Amicus Curiae Brief — Pledger v. Medlock

* Counsel of Record

(Of Counsel listed on Inside Cover)

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TABLE OF CONTENTS

TABLE OF AUTHORITIES 00. ~~

INTERESTS OF AMICI oo

ARGUMENT

THE FIRST AMENDMENT DOES NOT RE-

QUIRE STATE AND LOCAL AUTHORITIES TO

ACCORD CABLE TELEVISION OPERATORS

THE SAME TAX SUBSIDIES AS NEWSPAPER

AND MAGAZINE PUBLISHERS

I. Unlike Newspaper And Magazine Publishers,

Il.

ITI.

Cable Operators Make Extensive And Disrup-

tive Use Of Valuable Pub!’e¢ Resources. Govern-

mental Authorities May Properly Take Account

Of Such Differences In Choosing Not To Extend

To Cable Operators A Tax Exemption Granted

Newspaper And Magazine Publishers...’

Congress In The 1984 Cable Act Properly Bal-

anced Cable Operators’ First Amendment Inter-

ests. The Balance Struck By Congress Contem-

plates That Governmental Authorities May Im-

pose Upon Cable )perators Taxes That Are In-

applicable To Newspaper And Magazine Pub-

lishers 6 FSS ESA a SO

Under The Decisions Of The Court Construing

The First Amendment, Governmental Authori-

ties May Exempt Newspiper And Magazine

Publishers From A Generally Applicable Sales

Tax Without Extending That Subsidy To Cable

SII ccriccieiasiiecnieesinesessllll a cccasientantaunanisneeiassnasans

CONCLUSION... eatin

12

ii

TABLE OF AUTHORITIES

CASES Page

American Video Corp. v. Lewis, 389 So. 2d 1059

(Fla. Dist. Ct. App. 1980) 000 15

Arkansas Writer’s Project, Inc. Vv. Ragland, 481

ee passim

Buckley v. Valeo, 424 U.S. 1 (1976) | ae 21

Capital Cities Cable, Inc. Vv. Crisp, 467 US. 691

GE See ee 3,8

CBS, Ine. v. Democratic National Committee, 412

U.S. 94 (1973) ........... ELE SC a oe AR ree 13

Central Telecommunications, Inc. v. TCI Cable-

vision, Inc., 800 F.2d 711 (8th Cir. 1986), cert.

denied, 480 U.S. 910 (1987) 0 10

City of Los Angeles Vv. Preferred Communications,

Inc., 476 U.S. 488 (1986) 0 passim

City of New York v. FCC, 486 U.S. 57 (1988)... 3,12

Community Communications Co. v. City of Boul-

der, 660 F.2d 1370 (10th Cir. 1981), cert. dis-

missed, 456 U.S. 1001 (1982) 1l

FCC v. Midwest Video Corp., 440 US. 689

ERE EE Se ee ee 9

First Nat'l Bank v. Bellotti, 435 U.S. 765 (1976). 20, 21

Grossjean V. American Press Co., 297 U.S. 283

RRP TS SLA Ec A 17

Ind. Dept. of St. Rev., Ete. v. Cable Brazil, Inc.,

177 Ind. App. 450, 380 N.E.2d 555 (Ind. App.

RIESE le i NM oD , 16

Kovacs Vv. Cooper, 336 U.S. 77 (1949) ae x

Loretto Vv. Teleprompter Manhattan CATV Corp.,

i EC 9, 10, 11, 12

Madden Vv. Kentucky, 309 U.S. 83 (1940) 19

Minneapolis Star & Tribune Co. v. Minnesota

Comm’r of Revenue, 460 U.S. 575 (1983) passim

Omega Satellite Products Co. v. City of Indiana-

polis, 694 F.2d 119 (7th Cir. 1982) 10

Police Dep't of Chicago v. Mosley, 408 U.S. 92

(1972) . Oe Dia ae ae lO Lea 20

Preferred Communications, Ine. v. City of Los

Angeles, No. CV 83-5846 (CBM) (Bx), — op.

(C.D. Cal. 1990) ST ee TS 12

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No. 90-38

DANIEL L. MEDLOCK, et al.,

- Petitioners,

JAMES C. PLEDGER,

COMMISSIONER OF REVENUES, et al.,

Respondents,

CITY OF FAYETTEVILLE, ARKANSAS,

Intervenor.

