... Mr. White, if I have stated... there is no logical distinction between the two inasmuch as they are transmitting and conveying to the public the same type of information.
I think that there has to be a compelling interest shown on the State to show a differential between them, and that the reasons the State has offered here, the use of the public right-of-ways or the pervasiveness of television in the home, with regard to a... not a regulation of the entry or the access but with regard to the application of the tax is not logical.
Unknown Speaker: Mr. Sayre, if you say that a compelling State interest is required in order to have a tax that distinguishes between types of media, you're going from what was the standard before Minneapolis Star, which was that any rational basis would support a tax distinction, you know, Lenhouse v.... and those cases, that that was where the latitude awarded to the Government was the greatest, to a situation where the Government can virtually never prevail.
You say that's the import of Minneapolis Star?
Mr. Sayre: If there is a differential in taxation, Mr. Chief Justice, I would say that is probably the case.
But we have attempted here to target or to limit our scope of review to those entities that are First Amendment speakers, that are members of what we refer to as the mass communications media, those that are transmitting as part of the press, either electronic or print.
Unknown Speaker: Well why would it be so limited?
We had a case involving nude dancing here yesterday, as to whether that was communicative.
Now, would a State have to tax the bookstore that was presenting the nude dancing the same way it taxed other forms of communicative activity?
Mr. Sayre: We don't... I was going to say have that situation in this case, but I would say that that argument certainly could be made by the bookstore operator with regard to what he was selling to the public.
We are not in anyway asking for the Court to make that broad a distinction in this case because what we have before you is what we consider virtually identical methods of transmission.
The only difference is one is paper and one is electronic.
Now in that particular--
Unknown Speaker: What about telephone services?
I take it now that if you dial, I don't know if it's 800 or 900, there are all sorts of information services, sports, news, and so forth, that you get on the telephone.
Is that... does the State have to have a compelling interest before it can tax the telephone service company if it exempts your industry?
Mr. Sayre: --Justice Kennedy, I would say that, again, as the Chief Justice, that is an argument that the telephone companies could raise, whether it is--
Unknown Speaker: Well, we have to write the opinion, and we want to know the consequences of the theory that you're advancing.
Can you, can you answer this question?
Mr. Sayre: --The consequences would be--
Unknown Speaker: It seems to me the consequences are they're engaged in dissemination of information and that they qualify for the exemption.
Mr. Sayre: --And they are... in the case of when they're acting other than a common carrier, and they are originating the information, they probably have that same constitutional right.
Unknown Speaker: Because I can think of no case in which we... in which a State has been able to show a compelling interest, of course we have never asked them to do so, but I can't think of how a State could show a compelling interest to justify any tax exemption or any tax discrimination.
Mr. Sayre: The situation that I think, Mr. Kennedy, that this case presents is exactly the one that was left open in the Arkansas Writer's Project case, and that is that in the instance, in the first part, the 1987 to 1989 part of this case, that being when the direct broadcast satellite services were not taxed.
We have exactly the same type of programming being delivered, and there is a differential between cable and between the satellite broadcast.
This is the same type of situation that existed in Arkansas Writer's Project, where some magazines were taxed and other magazines were not taxed.
After the amendment in 1989--
Unknown Speaker: That was on the basis of the subject matter of the magazines.
You can certainly distinguish that case on that ground.
This is not a subject matter distinction.
Mr. Sayre: --Then, Mr. Scalia, with regard to the part that was reserved in Justice Marshall's decision in that case, of whether or not the difference between... taxation between periodicals would be an additional basis... was reserved, and I think that is exactly what is presented in this case.
We have a different type of periodical, be it electronic or be it print.
We have a differential in taxation.
And again we go back to the Minneapolis Star decision of this Court and the policy matter, the decision matter that there is a distinction being drawn between similar media, and as such that once we have established that we are providing the same type of information, and once we have established that we are being discriminated in the imposition of the tax, in this case a general tax and exactly the same tax that was in Arkansas Writer's, then the burden or proof on the strict scrutiny or heightened scrutiny switches to the State to show that it has some strong or compelling interest to be served by this differential in taxation.
