The Supreme Court yesterday struck down a Minnesota tax imposed only on newspapers and other publications, calling it a potential tool for censorship that abridges freedom of the press.
The 8-to-1 decision was sought vigorously by publishers, who had told the court that upholding the Minnesota tax on newsprint and ink would encourage other states to devise costly tax plans that could be used to punish the press. The ruling also undoubtedly will become a weapon in combatting other forms of economic regulation that single out the press.
It will not necessarily save any money for the newspaper industry, however, and may prove costly. In striking down the selective use tax, the court approved inclusion of the media in general sales taxes. That could end the reluctance that some states have shown to apply the sales tax to the press.
The justices said taxes imposed on other businesses also may be imposed on newspapers and other publications. But taxes that single out the press have a "potential for abuse" barred by the First Amendment, Justice Sandra D. O'Connor wrote for the majority in her first major press case.
The closest parallel to the court's action yesterday was a 1938 decision invalidating a "license tax" imposed on Louisiana newspapers during the administration of Gov. Huey Long. In that case (Grosjean vs. American Press Co.) Long was retaliating openly against press opposition to his policies. There was no suggestion in yesterday's case that Minnesota had any such motive.
Whatever the intent, the potential is there for use of the tax as a "censor to check critical comment by the press, undercutting the basic assumption of our political system that the press will often serve as an important restraint on government," O'Connor said.
Paradoxically, yesterday's case stemmed from the decision of the Minnesota Legislature to exempt newspapers from a sales tax imposed on most other businesses when tax laws were being revised in 1973 to provide greater state funding for public schools.
The sales tax might have been more expensive for the newspapers and their customers. As an alternative, a use tax was levied only on purchases of paper and ink. The first $100,000 of purchases were excluded from taxation, a provision that unburdened many small publications but weighed heavily on large ones such as the Minneapolis Star and Tribune Co., which paid $608,000 in 1974.
The Star and Tribune unsuccessfully challenged the tax in the Minnesota Supreme Court, which the justices reversed yesterday.
O'Connor said the use tax ran afoul of the Constitution because it is discriminatory, imposed only on publications. The $100,000 exclusion made it even more discriminatory by focusing it on large papers, she said.
Justice Byron R. White agreed with the court's holding, but disagreed with its breadth.
Justice William H. Rehnquist dissented, saying the tax did not curtail press freedom. He said O'Connor went beyond the intent of the Constitution.
"Not until the court's decision in this case, nearly two centuries after adoption of the First Amendment, has it been read to prohibit activities which in no way diminish or curtail the freedoms it protects," Rehnquist said.
He said the ruling could wind up costing publications money by subjecting them to sales taxes.
In another tax ruling yesterday, the justices upheld a sales tax imposed by the state of Washington on materials purchased by building contractors doing business with the U.S. government. The federal government had challenged the tax in Washington vs. United States on the grounds that it was simply a circumvention of the constitutional prohibition on state taxation of the federal government.
Rehnquist wrote for the court. Justice Harry A. Blackmun dissented, joined by White and Justices Thurgood Marshall and John Paul Stevens.
Federal lawyers voiced concerned about the ruling yesterday, saying it may cost the government $10 million to $15 million in Washington state alone, where the controversy arose over taxes on construction of the Trident submarine base. It is also a blueprint for other states that want to tax federal expenditures.