Court Opinion

ID: 9699475
Source: CourtListenerOpinion
Date Created: 2023-08-25 20:26:44.143145+00
Date Added: 2024-06-11T18:20:51.069059
License: Public Domain

Morse, J.,
dissenting. The Court today invalidates a state sales tax on the ground that it impermissibly singles out a class of speakers, lobbyists, in violation of the First Amendment. Although I agree that lobbyists — as a profession specializing in “petitioning] the Government” — are entitled to First Amendment protection, I do not share the Court’s view that the tax impermissibly discriminates against them. U.S. Const. Amend. I. At its core, the lobbyist-expenditure tax functions as a content-neutral extension of Vermont’s general sales tax, and therefore presents no First Amendment violation. I respectfully dissent.
The principal basis of the Court’s decision is its conclusion that the lobbyist expenditure tax singles out lobbyists and lobbyist-employers for disparate tax treatment. The Court relies upon principles developed in a series of United States Supreme Court decisions dealing with First Amendment challenges to taxes on various segments of the media. In fact, these cases may be interpreted to demonstrate that the tax on lobbyist expenditures is constitutionally inoffensive.
The most recent decision on point is Leathers v. Medlock, 499 U.S. 439 (1991). There, cable television operators argued that an Arkansas statute extending the general sales tax to cable services, while maintaining existing exemptions for newspapers and magazines, violated the First Amendment. After reviewing a number of earlier decisions, the Supreme Court reaffirmed the general principle that “differential taxation of First Amendment speakers is constitutionally suspect when it threatens to suppress the expression of particular ideas or viewpoints.” Id. at 447. The high court then identified three circumstances where this threat may be inferred and the law justified *395only by a compelling governmental interest: (1) when the tax is so structured as to single out the press for differential tax treatment; (2) when the tax targets a small group of First Amendment speakers; and (3) when the tax is based upon the viewpoint or ideas of the speakers. See id. Applying that test to the Arkansas statute, the Supreme Court concluded that it was an extension of the state’s generally applicable sales tax, did not impermissibly target a small group of speakers, and was content neutral. Accordingly, the tax was not subject to heightened judicial review.
Leathers, unfortunately, provided little practical guidance or principled framework through which to judge the validity of other taxing or regulatory schemes, such as that presented here, and subsequent case law, while suggestive, has not substantially advanced the analysis. See, e.g., Department of Revenue v. Magazine Publishers of Am., 604 So. 2d 459, 461-62 (Fla. 1992) (on remand for reconsideration in light of Leathers, court held that tax on retail sales of secular magazines did not single out press for special tax treatment, but unconstitutionally discriminated on basis of content); Magazine Publishers of Am. v. Commonwealth, 654 A.2d 519, 523 (Pa. 1995) (statute deleting sales and use tax exemption for magazines but retaining exemption for newspapers did not constitute prohibited special tax); Cox Cable Hampton Roads, Inc. v. City of Norfolk, 410 S.E.2d 652, 655 (Va. 1991) (municipal utility tax on cable television service was generally applicable tax, notwithstanding fact that it applied to only one company).
More instructive by far is the principal case on which Leathers relied in developing the “singling out” rule, Minneapolis Star & Tribune Co. v. Minnesota Comm’r of Revenue, 460 U.S. 575 (1983). For a number of years, Minnesota’s sales and use tax had exempted retail sales of periodicals. Like most such schemes, the use tax augmented the sales tax by eliminating any tax incentive for Minnesota residents to acquire goods in other states in order to avoid the sales tax. See id. at 577. In 1971, the use tax component was amended to impose a tax on the cost of paper and ink products consumed in producing a publication. Thus, as the Supreme Court noted, “[i]nk and paper used in publications became the only items subject to the use tax that were components of goods to be sold at retail.” Id. at 578. In 1974, the legislature amended the statute again to exempt the first $100,000 worth of ink and paper consumed by a publication in any calendar year. The result was that only eleven publishers in the state, including the plaintiff, incurred a tax liability in 1974.