On Writ of Certiorari to the

Supreme Court of Arkansas

BRIEF OF AMICI CURIAE

THE CITY OF NEW YORK, THE NATIONAL LEAGUE

OF CITIES AND THE

UNITED STATES CONFERENCE OF MAYORS

IN SUPPORT OF RESPONDENTS

INTERESTS OF AMICI

The City of New York is the nation’s largest munici-

pal cable television franchising authority. It has been

involved in franchising and regulating cable television

systems since 1964. The City has in place ten franchises

for cable television systems, which have the potential of

serving over two million households. The National

League of Cities represents more than 16,000 cities and

towns across the nation. The United States Conference

2

of Mayors represents the more than 800 mayors of cities

with populations exceeding 30,000 residents.

Amici are concerned with the potential impact of the

Court’s decision on the ability of franchising authorities

nationwide to regulate cable television—and, in particu-

lar, their ability to ensure that the public receives fair

compensation from cable operators who make substantial

use of valuable public resources. Amici therefore submit

this brief in support of Respondents, urging that the

Court uphold the constitutionality of the Arkansas sales

tax insofar as it applies to the sale of cable television

services.

SUMMARY OF ARGUMENT

It is well-established that: “Different communications

media are treated differently for First Amendment pur-

poses.” City of Los Angeles v. Preferred Communica-

tions, Inc., 476 U.S. 488, 496 (1986) (Blackmun, J., con-

curring) (“Preferred”); accord, Southeastern Promo-

tions, Ltd. v. Conrad, 420 U.S. 546, 557 (1975): Red

Lion Broadcasting Co. v. FCC, 395 U.S. 367, 386

(1969). Consistent with that principle, governmental

authorities have been permitted to establish different

regulatory requirements for various media. Likewise, a

taxing authority may impose different tax requirements

on communications media, where such requirements are

not content-related and are rationally related to differ-

ences in the media themselves.

The Court has not specifically delineated the First

Amendment standards applicable to cable. See Preferred,

476 U.S. at 495-96 (record insufficient to determine

whether, under the First Amendment, cable operators

may be regulated more like newspapers than conven-

tional broadcasters). However, federal, state and local

governments historically have regulated cable in a man-

ner different than newspapers, magazines and other

communications media—an approach that Congress ex-

plicitly endorsed and clarified in the comprehensive

Cable Communications Policy Act of 1984, Pub. L. No.

-

a

98-549, 98 Stat. 2779 (codified at 47 U.S.C. §§ 521-599

(Supp. II 1984)) (“Cable Act”). See generally City of

New York v. FCC, 486 U.S. 57 (1988); Capital Cities

Cable, Inc. v. Crisp, 467 U.S. 691 (1984); National

Telecommunications and Information Administration,

Video Program Distribution and Cable Television: Cur-

rent Policy Issues ana Recommendations at Appendix C

(Regulation of Cable Television) (June 1988).

A principal basis for such different regulatory treat-

ment is that cable, unlike newspapers and magazines,

makes substantial commercial use of public resources.

Cable operators obtain from state and local governmental

authorities important benefits in the form of non-transient

and disruptive access to public rights-of-way and the ex-

ercise of eminent domain powers. Such governmental

benefits, which are made available to cable operators at

non-market clearing prices, have the effect of affording

virtually every cable operator a natural monopoly for the

sale of cable services to the public. Newspapers and

magazines do not receive any comparable benefits from

state and local authorities.

There is nothing in the First Amendment or in the

decisions of the Court that prohibits governmental au-

thorities, in determining cable’s tax treatment, from tak-

ing account of the significant governmental benefits that

are accorded cable operators. It is perfectly reasonable

for a governmental authority to determine that, in light

of such benefits, cable should not be extended the same

tax subsidies accorded newspapers and magazines—com-

munications media that do not make comparable use of

public resources and do not compete with cable in any

meanineful way. The fact that cable operators may pay

“franchise fees’ (which are authorized by, and subject

to the five percent cap set forth in, the Cable Act) does

not preclude a taxing authority’s consideration of the

preferential treatment already afforded cable. Congress,

in fact, recognized in the Cable Act that state and local

4

governments could impose generally applicable sales, en-

tertainment and utility taxes on cable in addition to

requiring payment of franchise fees.

