Case Name: Vermont Society of Association Executives, et al. v. James F. Milne, Secretary of State
Court: Vermont Supreme Court
Jurisdiction: Vermont
Decision Date: 2001-06-08
Citations: 172 Vt. 375
Docket Number: No. 00-032
Parties: Vermont Society of Association Executives, et al. v. James F. Milne, Secretary of State
Judges: Present: Amestoy, C J., Dooley, Morse and Skoglund, JJ., and Cheever, Supr. J., Specially Assigned
Reporter: Vermont Reports
Volume: 172
Pages: 375–404

Head Matter:
Vermont Society of Association Executives, et al. v. James F. Milne, Secretary of State
[779 A.2d 20]
No. 00-032
Present: Amestoy, C J., Dooley, Morse and Skoglund, JJ., and Cheever, Supr. J., Specially Assigned
Opinion Filed June 8, 2001
Motion to Amend Denied August 15, 2001
Robert B. Hemley of Gravel and Shea, Burlington, Nory Miller of Jenner & Block, and Jerald A. Jacobs of Shaw Pittman Potts & Trowbridge (Of Counsel), Washington, D.C., for Plaintiffs-Appellees.
William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant Attorney General, Montpelier, for Defendant-Appellant.

Opinion:
Skoglund, J.
In this appeal, the Secretary of State challenges the superior court's ruling that Vermont's tax on lobbying expenditures is unconstitutional. We conclude that, in singling out and burdening interests protected by the First Amendment, the lobby tax violates the United States Constitution under the heightened scrutiny required. Accordingly, we affirm the superior court's judgment.
Effective January 1, 1998, the Legislature imposed a five-percent tax "on the expenditures of lobbyists and employers of lobbyists. . . . in excess of $2,500.00." 2 V.S.A §264a(a). The tax is expressly restricted to expenditures connected with communications or activities aimed at influencing legislation or administrative action. See 2 V.S.A. § 261(5), (9) (defining terms "Expenditure" and "lobbying"). The lobby tax was enacted as part of a campaign finance reform statute that established a fund to provide public grants to candidates running for the offices of governor and lieutenant governor, 1997, No. 64, § 2. The tax was earmarked as one of the primary sources to fund these grants. § 264a(d) (all revenues collected from lobby tax "shall be submitted to the state treasurer for deposit in the Vermont campaign fund established under section 2856 of Title 17").
Plaintiffs, a group of nonprofit organizations employing lobbyists, initially filed a declaratory judgment action in the superior court alleging that the lobby tax unconstitutionally singled out and burdened protected First Amendment activities and violated equal protection guarantees. Plaintiffs requested that the court declare § 264a unconstitutional and enjoin the Commissioner of Taxes from enforcing the tax. The Secretary of State (hereinafter "the State") moved to dismiss the suit on the ground that plaintiffs had failed to exhaust administrative remedies established by statute for challenging the imposition of a tax. See 32 V.S.A. § 9777(a) (taxpayer may request hearing before commissioner to challenge assessment of unpaid taxes); 32 V.S.A § 9781(a) (taxpayer may request tax refund from commissioner). The superior court denied the motion. Later, pursuant to the parties' agreement, one of the plaintiffs, Home Builders Association, requested a refund of taxes it had paid under § 264a. The commissioner denied the request, and that denial was appealed to the superior court, where it was consolidated with the declaratory judgment action. The parties then filed opposing motions for summary judgment.
The superior court granted summary judgment in favor of plaintiffs. Applying strict scrutiny, the court ruled that the lobby tax violates the First Amendment under the analysis set forth in Leathers v. Medlock, 499 U.S. 439 (1991). The court also concluded that the tax violates the equal protection provision of the Fourteenth Amendment and results in an unconstitutional double taxation of lobbyist expenditures. The court made no separate analysis under the Vermont Constitution, but determined that the tax violated the Vermont counterparts to the relevant federal constitutional provisions. The parties have not addressed on appeal whether the Vermont Constitution provides an alternative basis to strike down § 264a.
The State argues on appeal that the superior court erred in (1) subjecting § 264a to heightened scrutiny under the First Amendment, (2) holding the statute unconstitutional under the First and Fourteenth Amendments to the United States Constitution, (3) reaching unbriefed claims under the Vermont Constitution, and (4) asserting jurisdiction over plaintiffs' claims without requiring them to first exhaust their administrative remedies. There are no facts in dispute. We apply de novo review to resolve the legal issue raised by the parties. See O'Donnell v. Bank of Vermont, 166 Vt. 221, 224, 692 A.2d 1212, 1214 (1997) (motion for summary judgment is reviewed under same standard as that applied by trial court).