And we do not believe that the, the use of the right-of-ways or the pervasiveness of television are sufficient for tax purposes to sustain that.
Unknown Speaker: Does it constitute an unconstitutional discrimination that has to have a compelling justification if the type of tax at issue, although it's applied uniformly to anyone, is simply a tax that does not happen to fall on one of the media?
Let's assume... well, a sales tax.
Let's assume that most of the broadcasters in Arkansas don't sell their advertising locally, that the sales are made by the networks to nationwide advertisers and what not, so that the over-the-air broadcasters in Arkansas really don't make any sales to people.
Now, would a uniform sales tax that applies to newspapers, cable owners, and everybody else, but that happens not to bite the over-the-air broadcaster because he is not selling anything in Arkansas, is that kind of a tax unconstitutional, too, because it has this--
Mr. Sayre: In the particular instance here, the sale, I mean, the sales tax is imposed as an excise tax on the sale.
Unknown Speaker: --No, I understand that--
Mr. Sayre: So I think that would be a distinction that would be drawn.
Unknown Speaker: --No, but I'm trying to test the breadth of the principle you're urging us to adopt.
Is the principle that you have to treat all media equally, or is it just that you can't make an exemption from a particular tax for some media and not for others?
But so long as you design your tax correctly so that it happens to hit some of them and not others, that's okay?
Mr. Sayre: I would think, in response, Mr. Scalia, that it would have to apply generally, and that is what this Court's admonitions in Minneapolis Star and Arkansas Writer's meant to say.
Unknown Speaker: Mr. Sayre, the members of the Court should be addressed as Justice.
Mr. Sayre: Excuse me, Chief Justice.
In that particular instance I think that the cable industry in Arkansas pays sales tax upon any purchases that it makes, in the same manner that the broadcast media or the print media pays a sales tax or a use tax upon tangible personal property.
It is only in the instance... or all tangible personal property is subject to tax in our State.
The... only certain enumerated services are subjected to tax, and you don't have the presumption that all services are taxed, as you would all property.
And in this particular instance they have chosen only... the legislature has... to extend the tax to certain entities within the media and to exclude others.
And we believe that there is no compelling interest, or any logical reason for that.
Unknown Speaker: But Mr. Sayre, I think... I'm really not sure you're answering Justice Scalia.
Suppose you reversed the situation and said the tax applied to sales of all tangible property, and therefore newspapers are subject to tax, but cable would not be because they don't sell anything tangible.
Would that be constitutional in your view?
Mr. Sayre: I do not believe it would, because I believe that the newspapers stand in the same strike that cable would.
Unknown Speaker: Thank you.
Mr. Sayre: The... this Court in the application of the First Amendment rights of the press and speech to cable TV treated it as a passive receiver in the 1960's and 1970's.
But in 1979 this Court's decision in the Midwest Video case, the second Midwest Video case, you found that the FCC had gone beyond its jurisdiction.
The result is that Congress acted in 1984 to establish a comprehensive policy for cable.
In that, the hearings on that, or the report, there is a substantial amount of detail given or consideration given to the First Amendment rights of cable, and how both the cable operator and the cable subscribers' First Amendment rights should be protected and were trying to be protected by Congress in that act.
In particular in Section 542(g), Congress states that there should be the ability to subject cable to general taxes, such as sales and income, and this type, but it said not in a discriminatory manner.
And that is what we are objecting to here, is that the tax in Arkansas has been subjected in a discriminatory manner against cable and not against the similarly situated entities within this mass communications media.
Unknown Speaker: But the discrimination is not... there's no discrimination between cable and other retail businesses?
Mr. Sayre: No, there is not.
It is part of the general tax that is imposed upon retail sales.
The only difference is that it has not been extended to the sale of magazines by subscription, the sale of the newspapers--
Unknown Speaker: So I suppose the State, in your view, could solve the problem either way, by extending the tax or exempting cable?
Mr. Sayre: --That is correct.
They could... they have either decision, either tax all media or tax no media.
Unknown Speaker: Would they need some kind of a compelling interest to include all of the media in the sales tax?
Mr. Sayre: No.
Because this Court has ruled that... and we accept as a standard, that a tax of general application that is applied to all media would have to be borne.