Amici agree that the present case does not require the

Court to delineate cable’s First Amendment status. See

Brief for Petitioners Daniel L. Medlock et al. at 19

(“Cable Pet. Br.”) ; Brief of the National Ass’n of Broad-

casters et al. at 4-7; Brief of the National Cable Televi-

sion Ass’n at 24 n.16 (“NCTA Br.”). The Court need

not resolve in this case the issues that it left open in

Preferred; indeed, the record here is not directed to the

questions that the Court raised in Preferred. However,

it is clear (as the trial court concluded) that cable’s “use

of public property, . .. along with the distinct and unique

benefits gained by cable from use of that property, dis-

tinguishes . . . cable television from other communications

media.” Pet. for Writ of Certiorari at 19a (“Petition”).

That distinction provides a constitutionally permissible

basis for not according cable the same tax subsidies ac-

corded print media.

ARGUMENT

THE FIRST AMENDMENT DOES NOT REQUIRE

STATE AND LOCAL AUTHORITIES TO ACCORD

CABLE TELEVISION OPERATORS THE SAME

TAX SUBSIDIES AS NEWSPAPER AN” MAGAZINE

PUBLISHERS

This case involves a challenge un# + the First Amend-

ment to an Arkansas law that extended the State’s gen-

eral sales tax to the sale of cable television services. The

question presented is whether Arkansas must exempt

cable operators from the sales tax simply because news-

paper and magazine publishers receive such an exemp-

tion.

The Arkansas sales tax applies to various services and

tangible goods. All of the State’s cable operators pay the

same tax, without regard to their size or the nature of

5

the programming that they offer. In addition, the tax is

imposed equally on all those who, like cable television

operators, charge the public for the right to view video

programming—video store owners; movie theaters; and

“any and all other[s engaged in the] distribution of

television, video or radio services with or without the use

of wires provided to subscribers or paying customers or

users... .” Ark. Code Ann. § 26-52-301(3)(D), as

amended by Act 769 of 1989 (reprinted in Petition at

24a). The sales tax also is imposed on water, gas and

electric utilities which, like cable systems, make perma-

nent use of the public rights-of-way.

The Arkansas tax applies to the fees that cable opera-

tors receive from their subscribers, but not to any other

cable revenue. For example, the tax is not imposed on

the revenue that cable operators derive from the sale of

advertising (see NCTA Br. at 9 concerning the signifi-

cance of cable advertising)—just as it is not imposed on

the advertising revenue of newspapers, inagazines or con-

ventional radio and television broadeast stations. Cable

operators also receive fees from those who purchase time

to air particular programming on cable systems. The

Arkansas sales tax is not imposed on that revenue—just

as it is not imposed on the revenue that conventional

broadeasters receive from those who purchase air time on

their stations.

Petitioners Daniel L. Medlock et al. (“Cable Petition-

ers”) nevertheless claim that the Arkansas law is im-

permissibly “discriminatory” because it exempts from

taxation the sale of newspapers and magazines. Under

their view of the First Amendment, such an exemption

precludes the State from taxing the sale of cable services.

Indeed, they suggest, it precludes levying the tax on the

sale of any tangible good or service that includes speech

protected by the Constitution. Their position, if accepted,

would require governmental authorities to afford the iden-

tical tax treatment to every First Amendment communi-

6

eator, regardless of whether the medium of communica-

tion is a cable service, a radio station, a billboard, a fax

machine or a tangible item (such as a newspaper or, for

that matter, a T-shirt that contains some political mes-

sage or a carton of Ben & Jerry’s ice cream urging con-

sumers to “Support Farm Aid” and te “Save Family

Farms” ).'