*396The Supreme Court invalidated both the underlying paper and ink tax and the tax as amended to exempt the first $100,000 in costs. The Court’s rationale was two-fold. First, it noted that the paper and ink tax was a “special tax that applie[d] only to certain publications protected by the First Amendment.” Id. at 581. Although a use tax ordinarily serves to complement a sales tax by eliminating the incentive to make major purchases out of state, the use tax on paper and ink served no such function. It “applie[d] to all uses, whether or not the taxpayer purchased the ink and paper in-state, and it applie[d] to items exempt from the sales tax,” although in general items exempt from the Minnesota sales tax were not subject to a use tax. Id. at 582. Thus, the Court observed, “[b]y creating this special use tax, which, to our knowledge, is without parallel in the State’s tax scheme, Minnesota has singled out the press for special treatment.” Id. Such differential treatment, the Court concluded, “suggests that the goal of the regulation is not unrelated to suppression of expression, and such a goal is presumptively unconstitutional.” Id. at 585.
In addition, the Court concluded that the paper and ink tax violated the First Amendment “not only because it singles out the press, but also because it targets a small group of newspapers.” Id. at 591. The effect of the $100,000 exemption was that only a handful of publishers paid any tax, and the Court held that a tax so tailored “that it singles out a few members of the press presents such a potential for abuse that no interest suggested by Minnesota can justify the scheme.” Id. at 592.
As commentators have noted, the rule in Minneapolis Star — and by extension in Leathers, which expressly cited and relied on Minneapolis Star — is that the Supreme Court will infer a censorial purpose, even in the absence of evidence of such a purpose — where the challenged tax differs so substantially in form or function from other state taxes that it can be said to single out the media for discriminatory treatment. See R. Bezanson, Political Agnosticism, Editorial Freedom, and Government Neutrality Toward the Press: Observations on Minneapolis Star & Tribune Co. v. Minnesota Commissioner of Revenue, 72 Iowa L. Rev. 1359, 1369 (1987) (“the [Minnesota] tax was differential because its form was different”); Note, Leathers v. Medlock: The Supreme Court Changes Course on Taxing the Press, 49 Wash. & Lee L. Rev. 1053, 1072 (1992) (the Leathers test looks to “the structure of the tax” to see if it violates the prohibition on censorship). “The conclusive weight placed on form,” one author has observed, *397serves a core value of the First Amendment by ensuring government neutrality toward the press. Bezanson, supra, at 1369-70.
Assessed in light of these principles — and contrary to this Court’s conclusion — the lobbying expenditure tax is not so different in form or function from Vermont’s general sales tax that it requires heightened judicial review. First and foremost, the tax on lobbying expenditures indisputably functions like a sales tax, by taxing a sales transaction. Every commercial transaction involves an expenditure and a sale, depending on one’s perspective. The tax on expenditures is no different from a tax on sales; there is only one transaction, and it is generally the purchaser who pays the tax. See 32 V.S.A. § 9778.
The Court also asserts that the lobbyist-expenditure tax differs from the general sales tax because it was incorporated into the framework of the lobbyist registration and disclosure statute. The fact that the Legislature borrowed the terminology and provisions of an existing regulatory scheme requiring disclosure and reporting of lobbying “expenditures,” 2 V.S.A. § 264, does not alter the essential form of the tax. Indeed, unlike the tax in Minneapolis Star, which the Supreme Court noted was “without parallel” in Minnesota’s taxing scheme, 460 U.S. at 582, the tax on lobbying expenditures is essentially nothing more than an extension of the existing Vermont sales tax to an additional service provider. In this regard, it is also noteworthy that the Legislature imposed the identical tax rate (five percent) on lobbying expenditures as that imposed under the general sales tax, and expressly incorporated into the lobbying tax the general sales tax provisions relating to collection, enforcement, penalties, and appeal. See 2 V.S.A. § 264a(a), (c).