The parties' characterizations of the lobby tax are in marked contrast to one another. In the State's view, § 264a is merely a generally applicable sales tax on the expenditures of a commercial service — lobbying — without regard to the content of the message provided by the service. To plaintiffs, however, § 264a is a special tax that unconstitutionally singles out and burdens core political speech protected by the First Amendment's right to petition the government. Under United States Supreme Court case law, if the State's characterization of § 264a as a generally applicable, content-neutral extension of the sales tax is correct, the statute is reviewed under a deferential rational-basis standard. On the other hand, if plaintiffs are correct that § 264a is a special tax burdening First Amendment interests, we apply a heightened standard of review, under which the State has conceded it cannot prevail. For the reasons set forth below, we agree with plaintiffs that the lobby tax is a special tax singling out First Amendment interests and thereby requiring heightened scrutiny.
I.
A.
Because the State questions the general notion of applying heightened scrutiny to a tax directed at lobbyists, as opposed to the press, we first consider the status of lobbying as a protected First Amendment interest. In relevant part, the First Amendment of the United States Constitution, which was made applicable to the states with the ratification of the Fourteenth Amendment, forbids laws "abridging the freedom of speech, or of the press; or the right of the people . to petition the Government for a redress of grievances." The United States Supreme Court has never defined the scope of the right to lobby in any in-depth analysis, but lobbying unquestionably concerns core political speech that "implicates First Amendment guarantees of petition, expression, and assembly." Kimbell v. Hooper, 164 Vt. 80, 83, 665 A.2d 44, 46 (1995); see United States v. Harriss, 347 U.S. 612, 625 (1954).
The venerable right to petition one's government to redress grievances extends back to the Magna Carta, where the Crown first formally recognized its duty to be accessible to all citizens. A. Thomas, Easing the Pressure on Pressure Groups: Toward a Constitutional Right to Lobby, 16 Harv. J.L. & Pub. Pol'y 149, 181-82 (1993). In America, the history of influencing legislative action began with the New Englander's personal appearance in the town meeting to make a complaint or request some sort of action. 1 N. Singer, Statutes and Statutory Construction § 13.02, at 657 (5th ed. 1994). At times, a neighbor might speak for a fellow citizen unable to attend the meeting. "That neighbor was the first American lobbyist." Id.
That innocent beginning was soon to fall upon "evil ways" as aggressive new industries sought to obtain concessions from local, state, and federal legislators. Singer, supra, at 657. Recognizing the potential danger to our democratic system posed by abuses in lobbying, Congress and state governments passed reform statutes that required lobbyists to disclose who they were representing and how much they were spending on their clients' behalf. See id. § 13.04, at 663. These disclosure laws were generally upheld because they prevented special interest groups from drowning out "the voice of the people" and yet placed only an incidental burden on the right to petition one's government. Harriss, 347 U.S. at 625; see Kimbell, 164 Vt. at 85, 665 A.2d at 48 ("lobbying disclosure laws are supported by several compelling [governmental] interests" vital to protecting integrity of democratic process); Fair Political Practices Comm'n v. Superior Court, 599 P.2d 46, 53-54 (Cal. 1979) (requiring lobbyists to register and disclose expenditures does not substantially interfere with ability of lobbyists to raise their voices). Although courts, at least implicitly, recognized in these and other decisions that lobbying implicates First Amendment interests, there has been no detailed judicial analysis concerning the scope of the right to lobby, perhaps because of the lingering distrust of lobbying that has persisted in our society. See generally Thomas, supra, at 149-51, 160-66, 179-80.
Nevertheless, it is beyond dispute that lobbying directly involves core political speech that lies at the very heart of what the First Amendment was designed to safeguard. See Burson v. Freeman, 504 U.S. 191, 196 (1992) (plurality opinion) (noting that one of three central concerns of First Amendment jurisprudence is "regulation of political speech"); Liberty Lobby, Inc. v. Pearson, 390 F.2d 489, 491 (D.C. Cir. 1968) ("While the term 'lobbyist' has become encrusted with invidious connotations, every person or group engaged . in trying to persuade Congressional action is exercising the First Amendment right of petition."); Moffett v. Killian, 360 F. Supp. 228, 231 (D. Conn. 1973) (it is "beyond dispute that lobbyists and their employers . . . have First Amendment rights"); Fidanque v. Oregon Gov't Standards & Practices Comm'n, 969 P.2d 376, 379 (Or. 1998) ("Lobbying is political speech, and being a lobbyist is the act of being a communicator to the legislature on political subjects."). "Whatever differences may exist about interpretations of the First Amendment, there is practically universal agreement that a major purpose of that Amendment was to protect the free discussion of governmental affairs." Mills v. Alabama, 384 U.S. 214, 218 (1966). That is the case because "speech concerning public affairs is more than self-expression; it is the essence of self-government." Garrison v. Louisiana, 379 U.S. 64, 74-75 (1964).