As discussed below, the decisions of this Court in

Minneapolis Star and Ragland (upon which Cable Peti-

tioners rely) cannot properly be stretched to require that

cable operators receive the identical tax exemptions ac-

corded newspapers and magazines.? Moreover, Cable Peti-

1 Cable Petitioners contend that the identical tax treatment must

be afforded all “members” of the print and electronic media. The

Arkansas tax does treat cable operators the same as conventional

radio and television broadcasters. Conventional broadcasters de-

rive their revenue from the sale of air time to advertisers and

programmers; as noted above, none of that revenue is subject to

the Arkansas sales tax. In like fashion, none of the revenue that

cable operators derive from the sale of advertising and other time

is subject to the tax. Surely, the Constitution does not require

Arkansas to devise a new taxation scheme to account somehow

for the fact that cable operators have a source of income (sub-

scriber fees) that conventional broadcasters do not enjoy; nor

should Arkansas be required to impose its sales tax on broadcasters

(who provide programming free-of-charge to the public) as a

precondition to imposing that tax on cable operators (who sell such

programming to the public). The Arkansas law also was amended

in 1989 to bring within its ambit in-state distributors of satellite

programming. Amici thus focus in this brief on the contention

that cable must be taxed the same as the print media, specifically

newspapers and magazines.

2 See Minneapolis Star & Tribune Co. Vv. Minnesota Comm'r of

Revenue, 460 U.S. 575 (1983) (“Minneapolis Star”) (holding un-

constitutional a Minnesota “ink and paper” tax imposed on the

state’s largest newspapers; evidence demonstrated that only 11-13

newspapers were subject to tax, and that only two newspapers paid

the vast majority of the tax); Arkansae Writer’s Project, Inc. Vv.

Ragland, 481 U.S. 221 (1987) (“Ragland”) (holding unconstitu-

tional the Arkansas sales tax insofar as it applied to certain special

7

tioners’ extreme view of the First Amendment is incon-

sistent with other decisions of this Court, including Regan

v. Taxation with Representation, 461 U.S. 540 (1983)

(“Regan”) (which Cable Petitioners do not mention),

and with accepted First Amendment principles.’ Before

addressing the appropriate First Amendment analysis, we

discuss 1) those considerations that set cable well apart

from the print media for purposes of taxation; and 2)

Congress’ determination in the Cable Act concerning the

taxes and other fees that may be imposed on cable.

I. Unlike Newspaper And Magazine Publishers, Cable

Operators Make Ex‘ensive And Disruptive Use Of

Valuable Public Resources. Governmental! Authorities

May Properly Take Account Of Such Differences In

Choosing Not To Extend To Cable Operators A Tax

Exemption Granted Newspaper and Magazine Pub-

lishers

It is clear that the “activities” of cable operators “‘im-

plicate First Amendment interests.” City of Los Angeles

v. Preferred Communications, Inc., 476 U.S. 488, 494

(1986) (“Preferred”). It is equally clear, however, that:

“Differences in the characteristics of new media

justify differences in the First Amendment standards

applied to them.”

Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 386

(1969). Thus, the Court in Preferred declined to ruie on

whether cable was entitled to the same First Amendment

protection as the print media until a further record con-

cerning the differences between cable and the print media

interest magazines and not to general interest magazines; evidence

demonstrated that only three magazines were subject to the tax).

3In Regan the Court upheld against First and Fifth Amend-

ment challenges a federal law that granted tax exempt status to

one group engaged in First Amendment activities but not to other

such groups.

8

had been developed. Justice Blackmun, in a concurring

opinion joined by Justices Marshall and O’Connor, ex-

plained that: “Different communications media are

treated differently for First Amendment purposes.” Pre-

ferred, 476 U.S. at 496; accord, Southeastern Promotions,

Ltd. v. Conrad, 420 U.S. 546, 557 (1975) (“Each medium

of expression . . . must be assessed for First Amendment

purposes by standards suited to it, for each may present

its own problems.”) ; Kovacs v. Cooper, 336 U.S. 77, 97

(1949) (Jackson, J., concurring); id. at 96 (Frank-

furter, J., concurring).