We're not trying to say that we're not subject to tax.
We're simply saying we're not subject to tax in this discriminatory way in which the State has attempted to impose it here.
Unknown Speaker: And why should the exemption of the press be subject to... the exemption of newspapers be subject to a compelling interest if taxing all of the press would not require a compelling interest?
Mr. Sayre: Because of, as this Court stated in the Minneapolis Star case, it offers the incentive for the legislature to act as a carrot and a stick, to play one media off against the other, to offer if you change your viewpoint we'll take the tax off or we'll exempt you.
That potential exists.
And, as Justice O'Connor stated there, it's not just what the tax is being imposed here, but it's the... perhaps the promise or the potential for other differential taxes--
Unknown Speaker: Do you think the congressional decision to subject cable to licensing is constitutional?
Mr. Sayre: --With regard to the First Amendment, as when newspapers are not subjected to--
Unknown Speaker: No, no.
Mr. Sayre: --Acting under the Commerce Clause, the Congress can generally exercise any power over--
Unknown Speaker: Oh, yeah, yeah.
Mr. Sayre: --So--
Unknown Speaker: How about is it constitutional... does the First Amendment interfere with that decision by Congress?
Mr. Sayre: --A number of courts have indicated that exclusive franchising, it does, because that there ought to be more than one speaker, that there's no reason... no logical or compelling reason to limit it.
And I think that that is a valid distinction that should be made.
Unknown Speaker: Well, do you think Congress really needed to demonstrate a compelling interest to subject cable to licensing but not newspapers?
Mr. Sayre: But... well, Your Honor, I think they perhaps have shown the compelling interest, and that being the licensing of the franchises--
Unknown Speaker: What are they?
Mr. Sayre: --The licensing and franchising of the use of the public property.
Unknown Speaker: What is the compelling interest?
Mr. Sayre: The... again, the predominant use or continued use of the public right-of-ways in that instance is one that--
Unknown Speaker: But you don't think applying the sales tax can be justified as a... on that basis?
Mr. Sayre: --Not on that basis.
Unknown Speaker: Why not?
Mr. Sayre: Because there is... it has no logical connection with it.
The franchise fee, the payment for the use of that right-of-way, does.
And that's what cable pays, is a... that plus the pole rental is for the rental or the use of that public right-of-way.
The sales tax is not directed.
It does not compensate the State for that particular use, and that is exactly what the franchise fee does.
Unknown Speaker: Mr. Sayre, suppose a State says, suppose we come out the way you want and the State says gee, we can't tax these media differentially.
What we'll do instead is we'll subsidize some of them and not subsidize others.
Is that okay?
Can you, can a State subsidize media differentially?
Mr. Sayre: The subsidation would probably bring into consideration this Court's decision in Reagan v. Taxpayers with Representation.
It perhaps would lower the standard, but it is an instance in which it is not a direct effect upon the speaker's--
Unknown Speaker: It isn't?
I mean, to give public money, let's say public broadcasting is, is an example where the Federal Government and maybe some States subsidize television and radio, but don't subsidize public newspapers.
Is that unconstitutional?
And if not, why not?
I can't understand what's the difference between giving them a subsidy and declining to impose a tax.
Is there any real difference?
Mr. Sayre: --Well, the... I think the real difference would be, in those particular instances of public television and public radio that are being funded, they, in the commercial sense that they could not attract enough to provide that type of programming and the access is one that the State is trying to get a broader and a further discussion of public issues of... and as the Court said, of Government, being those that are the most important.
Unknown Speaker: You're saying the State has a good reason.
The State always has a good reason.
It has a good reason for giving tax exemptions, too.
It wants to foster cable, which is a useful medium for the State for emergencies and a lot of other things.
Well... but you say there's a difference between subsidy and tax?
Mr. Sayre: Yes, I do.
Unknown Speaker: So it's all right for the municipalities in Arkansas to permit the use of sidewalks, public sidewalks, for news boxes without charge?
Isn't that a subsidy?
Mr. Sayre: That would be a subsidy.
Unknown Speaker: And a permissible one?