The Court identifies other formal distinctions between the general sales tax and the tax on lobbying expenditures. Upon examination, however, none appears to be significant. For example, the tax on lobbying expenditures is codified in a different statutory provision from the general sales tax. Yet, the same is true of other sales taxes, including those applicable to motor vehicles, 32 V.S.A. § 8903, rooms and meals, id. § 9241, malt beverages and spiritous liquors, 7 V.S.A. §§ 421,422, and fuel, 23 V.S.A. §§ 3003,3106.
The Court also notes that each of the aforementioned taxes is expressly exempt from the state’s generally applicable sales tax. See 32 V.S.A. § 9741. This is hardly surprising, however, since an exemption is necessary to prevent sales of items such as fuel or alcoholic beverages from falling within the general sales tax on property sold at retail. The absence of a broad-based sales tax on *398services renders such an exemption for the tax on lobbying expenditures unnecessary.
Additionally, the Court observes that sales taxes are generally paid to the Department of Taxes, while the tax on lobbying expenditures is paid to the Secretary of State for deposit into a special campaign fund. Again, the point is hardly compelling, as numerous other sales taxes are paid into special funds. See, e.g., 23 V.S.A. §§3015(7), 3106(d) (portion of fuel tax paid into Petroleum Cleanup Fund and wildlife fund); 32 V.S.A § 8912 (sales and use tax on motor vehicles paid into Transportation Fund); see also Magazine Publishers, 654 A.2d at 524-25 (court rejected claim that Pennsylvania sales tax singled out press for special tax treatment because revenues from sales tax on magazines were paid into special Public Transportation Assistance Fund).
The Court notes further that the forms and payment schedule for the lobbyist-expenditure tax differ from the general sales tax. There is no uniform schedule for the payment of sales taxes to the state; some, like the tax on lobbying expenditures, have specific schedules. See, e.g., 23 V.S.A § 3108 (fuel tax due on 25th of month); 32 V.S.A. § 9243 (rooms and meals tax due monthly or quarterly). The requirement of forms specific to the product or service taxed is also not uncommon. See, e.g., 7 V.S.A. § 421(c) (forms for reporting alcoholic beverage sales volume).
The Court also notes that the lobbying-expenditure tax may result in some double taxation. The acquisition of office materials, for example, may be subject to the general sales tax upon purchase, and later form a component of lobbying expenditures subject to taxation. Again, however, this does not render the lobbyist-expenditure tax structurally distinct from the sales tax. Indeed, as the State correctly points out, some double taxation is inevitable when the general sales tax is extended to a “service.” Thus, “telecommunications service” is subject to the Vermont sales tax, 32 V.S.A. § 9771(5), although the provider may also pay a sales tax on the purchase of components, such as office supplies, used in providing the service.
Finally, the Court relies heavily on the fact that, apart from the lobbyist-expenditure tax, the general sales tax does not extend to any other “personal or professional” service. 172 Vt. at 386, 779 A.2d at 29. The Court’s reliance, once again, is misplaced. That the Legislature chose to extend the sales tax to lobbying but not other personal or professional services does not demonstrate that it is functionally different from the general sales tax. As the Supreme Court in Leathers *399observed, “[¡Inherent in the power to tax is the power to discriminate in taxation.” 499 U.S. at 451. Thus, Leathers upheld a sales tax on cable television services, notwithstanding the fact that no other segment of the media, including newspapers, magazines, and satellite broadcast television, was subject to the tax at that time. There, as here, the tax was imposed on other types of services, including utility and telecommunications, see id. at 447, but the mere fact that it was not imposed on any similar media services did not differentiate it in any constitutionally significant way.
This point was brought home by the Supreme Court in its subsequent decision in Turner Broadcasting System, Inc. v. Federal Communications Commission, 512 U.S. 622 (1994). There, in rejecting a claim that certain regulations applicable only to cable television triggered strict scrutiny review, the Court observed:
It would be error to conclude, however, that the First Amendment mandates strict scrutiny for any speech regulation that applies to one medium (or a subset thereof) but not others. In Leathers v. Medlock, 499 U.S. 439 (1991), for example, we upheld against First Amendment challenge the application of a general state tax to cable television services, even though the print media and scrambled satellite broadcast television services were exempted from taxation. As Leathers illustrates, the fact that a law singles out a certain medium, or even the press as a whole, “is insufficient by itself to raise First Amendment concerns.” Id. at 452.