This is no less true because lobbyists are often paid to petition the government on behalf of others. See Fair Political Practices Comm'n, 599 P.2d at 53 (lobbyist's function is obviously to exercise constitutional right to petition on behalf of employer); N. Singer, supra, § 13.16, at 684 (need and right to communicate with legislative bodies through medium of third party acting as spokesperson "appears hardly less fundamental" than other most basic tenants of our constitutional liberties safeguarded by First Amendment). "The mere fact. . . that one earns a living by exercising First Amendment rights does not vitiate the ability to assert those rights." Moffett, 360 F. Supp. at 231. Nor does one forfeit First Amendment rights merely by paying another to exercise them for him. Id. Indeed, notwithstanding the potential abuses posed by lobbying, the modern-day reality is that, in order to be effective, groups and organizations across the political spectrum are compelled to retain skilled legislative counsel to present positions concerning complex issues that often require significant research and investigation. N. Singer, supra, § 13.16, at 684 (legislatures should have benefit of best information available when legislating). Thus, the communications of paid lobbyists deserve no less constitutional protection than that afforded to the direct entreaties of individual citizens. Id.
Of course, we do not mean to suggest that lobbying is immunized from regulation. To the contrary, as noted, courts have routinely upheld lobbying disclosure statutes. See Harriss, 347 U.S. at 625-26; Kimbell, 164 Vt. at 85-88, 665 A.2d at 47-49. Courts have also suggested that the government may impose a regulatory fee "to defray the cost of administering legitimate regulation of First Amendment activity." Moffett, 360 F. Supp. at 231-32 (relying on Cox v. New Hampshire, 312 U.S. 569, 577 (1941), and Murdock v. Pennsylvania, 319 U.S. 105, 116-17 (1943), in striking down $35 fee for lobbying activities because funds from fee were far in excess of sums needed to administer statute's registration provisions).
In the instant case, however, the State does not claim that revenues from the lobby tax are intended to compensate it for administering Vermont's lobbyist disclosure statute. Cf. Thrifty Rent-A-Car v. City of Denver, 833 P.2d 852, 855 (Colo. Ct. App. 1992) (transaction fee imposed on car rental company for each airport customer after company received $25,000 in gross monthly revenues was permissible user's fee, not illegal income tax, because it was used to defray expense of operating and improving airport facility). Indeed, § 264a(d) explicitly provides that all revenues collected from the lobby tax "shall be submitted to the state treasurer for deposit in the Vermont campaign fund established under section 2856 of Title 17." Thus, the tax cannot be construed as a regulatory fee, assuming that such a fee would pass constitutional muster. See Fidanque, 969 P.2d at 379-80 (holding that lobbyist registration fee violated state constitution, and noting that, whatever might be permissibility of regulatory fee imposed to administer statute, "the statute on its face does not tie the fee to the costs associated with registering lobbyists"); see also Murdock, 319 U.S. at 138 (Frankfurter, J., dissenting) ("There is no constitutional difference between a so-called regulatory fee and an imposition for purposes of revenue.").
B.
Apart from regulatory fees, the Supreme Court has also acknowledged that First Amendment activities are not immunized from "any of the ordinary forms of taxation for support of the government." Grosjean v. Am. Press Co., 297 U.S. 233, 250 (1936). The Court in Grosjean emphasized, however, that a tax singling out interests protected by the First Amendment cannot stand. Id. at 244, 250 (it is settled law that freedoms of speech and press "are rights of the same fundamental character" safeguarded against abridgment by state legislation). In making this point, the Court examined the history and circumstances that led to the adoption of the First Amendment's abridgement clause. Id. at 244-48. The Court noted that the dominant purpose underlying the British taxes on the press and other modes of communication was to curtail "the acquisition of knowledge by the people in respect of their governmental affairs." Id. at 247. Accordingly, the Court concluded that the abridgment clause prohibited not only laws that directly censored First Amendment interests, but also laws that singled out those interests for special taxation. Id. at 248-50 (evil to be prevented by First Amendment was not merely censorship, but rather any government action that might prevent such free and general discussion of public matters as seems absolutely essential to prepare people for intelligent exercise of their rights as citizens).