Mr. Sayre: A permissible one, but I think that it's also one that they probably could charge a minimal amount to State for whatever use of the public right-of-way that's being made.
Unknown Speaker: But they don't.
But they charge cable.
Mr. Sayre: They do.
Unknown Speaker: Mr. Sayre, in your response to one of Justice Scalia's inquiries, you spoke of Reagan against TWA... TWR.
Mr. Sayre: Yes.
Unknown Speaker: That case is mentioned by one or two of the amicus curiae.
It isn't cited, as far as I can tell, in either your briefs or your opponent's briefs.
Do you have any comment, further comment, about the Reagan case?
Doesn't it give you some trouble?
Mr. Sayre: It would, Justice Blackmun, with the exception that again I think it deals with the entity... or the instance of a subsidy as opposed to the direct speaking.
And here we have a tax being imposed upon the delivery of the message, as opposed to one that is, again, several levels down and a very minor amount of the subsidy that's being put in.
It is not one in which the Government is subsidizing the entirety of the local programming.
And also, I believe that this Court's longstanding determination that the veterans have specific or perhaps greater rights because of their service to the country is a distinguishing point in that case that is not presented in these cases.
Unknown Speaker: Well, the amici were certainly sufficiently concerned to try to spar that... the holding in that case, but evidently neither you nor your... opposing counsel was concerned about it.
Mr. Sayre: --I would simply say that this... what I have stated to distinguish it I believe is sufficient, that it is not in the same line as the Minneapolis Star or Arkansas Writer's Project type of case that is attacked... or, excuse me, review of the First Amendment application to the delivery of the... or direct delivery of the message.
Unknown Speaker: Mr. Sayre, could Arkansas exempt not-for-profit organizations from its sales tax?
Not-for-profit newspapers, let's say, church newspapers and things of that--
Mr. Sayre: Well, it does.
Unknown Speaker: --It does?
Mr. Sayre: It does exempt not-for-profit organizations.
Charitable organizations are exempt under the statute.
Unknown Speaker: Well, why is that all right?
Mr. Sayre: In the sense of... most of those aren't selling any type of newspaper.
They're not... or, excuse me... any message.
They're simply performing--
Unknown Speaker: Well, they're selling the newspaper, but what they get from it just covers their costs of production.
But they are exacting a charge for it.
Mr. Sayre: --The basic principle for the exemption of any charitable organization is they're supplying a service or some need that the State would otherwise have to supply.
And in this particular--
Unknown Speaker: That's a compelling State interest?
Mr. Sayre: --That would be a consideration of a compelling State interest, but that is what I'm stating is the reason that the courts in Arkansas at least have held that the tax-exempt or charitable organizations may be exempt from tax.
Now, in the--
Unknown Speaker: Why doesn't that offend the principle of freedom of the press?
I mean, the principle of freedom of the press is not to... is not meant to assure that everybody makes the same amount of profit.
That's not what it's for.
Mr. Sayre: --That's correct.
Unknown Speaker: It's to ensure open discussion.
What's the difference whether the discussion is by a not-for-profit organization or a profit organization?
Mr. Sayre: Well, in this particular instance I would say it would simply be the delivery of... if it's the message of, again, not a general interest but simply the charitable organization's organ of dissemination of information to its members or its supporters that is a confined and limited purpose, it perhaps is sufficient to rise to a compelling need.
On the other hand, in Arkansas the municipalities that operate a cable system are required to impose the sales tax in the same manner that a private organization is required to.
Now, the other courts that have considered this question, the State courts that have considered this question, have more broadly applied this Court's rationale in Minneapolis Star and Arkansas Writer's Project than has the Arkansas Supreme Court.
The Arkansas Supreme Court stated that its only reason for not more broadly applying it with regard to the print and the cable entities was because it found no case of this Court that had required the same type of taxation.
In the Oklahoma Broadcasters' case and the McGraw-Hill case in New York, the courts did apply broadly to both the print and the electronic media the same standards, and they said that again the burden, because of this policy decision of this Court, is upon the State to show a compelling interest, which it did not.
And that is the test that we're urging this Court to apply in both the first and second parts of this case, to find that the print media and the cable media are similarly situated, delivering the same message, and therefore should be taxed in the same manner.