Id. at 660.
The Court’s holding ultimately suggests that the easy constitutional “fix” is simply to conform certain procedural externalities of the lobbyist-expenditure tax to the general sales tax. The legal web spun by the Legislature was functionally suitable; it simply lacked a certain purity of design. When all is said and done, what matters apparently is not the Legislature’s straightforward intent to capture additional revenue through a generally applicable lobbyist-expenditure tax; nor the virtual absence of any evidence of a legislative intent to inhibit plaintiffs’ freedom to speak and petition the government; nor even the existence of similar sales taxes on other services involving expression, such as telecommunications and printing. What matters is form, or appearance, and that — as this case vividly illustrates — is plainly in the eye of the beholder.
*400The concurring opinion implies that the tax on lobbying expenditures constitutes a rare exception to the general sales tax on tangible personal property rather than services. In fact, Vermont’s general sales tax applies to utility services, fabricating and printing services, amusements, and telecommunication services. See 32 V.S.A. § 9771(2)-(5). The concurring opinion also suggests that the lobbyist tax fails because expenditures may include more than sales. The argument, which plaintiffs did not raise, is hardly dispositive, as most expenditures are sales, and any other taxable transaction may be treated as the equivalent. Although the concurring opinion characterizes this as a difference in “substance,” I am not persuaded that it is anything more than a minor difference in form.
Thus, the tax on lobbying expenditures does not represent a “special tax” requiring heightened constitutional review. Because it concluded otherwise, the trial court failed to address the two remaining criteria for strict scrutiny identified in Leathers: whether the tax targets a small group of speakers, and whether it discriminates on the basis of the speaker’s viewpoint. As explained below, the lobbyist-expenditure tax does not offend either of these additional criteria.
In focusing on the number of speakers subject to the challenged tax, the Leathers Court cited Minneapolis Star, which involved fewer than a dozen newspapers subject to the tax, and Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221, 229 (1987), where the Court invalidated a sales tax scheme that taxed two or three magazines of general circulation and exempted all trade, sports and professional journals. By way of contrast, the tax in Leathers affected approximately 100 cable companies, and the Court concluded that the extension of the Arkansas sales tax “hardly resembles a ‘penalty for a few.’ ” 499 U.S. at 448 (quoting Minneapolis Star, 460 U.S. at 592). Here, similarly, the tax on lobbying expenditures, which resulted in tax payments in 1998 by approximately 213 employers of lobbyists, or sixty percent of the total number of registered lobbyist employers, cannot be said to target an impermissibly small number of speakers.
Nor does the tax on lobbying expenditures require strict scrutiny on the basis of “viewpoint” discrimination. As noted, Leathers held that a tax will trigger heightened review under the First Amendment “if it discriminates on the basis of the content of taxpayer speech.” 499 U.S. at 447. Although Leathers did not specifically define what it meant by “content” discrimination, several courts and commentators have concluded that the Court was concerned with taxes that discriminate *401on the basis of ideas or viewpoint, not on the basis of subject matter. See, e.g., Arizona Dep’t of Revenue v. Great Western Publishing, Inc., 3 P.3d 992, 997 (Ariz. Ct. App. 1999) (rejecting argument that Leathers broadly prohibited any tax discriminating among publications on basis of content, concluding instead that “[gjenuine ‘content-based’ discrimination” must be based on “particular ideas or viewpoints”); Magazine Publishers, 654 A.2d at 523 (rejecting magazine trade group’s claim that newspaper exemption from general sales tax discriminated on basis of “content” merely because it required reference to definition of newspaper as publication “containing matters of general interest and reports of current events”); Note, supra, at 1062 n.58 (“Justice O’Connor in Leathers expresses concern about censorship which implies viewpoint distinctions.”). But cf. Department of Revenue, 604 So. 2d at 461-62 (invalidating sales tax scheme that subjected magazines to sales tax but exempted newspapers on ground that statute required tax department to evaluate contents of publication to determine whether it was entitled to exemption).