The United States Supreme Court has consistently adhered to this principle of disallowing special taxes that single out and burden First Amendment interests. For example, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 592-93 (1983), the Court struck down, on two independent grounds, a special use tax imposed on paper and ink products consumed in the production of publications. The first ground, the one most relevant to the instant case, was that the tax singled out a First Amendment interest for special treatment. While acknowledging that the government can subject First Amendment interests to "generally applicable" economic regulations without creating constitutional problems, the Court rejected the State's claim that the paper and ink tax was a substitute for the sales tax and thus part of a general scheme of taxation. Id. at 581. The Court noted that its previous cases approving such economic regulation "emphasized the general applicability of the challenged regulation to all businesses." Id. at 583 (emphasis added). The Court reasoned that there is less concern that "a government will destroy a selected group of taxpayers by burdensome taxation if it must impose the same burden on the rest of its constituency." Id. at 585. When the tax singles out a select group, however, the political constraint is absent, and "the threat of burdensome taxes becomes acute." Id.
According to the Court, where First Amendment interests are at stake, heightened scrutiny is required. See id. Hence, if a tax singles out and burdens freedoms protected by the First Amendment, the tax is unconstitutional "unless the State asserts a counterbalancing interest of compelling importance that it cannot achieve without differential taxation." Id. The Court emphasized that the State's interest in raising revenue, standing alone, could never satisfy this stringent standard because the State could raise revenue by taxing businesses generally, and thereby avoid imposing a special burden on First Amendment interests. Id. at 586.
The Court acknowledged the absence of evidence that the special use tax on paper and ink products was the result of any impermissible or censorial motive on the part of the legislature, but nonetheless struck the tax down because it singled out First Amendment interests without a compelling government interest to support it. Id. at 580, 586. The Court also rejected as immaterial the State's contention that the special tax was less burdensome than what a straightforward sales tax would have been, holding that special treatment threatens First Amendment interests "not only with the current differential treatment, but also with the possibility of subsequent differentially more burdensome treatment." Id. at 588; see Moffett, 360 F. Supp. at 231 (under Supreme Court case law, "a tax on the exercise of First Amendment freedoms is unconstitutional even when there is no proof that the tax actually restrains the exercise of those freedoms").
These principles were reaffirmed in later cases in which the Supreme Court upheld generally applicable taxes that burdened First Amendment interests. See Leathers, 499 U.S. at 453 ("the State's extension of its generally applicable sales tax to cable services . . . does not violate the First Amendment"); Jimmy Swaggart Ministries v. Bd. of Equalization, 493 U.S. 378, 392 (1990) (collection and payment of generally applicable sales and use tax on distribution of religious materials does not violate First Amendment). In Leathers, the Court considered the constitutionality of an extension of Arkansas's gross receipts tax to cable, television, and radio services but not the print media. Reviewing its previous cases, the Court noted that a tax on First Amendment interests is "constitutionally suspect" and thus subject to heightened scrutiny when it singles out those interests, targets a small group of speakers, or discriminates on the basis of the content of the taxpayer's speech. Leathers, 499 U.S. at 447. In upholding the statute under the first criterion, the one most relevant here, the Court stated that the tax in question was one "of general applicability" that applied to "a broad range of services," including telecommunications and utility services, as well as personal services such as furnishing services, repair services, and cleaning services, among others. Id. Thus, the Court concluded that tax did not "single out" the First Amendment interest being burdened. Id.
The dissent contends that the lobby tax, like the tax deemed constitutional in Leathers, is one "imposed on other types of services, including utility and telecommunications." 172 Vt. at 399, 779 A.2d at 38. Applying this premise, the dissent then cites Turner Broadcasting System, Inc. v. Federal Communications Commission, 512 U.S. 622, 660 (1994), for the proposition that the First Amendment does not always demand strict scrutiny of regulations that discriminate among media or different speakers within a single medium. See 172 Vt. at 399, 779 A.2d at 38. The problem with this argument is that the premise is wrong. The lobby tax is not a generally applicable tax that merely discriminates between First Amendment speakers. Rather, as explained more fully below, the lobby tax is a special tax that is aimed exclusively at lobbying expenditures and is completely distinct from the generally applicable sales tax, which is expressly applied to utility and telecommunication services. 32 V.S.A. § 9771(5).
We also find unavailing the State's suggestion, accepted by the dissent, that Leathers stands for the proposition that a tax burdening First Amendment interests is unconstitutional only if it suppresses the expression of particular ideas or viewpoints. In Leathers, the principal issue upon which the Court focused was whether Arkansas's generally applicable gross receipts tax could be imposed on cable and television services while exempting newspapers and magazines. The Court determined that a generally applicable tax would be upheld under these circumstances as long as it did not discriminate on the basis of viewpoint, which would present the danger of suppressing particular ideas. Id. at 453. The Court did not suggest, however, that taxes are presumptively valid as long as they do not discriminate based on viewpoint. Indeed, the Supreme Court has never upheld a tax that singled out First Amendment interests, irrespective of whether it suppressed particular viewpoints.
