Facts
- Arkansas’s Gross Receipts Act imposed a sales tax on tangible personal property and specified services, with combined state and local rates reaching up to 6%.
- The Act expressly exempted receipts from newspaper sales (subscription and over-the-counter) and subscription magazine sales.
- In 1987, Arkansas enacted Act 188, amending the tax to apply to cable television services.
- Cable subscribers, cable operators, and a cable trade association challenged Act 188, alleging unconstitutional discrimination because newspapers, magazines, and scrambled satellite television services were not taxed.
- In 1989, Arkansas enacted Act 769, extending the tax to “all television services to paying customers,” including scrambled satellite services.
- The Arkansas Supreme Court upheld differential taxation across different media but invalidated the tax for the period it applied to cable but not scrambled satellite services, reasoning that the First Amendment bars discriminatory taxation within the same medium.
- The U.S. Supreme Court consolidated the cases for review.
Issues
- Whether applying a generally applicable sales tax to cable television services while exempting newspapers and magazines violates the First Amendment.
- Whether taxing cable but not scrambled satellite television services (before Act 769) constitutes unconstitutional discrimination under the First Amendment.
- Whether the tax scheme violates the Equal Protection Clause by taxing cable while exempting print media and, temporarily, scrambled satellite services.
Decision
- The Court held that taxing cable under a generally applicable sales tax while exempting newspapers and magazines did not violate the First Amendment.
- The Court held that the temporary disparity of taxing cable but not scrambled satellite services did not violate the First Amendment on this record.
- The Court rejected the Equal Protection challenge, finding no unconstitutional discrimination.
- The judgment was reversed in part.
Legal Principles
- Cable television engages in protected speech and functions as part of the press, but differential taxation of media does not alone create a First Amendment violation.
- Differential taxation implicates the First Amendment when a tax scheme (1) singles out the press, (2) targets a small group of speakers, or (3) discriminates based on content or ideas.
- A generally applicable tax that reaches many goods and services may be applied to a communications medium without heightened First Amendment scrutiny absent content-based discrimination or censorial purpose.
- The First Amendment does not require uniform tax treatment across all media, nor does it categorically bar legislative line-drawing between similar services absent content-based discrimination.
- Under Equal Protection, taxing some media or services while exempting others is permissible if supported by a rational basis and not motivated by an invidious purpose.
Conclusion
Arkansas could apply its broadly applicable sales tax to cable television, even while exempting newspapers and magazines and even during the period when similar satellite services were untaxed, because the scheme did not single out the press, target a small group of speakers, or discriminate based on content, and it satisfied Equal Protection review.