Cable Petitioners and their supporting amici claim that

cable systems are “similarly situated” to newspapers,

magazines and other communications media and thus are

entitled, under the First Amendment, to equal tax treat-

ment with such media. Their descriptions of the media

significantly exaggerate the extent to which cable may

be compared fairly to newspapers and magazines.‘ More

4A cable operator may choose to carry certain programming

services from a variety of those that are available—but there ends

the perator’s “editorial discretion.” Unlike the newspaper or

mag» ®e publisher, the cable operator assumes no responsibility

for veviewing or editing the overwhelming majority of material

that it retransmits to the public; the programming service, and

not the cable operator, assumes that responsibility. See Capital

Cities Cable, Inc. Vv. Crisp, 467 U.S. 691, 707 (1984). The cable

operator thus functions more like a drug store owner that chooses

the particular newspapers and magazines to sell, rather than the

publisher of such material. See generally Brenner, Cable Television

and the Freedom of Expression, 1988 Duke LJ. 329, 336-43

(“Brenner”); Barron, On Understanding The First Amendment

Status of Cable; Some Obstacles In The Way, 57 G.W.U.L. Rev.

201, 211 (1989). While even that activity warrants First Amend-

ment protection, it does not support the claim that cable is con-

stitutionally entitled to the same tax treatment as newspapers and

magazines.

As for original material (the heart of a newspaper), the vast

majority of cable systems simply do not have the resources to

produce their own local programming. Indeed, nearly 75 percent

of the cable systems in the United States have fewer than 5,000

_ 9

importantly, however, by narrowly focusing on similari-

ties that cable shares with all First Amendment communi-

cators, Cable Petitioners fail to give adequate attention

to the significant differences between cable and the print

media—differences that historically and under the federal

Cable Act have supported a different regulatory scheme

for cable than for other media.

A principal difference is that cable operators receive

from governmental authorities substantial commercial

benefits that are not accorded newspapers and magazines,

Such benefits fully justify a governmental authority’s

decision not to grant cable the same tax subsidies that

are available to the print media.

In order to gain access to its paying subscribers, cable

operators must make substantial use of valuable public

property. Coaxial cable must be hung from utility poles,

housed in underground utility ducts or otherwise placed

in or across the public rights-of-way. Furthermore, cable

operators necessarily depend upon state and local authori-

ties to exercise their powers of eminent domain in order

to ensure cable’s access to private property. See Loretto

v. Teleprompter Manhattan CATV Corp., 458 U.S. 419

(1982) (“Loretto”). The grant of a cable franchise by

subscribers. 1990 Television and Cable Factbook at C-385. See also

Cable Pet. Br. at 6 (average cable system in Arkansas has approxi-

mately 4,300 subscribers); FCC v. Midwest Video Corp., 440 U.S.

689 (1979) (striking down FCC rule that required cable systems

with more than 3,500 subscribers to originate a small amount of

programming). While the nation’s largest cable system with

535,000 subscribers may have its own news channel, NCTA Br. at

8, this is the rare exception. See also id. (“dozens” of cable opera-

tors may insert some local news in the CNN service, but there are

nearly 10,000 cable systems in the United States). Local program-

ming is most often available only on access channels, over which

cable operators have no editorial control. See Cable Act §§ 611(e)

& 612(c) (2), 47 U.S.C. $$ 531(e) & 532(c) (2).

As one commentor has correctly observed, cable “operators’

speech interests appear relatively lightweight ....” Brenner, 1988

Duke L.J. at 331 (emphasis added).

10

a franchising authority carries with it the right to make

the necessary use of public property and easements. Cable

Act § 621(a)(2), 47 U.S.C. §541(a)(2). Such grant

allows the cable operator to obtain, at one time and at

non-market clearing prices, all the necessary rights to

reach that operator’s subscribers—rights that are par-

ticularly valuable because they might otherwise be “im-

possible to negotiate individually.” Brenner, 1988 Duke

L.J. at 345-46. Furthermore, the grant of even a non-

exclusive cable franchise by a franchising authority typi-

cally has the effect of according the cable operator a nat-

ural monopoly over the provision of cable services in its

community.°

No newspaper or magazine receives any comparable

benefits from local or state governments. To be sure,

newspapers and magazines make transient use of public

rights-of-way. But that use is not comparable to the

permanent use that cable seeks. The difference was im-

plicitly recognized by the Court in Loretto, when it held

that a state statute affording cable access to private prop-

5 The cable industry obviously attaches significant value to the

grant of the franchise. See, e.g., Tele-Communications, Inc. V.