In sum, under Supreme Court case law, generally applicable laws burdening First Amendment interests may or may not be subject to heightened scrutiny, but laws that "single out" those interests "are always subject to at least some degree of heightened First Amendment scrutiny." Turner, 512 U.S. at 640-41; see City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 496 (1986) ("Where a law is subjected to a colorable First Amendment challenge, the rule of rationality which will sustain legislation against other constitutional challenges typically does not have the same controlling force.").
C.
Applying this case law, we conclude that the lobby tax plainly warrants heightened scrutiny, under which it cannot pass constitutional muster. Indeed, it would be difficult to conceive of a more distinct, independent tax singling out a discrete group of First Amendment speakers. An examination of the particulars of the lobby tax belies the State's view that it is merely an extension of the sales tax assessing the financial transactions of a commercial enterprise.
As noted, the revenues generated from the lobby tax are submitted for deposit into the public campaign fund established in 17 V.S.A §2856. This suggests that lobbyists, who arguably represent the interests of the principal contributors to political campaigns, were specifically targeted in an effort to redirect, at least in part, some of the available funds of those contributors to a neutral public fund for candidates for the offices of governor and lieutenant governor. We need not delve into the underlying motives behind the tax, however. Notwithstanding the dissent's assertion that there is no basis to invalidate the lobby tax because it is not intended to inhibit freedom of speech and poses no real threat to lobbying activities, see 172 Vt. at 399, 404, 779 A.2d at 39, 42, "legislative intent is not the sine qua non of a violation of the First Amendment." Minneapolis Star, 460 U.S. at 592. Whatever its underlying purpose, a tax that singles out First Amendment interests "places a heavy burden on the State to justify its action." Id. at 592-93.
That is the case here. The lobby tax is triggered by any type of expenditure made by a lobbyist or an employer of a lobbyist that ultimately furthers the employer's efforts to influence legislative or administrative action. See 2 V.S.A. § 264a (tax is imposed on expenditures of lobbyists and employers of lobbyists); 2 V.S.A § 261(5) ("Expenditure" means any "payment, distribution, loan, advance, deposit or gift of money or anything else of value and includes a contract, promise or agreement, whether or not legally enforceable, to make an expenditure"; expenditure also includes any "sums expended in connection with lobbying, including research, consulting and other lobbying preparation and travel, meals and lodging"); 2 V.S.A. §261(9) ("Lobby" or "lobbying" means activities, communications with legislators or administrative officials, or solicitation of others "for the purpose of influencing legislative or administrative action"). Thus, not only" is the tax triggered by expenditures connected with political speech, but it is even further specialized by being limited to expenditures aimed at influencing legislative or administrative action in particular, and not municipal action, for example. See id. § 261(1), (8) (limiting definition of "Administrative action" and "Legislative action" to activities of statewide administrative officials and legislators). In short, it singles out a component of the lobbying profession directed toward influencing statewide political action.
No other tax in Vermont is even remotely comparable to the lobby tax. Notably, lobbying is the first and only personal or professional service taxed in Vermont. See 32 V.S.A § 9741(35) (excluding personal service transactions from sales tax, even if tangible goods are transferred, as long as goods are inconsequential and not separately priced). That fact alone distinguishes the lobby tax as one that singles out the communications and activities of lobbyists. Cf. Brown v. Commonwealth, 624 A.2d 795, 796 n.3, 797 (Pa. Commw. Ct. 1993) (concluding that Pennsylvania's sales tax on lobbying services sold at retail does not offend First Amendment because tax is imposed on wide variety of services — including credit collection services, secretarial services, pest control services, employment agency services, computer programming services, lawn care services, and storage services — and thus does not single out lobbying for special tax treatment).
But the lobby tax is far more than a tax on lobbying services or sales transactions involving lobbying services. Rather, the broad-based tax reaches all types of expenditures — whether or not they can be deemed sales or services — of both lobbyists and their employers, including salaries, meals, lodging, newsletters, loans, gifts, contracts or any other type of expenditure (or agreement to make an expenditure) aimed at influencing legislation or administrative action. Thus, notwithstanding the State's and the dissent's claims to the contrary, the lobby tax is completely distinct, in both form and function, from a sales tax. The taxable event upon which a sales tax is imposed is the sale of a product or perhaps a service. See Thomas Steel Strip Corp. v. Limbach, 575 N.E.2d 114, 116 (Ohio 1991). Generally, the seller of goods or services collects a sales tax from the purchaser of those goods or services at the time of the purchase for the benefit of the state. State Farm Mut. Auto. Ins. Co. v. Berthelot, 732 So. 2d 1230, 1234-35 (La. 1999).