And if they're not, if the State fails to show a compelling or substantial interest, then the tax must be stricken.
Unknown Speaker: May I ask you a question just running through my mind as a result of one the Chief Justice asked you?
Supposing a State imposed an amusement tax on motion picture theaters, but did not impose a similar tax on your clients.
Would that be valid?
Mr. Sayre: That would certainly be subject to question, and I think that the theater owners would have, with regard to their particular type of communication, a valid claim that there is a discrimination.
This is what the Illinois court held in the satellite link case where cable was not taxed and the microwave services providing the same movies were taxed.
And I would say that that would apply in the same manner.
Unknown Speaker: So tax on the... I'm talking about theaters exhibiting motion pictures.
Mr. Sayre: Theaters, yes.
Unknown Speaker: I see.
Mr. Sayre: But, Justice Stevens, in Arkansas the theaters are taxed and cable is taxed.
What we're directing at is more the heart of the traditional press, that being the newspapers and our communication... C-Span--
Unknown Speaker: I understand, but I think your distinction... I mean your argument that the press and cable TV are similarly protected would apply equally to cable TV and motion picture theaters.
Mr. Sayre: --Yes.
Unknown Speaker: And you can think of no compelling interest, can you, for that distinction?
Mr. Sayre: No, I cannot.
Again, the cross-ownership within the medias, the fact that magazine publishers, newspaper publishers also own broadcast stations and the cable entities, is another sign that these are all part of the same method of communication, the same manner of communication in the press.
If you go into a newsroom of any of these entities you will find the same electronic computers, the same word processors.
The only difference is the method of delivery of the final message, that being whether it is delivered on print on your doorstep or whether it comes through your television screen on cable or broadcast.
If there are no further questions, I would release the rest of my time, Mr. Chief Justice.
Unknown Speaker: Thank you, Mr. Sayre.
Mr. Keadle, do you have rebuttal?
You have 5 minutes left.
Rebuttal of William E. Keadle
Mr. Keadle: Thank you, Mr. Chief Justice, and may it please the Court:
I would take exception to one of Mr. Sayre's statements made early on that the Arkansas General Assembly enacted this amendment to the tax because it was found that satellite television services and cable services were the same.
There is nothing in the record, no legislative history to indicate that that was indeed the case, so I do not feel that we are left with that result.
The trial court did not make that determination, and the Arkansas Supreme Court did not make that determination until after the law was changed.
Unknown Speaker: Well, arguably, I suppose the, changing the law made the exemption of newspapers even more difficult, because satellites don't use the... a satellite doesn't use... don't use the streets and put any burden on the public like the... like the cable operators do.
Mr. Keadle: --Your Honor--
Unknown Speaker: And yet, and yet newspapers are exempt and satellite are not.
Mr. Keadle: --Well, Justice White, I would suggest that there might well be another reason for the distinction at first between satellite and cable television service and the later addition to the tax--
Unknown Speaker: Well, what about between satellites and the newspapers?
Mr. Keadle: --Your Honor, I believe there's an even greater distinction--
Unknown Speaker: Well, they are different.
Mr. Keadle: --They're quite different.
In fact even more so than satellite and cable, due to the fact that satellite might be seen more as a retransmission, as maybe cable was looked at earlier, of other programming.
There's not that original content--
Unknown Speaker: What has that got to... how is that relevant to taxation?
Mr. Keadle: --I think the distinction is relevant due to the fact that there is some indication in the trial record that... or through testimony, that brought up the fact that the fees collected for this service were collected by the cable companies and then--
Unknown Speaker: In the State of Arkansas.
Mr. Keadle: --In the State of Arkansas.
Therefore it might have occurred to the General Assembly that here is an administrative... an administratively convenient way to collect taxes on these services where there may not have been any perception beforehand that it... that in fact maybe administration of a tax on this service, even if it was known about, would be feasible... would be economically feasible for the State.
I would also take exception to Mr. Sayre's statement that perhaps this case should be send back on remand due to the fact that he did not have a chance to, to make an argument as to the distinction between cable and the newspaper because the act was passed prior to the trial court's decision.