Commissioner, No. 268-89 (T.C. Nov. 7, 1990), 1990 WL 170429

(Tax Court) (sustaining claim by nation’s largest operator of

cable systems that, for depreciation purposes, cable franchise rep-

resents approximately 40 percent of the value of the purchase price

of certain cable systems). Tele-Communications, Inc. successfully

argued in that case that a cable operator enjoys a natural monopoly

as a result of being awarded a franchise. The Tax Court agreed,

noting that: “TE]ven if a local government wanted a second cable

television company to construct another system for purposes of

competition, it is extremely unlikely that another operator would

enter the market when the return on the investment simply would

not justify the expenditure.” Jd., 1990 WL 170429; see also H.R.

Rep. No. 682, 10lst Cong., 2d Sess. 42 (1990) (less than one

percent of communities in the United States have more than one

cable system); Central Telecommunications, Inc. v. TCI Cable-

vision, Inc., 800 F.2d 711, 713-17 (8th Cir. 1986), cert. denied,

480 U.S. 910 (1987); Omega Satellite Products Co. v. City of

Indianapolis, 694 F.2d 119 (7th Cir. 1982).

11

erty constituted a “taking.” Quoting from a case that

involved a telegraph company’s occupation of public rights-

of-way, the Court noted:

“‘The use which the (telegraph company] makes

of the streets is an exclusive and permanent one, and

not one temporary, shifting and in common with the

general public.... Whatever benefit the public may

receive in the way of transportation of messages,

that space is, so far as respects its actual use for

purposes of highway and personal travel, wholly lost

to the public....’”

Loretto, 458 U.S. at 428-29, quoting St. Louis v. Western

Union Telegraph Co., 148 U.S. 92, 98-99 (1893) (“West-

ern Union’) (emphasis added). Moreover, there are

physical and aesthetic burdens involved in the construc-

tion and continual maintenance of cable systems. Such

inevitable disruptions of the public order also distinguish

the use that cable makes of public property from that

made by newspapers and magazines.®

Because cable operators derive substantial commercial

benefits from the use and disruption of public property

and the exercise of public authority, there should be no

question that the public deserves adequate compensation.

As the Court in Loretto noted:

® See Preferred, 476 U.S. at 493. “The distinction between news-

papers and cable becomes especially clear when considered in light

of the impact of each upon the public domain.” Note, 53 Tenn. L.

Rev. 179, 194 (1985), citing Community Communications Co. V.

City of Boulder, 660 F.2d 1370, 1377 (10th Cir. 1981) (“To dis-

seminate information, a newspaper need not use public property in

the same way that a cable operator does. A newspaper may reach

its audience simply through the public streets or mails, with no

more disruption to the public domain than would be caused by the

typical pedestrian, motorist, or user of the mails. But a cable

operator must lay the means of his medium underground or string

it across poles in order to deliver his message. Obviously, this man-

ner of using the public domain entails significant disruption, espe-

cially to streets, alleys, and other public ways.”’), cert. dismissed,

456 U.S. 1001 (1982).

12

“It matters not for what that exclusive appro-

priation is taken, whether for steam railroads or

street railroads, telegraphs or telephones, the state

may if it chooses exact from the party or corpora-

tion given such exclusive use pecuniary compensation

to the general public for being deprived of the com-

mon use of the portion thus appropriated,’ ”

Loretto, 458 U.S. at 429, quoting Western Union, 148

U.S. at 101-102 (emphasis added). See also Preferred

Communications, Inc. v. City of Los Angeles, No, CV

83-5846 (CBM) (Bx), slip op. at 12 (C.D. Cal. 1990)

(it would be “unreasonable to assert that a commercial

cable operator should be permitted to profit from public

rights of way without compensating the public for the

enjoyment [of] those rights simply because their enter-

prise involves certain First Amendment protections”).

Cable Petitioners contend that the public receives ade-

quate compensation from the “franchise fees” which are

authorized by, and subject to the cap set forth in, Sec-

tion 622 of the Cable Act, 47 U.S.C. § 542. As discussed

below, Cable Petitioners have mischaracterized the nature

and purpose of franchise fees. More importantly, the pay-

ment of such fees does not preclude a taxing authority

from taking account of the valuable governmental bene-

fits already accorded cable; a state or local government

may reasonably conclude that, in light of such benefits, it

will not provide cable a further subsidy in the form of an

exemption from a generally applicable sales tax.