In contrast, the taxable event for the lobby tax is not a sales transaction, but rather the reporting of a taxable expenditure. The tax is imposed on the "expenditures" of lobbyists and their employers at the time that they are reported, not at the time that they are made. Further, at least where the paid lobbyist makes unreimbursed expenditures, the provider, not the purchaser or ultimate consumer, of the service pays the tax. See Apollo Stereo Music Co. v. City of Aurora, 871 P.2d 1206, 1209 (Colo. 1994) (when tax is imposed directly on business rather than on customers of business, it is more like income tax than sales tax); see also Cox Cable v. City of New Orleans, 624 So. 2d 890, 893 (La. 1993) (tax on cable television services has essential characteristics of sales tax because it is paid by the purchaser at time service is purchased, is collected by seller but cannot be assumed by seller, and is calculated by percentage of purchase price of service); Radiofone, Inc. v. City of New Orleans, 616 So. 2d 1243, 1247 (La. 1993) (same conclusion with respect to tax on telecommunications services). In short, § 264a taxes certain aspects of the lobbying profession and is triggered, not by a sales transaction, but by the reporting of an expenditure associated with a taxable lobbying activity.
Not surprisingly, the tax on lobbying services is not mentioned anywhere in the statutes dealing with the sales tax, even though, as noted, the sales tax statute explicitly exempts all personal services. See 32 V.S.A. § 9741(35). Further, although the lobby tax necessarily results in an additional tax on products that have already been subjected to a sales tax, it is not specifically exempted from Vermont's generally applicable sales tax. Cf. 32 V.S.A. § 9741 (listing sales that are exempt from generally applicable sales tax). Moreover, not only is the trigger for payment of the tax unique, but the tax is paid to the Secretary of State rather than the Commissioner of Taxes. Compare 2 V.S.A. § 264a(b) with 32 V.S.A. § 9771, 9776. The lobby tax uses special filing forms requiring different types of information and computation methods from what is required by sales or use tax forms. Unlike sales tax forms, copies of the special lobby tax forms must be filed with legislative counsel.
Because imposition of the lobby tax depends on the purpose behind the expenditures rather than the nature of the transaction itself, it may function like a sales tax at times, but at other times like an income or payroll tax (on lobbyist fees or salaries) or a meals and rooms tax. It is, in fact, a completely unique type of tax triggered exclusively by core political speech concerning the right to petition one's government. Even if the State could make a reasonable argument that the lobby tax is an extension of the sales tax, which it cannot, it most definitely is not a generally applicable sales tax of the type that may burden First Amendment interests and still pass constitutional muster. See Reed v. City of New Orleans, 593 So. 2d 368, 371 (La. 1992) (sales and use taxes may be general, applying to all goods, or selective, applying to only one specific commodity).
In the face of seemingly irrefutable evidence that § 264a singles out lobbyists and is distinct from a generally applicable sales tax, the State responds that (1) the lobby tax has some similarities to Vermont's sales tax; (2) most of the allegedly unique features of the lobby tax are also present in various other sales taxes imposed on particular goods such as alcohol and tobacco; (3) the remaining unique features of the lobby tax — such as how and when it is collected — do not result from a difference in the function of the tax, but rather from the practical convenience of incorporating the tax into the framework already established in the lobbyist registration and disclosure law for reporting expenditures.
These arguments are not persuasive. First, the differences between the lobby tax and the sales tax far outnumber the relatively few similarities noted by the State, such as § 264a(c)'s adoption of the enforcement provisions contained in chapter 233 of Title 32. Second, while it may be true that some of the atypical features of the lobby tax are shared by particular sales taxes on special items such as alcohol and tobacco, no sales tax contains all, or even most, of the lobby tax's distinctive features. More importantly, merely because a few specially taxed items share one or two atypical features of the lobby tax does not suggest that the lobby tax is a generally applicable sales tax burdening "all businesses." Minneapolis Star, 460 U.S. at 583. Rather, it demonstrates the contrary. Generally applicable tax statutes are not subjected to heightened scrutiny because "[w]e need not fear that a government will destroy a selected group of taxpayers by burdensome taxation if it must impose the same burden on the rest of its constituency." Id. at 585. Given this rationale, the lobby tax cannot possibly be considered a tax generally applicable to all Vermonters.