This in fact was the same argument he was making with regard to the 1987 act.
There was some... was some evidence presented that there were similarities between satellite and cable television, but the thrust of the case seemed to be that the First Amendment violation occurred because they were treating cable differently from newspapers.
There was not an appeal made to the Arkansas Supreme Court with regard to that part of the decision.
Now I understand that the taxpayers in effect won the case, and they... the result is that there was an award of a refund.
But I believe that the respondents had a full... full chance to argue this case, and in fact there is sufficient evidence to at least show that be made.
In conclusion I would state that the Arkansas tax in both instances is not violative of the First Amendment due to the fact that it does not single out the press for special treatment, special tax treatment.
It does not target what can be proved to be a small group within the press for that treatment.
It is definitely not content based.
Therefore a rational basis should be the only requirement of the State to justify this differing tax treatment.
I might further address an argument that was made with regard to whether this tax exemption could be seen as a subsidy.
I believe that if that were the test to be made, on one hand we could win based on the Writer's Project, Minneapolis Star line of cases.
If we were to look to the dissent in Arkansas Writer's Project, you could very well see that this tax exemption to an otherwise generally applicable tax could--
Unknown Speaker: Thank you, Mr. Keadle.
Mr. Keadle: --Thank you, Chief Justice.
Chief Justice Rehnquist: The case is submitted.
Argument of Speaker
Mr. Speaker: The opinions of the Court in Leathers and Medlock, and Medlock against Leathers will be announced by Justice O'Connor.
Argument of Justice O'Connor
Mr. O'Connor: These consolidated cases come to us on writs of certiorari to the Supreme Court of Arkansas.
Arkansas imposes a sales tax on all tangible personal property and on a wide range of services.
In 1987, Arkansas included for the first time a sales tax on cable television services.
A cable television subscriber, an operator, and a trade association representing cable operators in Arkansas, challenge the application of the sales tax to cable services and the exemption or exclusion from the tax of newspaper sales, subscription magazine sales, and sales of scrambled satellite broadcast television service to home dish antenna owners.
In the Arkansas Chancery Court, they argued that the tax violated their constitutional rights under the First Amendment and under the Equal Protection Clause of the Fourteenth Amendment.
Shortly after the Chancery Court upheld the constitutionality of the sales tax, Arkansas' legislature extended the tax to scramble satellite television services.
On appeal, the State Supreme Court held that the sales taxation of cable television services did not violate the First Amendment after its extension to scramble satellite television.
Believing, however, that the First Amendment prohibits discriminatory taxation among members of the same medium and that cable and scramble satellite television services were substantially the same, the Supreme Court of Arkansas held that the tax violated the First Amendment for that period during which, it applied to cable but not to scramble satellite services.
Both the cable petitioners and the Arkansas Commissioner of Revenue petitioned this Court for certiorari.
We granted the petitions to decide whether the First Amendment prohibits or prevents a state from exempting or excluding from its sales tax only certain segments of the media.
We conclude that Arkansas' extension of its generally applicable sales tax to cable television services alone or to cable and satellite services, while exempting the print media did not violate the First Amendment.
Arkansas' sales tax presents none of the First Amendment difficulties that have led us to strike down differential taxation among members of the press in the past.
Unlike our previous cases, this case involves a generally applicable sales tax that does not single out the press for special treatment.
There is no indication that Arkansas has targeted cable television in a purposeful attempt to interfere with its First Amendment activities, nor is the tax structured so is to raise suspicion that it was intended to do so.
Moreover, the tax is not content based.
We hold that differential taxation of speakers does not violate the First Amendment unless the tax is directed at or presents the danger of suppressing particular ideas.
Arkansas' exemption or exclusion of certain media from its sales tax has not suggested any interest in censoring the expressive activities of cable television, nor is there an indication that the tax is likely to stifle the free exchange of ideas.
We leave the question of whether the state's temporary tax distinction between cable and satellite services violated the Fourteenth Amendment's Equal Protection Clause to the Arkansas Supreme Court for consideration on remand.
Justice Marshall has filed a dissenting opinion which Justice Blackmun has joined.