II. Congress In The 1984 Cable Act Properly Balanced

Cable Operators’ First Amendment Interests. The

Balance Struck By Congress Contemplates That Gov-

ernmental Authorities May Impose Upon Cable Op-

erators Taxes That Are Inapplicable To Newspaper

And Magazine Publishers

The Cable Act represents Congress’ effort to establish,

for the first time, a comprehensive national policy for

dealing with cable television. See generally City of New

13

York v. FCC, 486 U.S. 57 (1988). A principal objective

of the Cable Act was to set forth “guidelines for the ex-

ercise of Federal, State and local authority with respect

to the regulation of cable systems.” 47 U.S.C. § 521(3).

In “firmly establish{ing] the authority at each level of

the government,” H.R. Rep. No. 934, 98th Cong., 2d

Sess. 24 (1984) (“Committee Report”), Congress was

called upon to balance a number of different and often

conflicting considerations with regard to a wide range of

issues. Congress sought to achieve its objective mindful

of the need to protect “cable operators’ First Amendment

interests.” Jd. at 36.

Congress responded to the conflicting interests by au-

thorizing the FCC and franchising authorities to regu-

late cable in a number of respects that plainly differen-

tiate cable from newspapers.’ Among other things, Con-

gress authorized state and local governments to grant and

to renew cable franchises; to establish requirements for

access channels; to regulate cable rates in circumstances

defined by the FCC; to require that cable operators pro-

vide certain services, facilities and equipment; to estab-

*The relationship between the Cable Act and cable operators’

First Amendment rights was summarized by one cable attorney as

follows: “|T)he nature of the relinquishments that the cable in-

dustry yielded up seems clearly to mark a concession by cable that

it stands somewhere below newspapers on the publishing ladder.”

Schildhause, Preferred Communications: Preamble to Breakup of

Local Cable Franchising, 7 Pace L. Rev. 1, 23 (1986).

The fact that Congress in the Cable Act has treated cab'e dif-

ferently than the print media does not, of course, prevent the

Court from reaching a contrary determination under the Constitu-

tion. However, as the Court noted in a related context, “The judg-

ment of the Legislative Branch cannot be ignored or undervalued

simply because one segment of the broadcast constituency casts

its claims under the umbrella of the First Amendment.” CBS Inc.

Vv. Democratic National Committee, 412 U.S. 94, 103 (1973); see

also id. at 102-03 (in evaluating First Amendment claims, Court

does not “defer” to Congress but does “afford great weight to the

decisions of Congress and the experience of the [Federal Com-

munications} Commission”); Brenner, 1988 Duke L.J. at 383-84.

14

lish customer service ‘and construction-related require-

ments; and to adopt technical standards not inconsistent

with FCC standards. In addition, Congress specifically

authorized franchising authorities to collect cable televi-

sion “franchise fees.” Cable Act § 622(a), 47 U.S.C.

¢ 542(a). Congress set a five percent cap on the amount

of such fees." It made clear, however, that taxes such as

the Arkansas sales tax at issue here are not “franchise

fees” and, therefore, are not counted toward the five per-

cent cap.

Congress did so by defining the term “franchise fee”

as including “any tax, fee or assessment of any kind”

imposed upon cable operators “solely because of their

status as such.” Cable Act § 622(g) (1), 47 U.S.C. § 542

(g) (1) (emphasis added). It also said that the term does

not inelude “any tax, fee, or assessment of general ap-

plicability (including any such tax, fee or assessment im-

posed on both utilities and cable operators or their serv-

ices but not including a tax, fee or assessment which is

unduly discriminatory against cable operators or cable

subseribers) ....” Cable Act § 622(g) (2) (A), 47 U.S.C.

§ 542(g)(2)(A) (emphasis added). The Committee Re-

port explains that a tax of “general applicability” (not

subject to the 5 percent cap) includes:

“such payments as a general sales tax, an entertain-

ment tax imposed on other entertainment businesses

as well as the cable operator, and utility taxes or

utility user taxes which, while they may differen-

tiate the rates charged to different types of utilities,

do not unduly discriminate against the cable operator

so as to effectively constitute a tax directed at the

cable system.”