Third, the incorporation of the lobby tax into the framework of the lobbyist registration and disclosure statute could just as easily be construed as demonstrating that § 264a is a unique tax on lobbying, quite apart from any generally applicable sales tax. Indeed, given §264a's objective of taxing all expenditures ultimately aimed at influencing legislation — whether the expenditure be hiring a lobbyist, inviting a legislator to dinner, renting a room near the Statehouse, or purchasing ballpoint pens — the only possible way to administer the tax is to piggyback it onto the disclosure law. The tax could not be administered as a sales tax because of what is being taxed.
In sum, by statutory definition, the lobby tax is a tax imposed directly on expenditures connected with communications and activities aimed at influencing legislation. The tax is not part of a generally applicable sales tax that applies to a broad range of services, but rather singles out lobbying, a protected First Amendment interest, for special treatment. In fact, the very trigger for the tax is the reporting of expenditures associated with the right to petition the government to redress grievances. As such, heightened scrutiny is warranted. Because the State proffers no government interest apart from the raising of revenue, the tax cannot withstand such scrutiny.
D.
The State insists that because the lobby tax is not directed at any particular viewpoint, it is content-neutral, and thus entitled to a presumption of validity. See Hill v. Colorado, 530 U.S. 703, 719 (2000) (principal inquiry in determining content neutrality is whether government has regulated speech because of disagreement with message conveyed); Turner, 512 U.S. at 643 (as general rule, laws are content-based if they distinguish favored speech from disfavored speech on basis of ideas or views expressed; by contrast, laws are, in most instances, content-neutral if they impose burdens on speech without reference to ideas or views expressed). This argument is unavailing.
The Supreme Court has emphasized on several occasions that the First Amendment's hostility to content-based regulations is not limited to restrictions on particular viewpoints, but rather extends to government restrictions on " 'expression because of its message, its ideas, its subject matter, or its content.'" (emphasis added). Consolidated Edison Co. v. Public Serv. Comm'n, 447 U.S. 530, 537 (1980) (quoting Police Dep't of Chicago v. Mosley, 408 U.S. 92, 95 (1972)); see Arkansas Writers' Project, Inc. v. Ragland, 481 U.S. 221, 230 (1987) (same); see also Hill, 530 U.S. at 723 ("Regulation of the subject matter of messages, though not as obnoxious as viewpoint-based regulation, is also an objectionable form of content-based regulation."); Simon & Schuster, Inc. v. New York State Crime Victims Bd., 502 U.S. 105, 116 (1991) (statute restricting speech about crime is content-based); Fed. Communications Comm'n v. League of Women Voters, 468 U.S. 364, 381, 383-84 (1984) (regulation singling out commercial broadcasters and denying them right to address their chosen audience on "controversial issues of public importance" is content-based).
But we need not resolve any perceived inconsistency in Supreme Court case law concerning when a law may be deemed content-neutral. As we emphasized earlier, a special tax that singles out and burdens First Amendment interests, as § 264a does, is subject to heightened scrutiny regardless of whether it is content-neutral. See Turner, 512 U.S. at 640-41, 642 (laws that single out First Amendment interests "are always subject to at least some degree of heightened First Amendment scrutiny" — those "regulations that are unrelated to the content of speech are subjected to an intermediate level of scrutiny"). Taken to its logical conclusion, refusing to subject a tax on political speech to heightened scrutiny unless it disfavored particular viewpoints would allow the State to impose a tax so great that it could effectively destroy the right to petition one's government, as long as the tax burdened all viewpoints equally. That is not the law.
II.
Because our resolution of the instant dispute under the First Amendment is controlling, we need not address whether §264a violates the Equal Protection Clause of the Fourteenth Amendment.
III.
Finally, the State argues that the superior court erred in asserting jurisdiction over plaintiffs' claims, except for those of plaintiff Home Builders Association, because those plaintiffs failed to exhaust their administrative remedies by seeking tax refunds before challenging the constitutionality of the lobby tax in the superior court. See 2 V.S.A. § 264a(c) (adopting rights of appeal contained in chapter 233 of Title 32); 32 V.S.A. § 9777(a) (taxpayer may seek hearing before commissioner to challenge assessment of tax); 32 V.S.A. § 9781(a)-(b) (if application is made within three years after payment, commissioner shall refund any tax erroneously, illegally, or unconstitutionally collected; person shall not be entitled to refund determined to be due under § 9777 "where he has had a hearing or an opportunity for a hearing as provided in that section or has failed to avail himself of the remedies therein provided"). The State relies principally upon Stone v. Errecart, 165 Vt. 1, 6, 675 A.2d 1322, 1326 (1996), in which this Court stated:
We hold that 32 V.S.A. § 5887 requires that a taxpayer petition for a refund from the Commissioner pursuant to 32 V.S.A. § 5884 before going to superior court. The failure of the taxpayer to exhaust this administrative remedy deprives the superior court of jurisdiction. This is so even if the petition to the Commissioner is futile because the Commissioner is not empowered to grant the relief requested.