The distinction is important, for the Court has defined content-based classifications in a variety of ways, and not always consistently. See 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) (noting distinction between “viewpoint-neutral” standard, which prohibits regulations that discriminate on basis of “the ideology of the message,” and “subject-matter-neutral” requirement, which prohibits laws “based on the topic of the speech”); G. Stone, Restrictions of Speech Because of its Content: The Peculiar Case of Subject-Matter Restrictions, 46 U. Chi. L. Rev. 81, 83-84 (1978) (providing general background on content-based classifications and discussion of standards of content review). Subject-matter restrictions have been upheld in some contexts. See, e.g., Burson v. Freeman, 504 U.S. 191, 211 (1992) (upholding restriction on campaigning activity near polling places); Lehman v. City of Shaker Heights, 418 U.S. 298, 302-04 (1974) (upholding ordinance prohibiting political advertisements on buses, while permitting commercial advertisements). Viewpoint restrictions are invariably invalidated, as they pose “the inherent risk that the Government seeks not to advance a legitimate regulatory goal, but to suppress unpopular ideas or information.” Turner, 512 U.S. at 641.
Justice O’Connor, writing for the majority in Leathers, repeatedly expressed the Court’s concern with taxes that discriminate on the basis of the targeted speaker’s ideas or views. That concern was *402expressed in a variety of ways throughout the opinion, as follows: “[D]ifferential taxation of First Amendment speakers is constitutionally suspect when it threatens to suppress' the expression of particular ideas or viewpoints,” 499 U.S. at 447; “a tax on a small number of speakers runs the risk of affecting only a limited range of views,” id. at 448; “[t]his is not a tax structure that resembles a penalty for particular speakers or particular ideas.” Id. at 449. We thus agree with those authorities who have concluded — as one author has written — that “[t]he Leathers Court. . . focused on viewpoint-based and idea-based discrimination instead of distinctions of form, frequency, or even subject-matter.” Note, supra, at 1080.
It has not gone unnoticed that the Supreme Court’s emphasis in Leathers on viewpoint discrimination marked a subtle but nonetheless distinct departure from language in earlier decisions, notably Ragland, which had invalidated a sales tax because it exempted certain periodicals based on their subject matter. See Ragland, 481 U.S. at 229. In Leathers, however, the Court “underwent a shift ... in viewing the First Amendment as more concerned with viewpoint censorship and less with mere content distinction.” Note, supra, at 1060 n.49. This emphasis on viewpoint discrimination is particularly noticeable in the Court’s subsequent decision in Turner. There, in rejecting a challenge by cable television operators to FCC requirements that they carry local broadcast stations, the Court observed:
We have said that the “principal inquiry in determining content neutrality ... is whether the government has. adopted a regulation of speech because of [agreement or] disagreement with the message it conveys.”. . .
As a general rule, laws that by their terms distinguish favored speech from disfavored speech on the basis of the' ideas or views expressed are content based. ... By contrast, laws that confer benefits or impose burdens on speech without reference to the ideas or views expressed are in most instances content neutral.
Turner, 512 U.S. at 642-43 (quoting Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989)).
Thus understood, the tax on lobbying expenditures is content-neutral within the meaning of Leathers. Although the tax applies to expenditures related to a particular subject, i.e., lobbying for the purpose of influencing legislative or administrative action, see 2 V.S.A. *403§ 261(9)(A), it draws no distinctions on the basis of the viewpoint or ideas to which such activities are directed. As the court in Brown observed, upholding Pennsylvania’s extension of the sales tax to lobbyists’ services, “[t]he tax applies to all lobbyists who sell their services at retail without regard to the ideas or the content of the speech advanced by any particular lobbyist.” Brown v. Commonwealth, 624 A.2d 795, 797-98 (Pa. Commw. Ct. 1993); see also Kimbell v. Hooper, 164 Vt. 80, 82, 665 A.2d 44, 45-46 (1995) (observing that nothing in lobbying disclosure act “attempts to censor particular messages or points of view”).