We note that, unlike § 5887(a) ("exclusive remedy" of taxpayer with respect to refund of income taxes "shall be the petition for refund provided under section 5884 of this title" and to appeal therefrom as provided in § 5885), § 9781 does not expressly provide that a hearing under § 9777 is the exclusive remedy for challenging the imposition of a tax. But we need not resolve this question at this time. As a result of the parties' agreement, plaintiff Home Builders Association exhausted its administrative remedies and is a party to this appeal. Thus, our decision today is not advisory. There is no reason to address the jurisdictional issue concerning the plaintiffs other than Home Builders Association unless, and until, those plaintiffs actually request, and are denied, a refund of any taxes paid pursuant to § 264a.
Affirmed.
In its entirety, the challenged statute provides as follows:
§ 264a. Tax on expenditures of lobbyists
(a) There is imposed and shall be collected a tax on the expenditures of lobbyists and employers of lobbyists. The tax shall be at the rate of five percent of the amount of the expenditures in excess of $2,500.00 required to be reported in each calendar year by lobbyists and employers of lobbyists under section 264 of this title.
(b) The tax shall be paid to the secretary of state at the time that each periodic disclosure report is required to be filed under section 264(a) of this title.
(c) If any tax is not paid when due under subsection (b) of this section, the secretary shall notify the commissioner of taxes of the name, address and taxpayer identification number of such taxpayer and any other information necessary to determine the tax liability. The commissioner of taxes shall collect and enforce the tax imposed by this section, and shall have all the powers granted the commissioner for the collection and enforcement of the sales and use tax under chapter 233 of Title 32. Persons liable for the payment of the tax imposed by this section shall be subject to all penalties imposed on and have all rights of appeal afforded to persons liable for payment of the sales and use tax under chapter 233 of Title 32.
(d) All revenues collected by the secretary of state and the commissioner of taxes from the tax imposed by this section shall be submitted to the state treasurer for deposit in the Vermont campaign fund established under section 2856 of Title 17.
Because plaintiffs have not challenged § 264a under the Vermont Constitution, and our resolution of their First Amendment claim resolves the parties' dispute, we need not consider whether the statute also violates our state constitution. See State v. Jewett, 146 Vt. 221, 222, 500 A.2d 233, 234 (1985).
The Supreme Court has held, however, that the government is not required to subsidize First Amendment interests through tax-exempt status or tax deductions. See Regan v. Taxation With Representation, 461 U.S. 540, 546, 548-50 (1983) (upholding statute creating tax-exempt status that restricted tax-deductible contributions to charitable organizations not involved in lobbying; First Amendment does not require government to subsidize protected activity); Cammarano v. United States, 358 U.S. 498, 512-13 (1959) (upholding regulations denying deductions for lobbying expenses; taxpayers are simply being required to pay for their constitutionally protected activities out of their own pocket, as all persons engaged in similar activities are required to do).
The tax may ultimately be paid by the lobbyist's employer as part of the fee charged by the lobbyist, but the employer is also paying tax on the fee or salary paid to the lobbyist.
The State contends that there is no need to exempt lobbying services because Vermont law does not have a general statutory provision that taxes services. That acknowledgment only highlights the State's untenable position that the tax on lobbyist services is merely an extension of the generally applicable sales tax.
The dissent cites two cases for the proposition that the Supreme Court in Leathers was concerned with taxes that discriminate on the basis of viewpoint rather than subject matter. See 172 Vt. at 400-01, 779 A.2d at 39-40. Those eases involved differential treatment among various media with respect to a tax exemption, and thus are inapposite here. See Arizona Dep't of Revenue v. Great Western Publ'g, Inc., 3 P.3d 992, 997-98 (Ariz. Ct. App. 1999); Magazine Publishers of Am. v. Commonwealth, 654 A.2d 519, 521-22 (Pa. 1995). As the distinguished commentator cited by the dissent stated:
[A] law is content based if its application depends on either the subject matter or the viewpoint expressed. Phrased another way, the requirement that the government be content neutral in its regulation of speech means that the government must be both viewpoint neutral and subject-matter neutral. . If a law is either a viewpoint or a subject-matter restriction it is deemed to be content based.
E. Chemerinsky, Content Neutrality as a Central Problem of Freedom of Speech: Problems in the Supreme Court's Application, 74 S. Cal. L. Rev. 49, 51 (2000).