In sum, the tax on lobbying expenditures does not meet any of the criteria identified by the Supreme Court as requiring application of the most demanding level of constitutional scrutiny. Absent such constitutional concerns, the question turns solely on whether the lobbyist expenditure tax is rationally related to a legitimate governmental purpose. See Regan v. Taxation With Representation, 461 U.S. 540, 549-51 (1983).
Most assuredly the state’s purpose in enacting the tax on lobbying expenditures was to raise revenue to partially fund the Vermont campaign fund. See 2 V.S.A. §264a(d); 17 V.S.A. §2856. Raising revenue is a legitimate, if not indeed the principal, purpose of tax legislation. See In re Property of One Church Street, 152 Vt. 260, 267, 565 A.2d 1349, 1352 (1989); see also Quarty v. United States, 170 F.3d 961, 967 (9th Cir. 1999) (“There can be no dispute that the purpose of raising government revenue is a legitimate legislative purpose.”); Blue Cross & Blue Shield v. State, 779 P.2d 634, 640 (Utah 1989) (in upholding tax on insurer against equal protection claim, court observed that “[t]he first and predominant purpose of the premium income tax is to raise revenue . . . This is a legitimate purpose.”). In accomplishing this purpose, the Legislature is generally free to tax some groups and not others so long as the classification rests upon a reasonable basis. See General Motors Corp. v. Tracy, 519 U.S. 278, 311 (1997) (in taxation, more than any other field, legislatures possess greatest freedom of classification); Regan, 461 U.S. at 547 (“Legislatures have especially broad latitude in creating classifications and distinctions in tax statutes.”); One Church Street, 152 Vt. at 265, 565 A.2d at 1351 (in upholding provision for higher taxes on nonresidential property than residential property, Court noted that Vermont Constitution does not “forbid reasonable classifications of property for tax purposes”). Such statutes are presumptively constitutional, and the burden rests upon the party challenging the tax *404to demonstrate that the classification is invalid. See id. at 270, 565 A.2d at 1354.
The trial court here concluded that the tax on lobbying expenditures violated equal protection by discriminating between organizations and persons that spend money on lobbying and those who lobby without incurring expenditures. The Legislature nevertheless enjoys broad discretion in creating classifications and distinctions in tax statutes. See Regan, 461 U.S. at 547. Thus, it was within the Legislature’s prerogative to distinguish for tax purposes a commercial transaction — the expenditure of funds related to lobbying activities — from noncommercial lobbying activity.
The trial court also concluded that the statute impermissibly taxed the class of lobbyists and lobbyist employers who expend funds to influence legislative or administrative action, while omitting others, such as newspapers and magazines, who expend funds for similar purposes. Again, however, the classification was not unreasonable. The state has broad latitude in choosing to tax different trades and professions, see Allied Stores v. Bowers, 358 U.S. 522, 526-27 (1959), and a tax scheme, such as that presented here, does not unconstitutionally discriminate “unless it discriminates on the basis of ideas.” Leathers, 499 U.S. at 450. As noted earlier, the tax is content neutral, applying to all lobbying expenditures regardless of the viewpoint expressed or represented.
Here — as in Leathers — the Legislature has chosen to include a particular class of speakers within the general sales tax. As was also true in Leathers, “[n]othing about that choice has ever suggested an interest in censoring the expressive activities” of those subject to the tax. Id. at 453. Indeed, nothing in the record demonstrates that the five percent sales tax poses any real threat — express or implied — to plaintiffs’ lobbying activities or freedom of expression. Absent such constitutional concerns, there is no basis to invalidate the tax. I would reverse.
I am authorized to say that Judge Cheever joins in this dissent.