Committee Report at 64 (emphasis added).

® Section 622(b) of the Cable Act, 47 U.S.C. § 542(b), provides

that: “For any twelve-month period, the franchise fees paid by

a cable operator with respect to any cable syste™ should not exceed

five percent of such cable operator’s gross revenues derived in such

period from the operation of the cable system.”

15

Congress did not break new ground in this definition:

it effectively codified existing FCC policy. The FCC had

previously ruled that utility taxes imposed on cable oper-

ators are not cable “franchise fees”—even though such

taxes, by definition, are not imposed on newspapers,

radio or television. Sammons Communications, Inc., 61

F.C.C.2d 452 (1976). Likewise, the Commission had

concluded that state sales and use taxes are not “fran-

chise fees”—even though newspapers, radio and television

may be exempt from such taxes. Memorandum Opinion

amd Order in CSR-479, 50 F.C.C.2d 540 (1975). See also

Memorandum Opinion and Order in Docket 20018, 49

F.C.C.2d 1078, 1084 (1974) (“We have not preempted

the field of state or local taxation of cable television, nor

do our franchise fee limitations [§ 76.31(b)] apply to

the normal taxes imposed by cities and states on cable

operators doing business or owning property in their

taxing jurisdiction.” ).

In short, Congress concluded in the Cable Act that it

is entirely appropriate for governmental authorities to

impose a franchise fee on cable operators solely because

of their status as such. Congress did place a limit on the

amount of the franchise fee that could be charged. How-

ever, it arrived at a five percent cap, recognizing that

governmental authorities would derive additional reve-

nues from cable operators in the form of general sales,

utility, entertainment and comparable taxes which are

not directed solely at cable (e.g., the Arkansas sales

tax).®

* When the Cable Act became law in 1984, several states imposed

on cable operators various taxes from which newspapers were

exempt. For example, revenue from cable television service was

subject to a sales tax in South Dakota. Opinion of tne Attorney

General (South Dakota), No. 74-28, July 11, 1974. Florida and

Wisconsin taxed both cable installation and service. American

Video Corp. V. Lewis, 389 So. 2d 1059, 1061 (Fla. Dist. Ct. App.

1980); Wis. Gen. Sales and Use Tax Law §§ 77.52(2) (a) 12 (1989),

as added by Ch. 317, Laws 1975. Courts in New Jersey and New

16

III. Under The Decisions Of The Court Construing The

First Amendment, Governmental Authorities May

Exempt Newspaper and Magazine Publishers From

A Generally Applicable Sales Tax Without Extending

That Subsidy To Cable Operators

Cable Petitioners place principal reliance upon the

Court’s decisions in Minneapolis Star and Ragland.

Neither decision, however, provides a proper basis for

requiring the same tax treatment of cable, on the one

hand, and newspapers and magazines, on the other hand.

Rather, the Court’s decision in Regan recognizes that a

legislature may, in appropriate circumstances, exempt

from a general tax one group that exercises First

Amendment rights while not exempting another such

group. A content-neutral exemption such as that pro-

vided newspapers by the Arkansas statute is not only

consistent with fundamental First Amendment princi-

ples: it also furthers the goals of the First Amendment.”

York also determined that the installation of cable service was

taxable. New Jersey State Tax News, Division of Taxation,

January/February, 1983; In the Matter of the Application of

Amherst Cablevision, Inc., State Tax Commission, September 14,

1980 (TSB-H-80) (208) S, Sales Tax, November 18, 1980, 1980

WL 6992 (N.Y. Dept. Tax Fin.). Indiana and Ohio courts held

that equipment used to produce and transmit cable television sig-

nals was taxable. Ind. Dept. of St. Rev., Etc. v. Cable Brazil, Iac.,

177 Ind. App. 450, 380 N.E.2d 555, 558 (Ind. App. 1978); T.V.

Antenna Systems, Inc. Vv. Bowers, Ohio BTA, No. 44357, April 11,

1961. Indiana’s Code provided for a sales tax on cable television

service, as well. Ind. Dept. of St. Rev. v. Cable Brazil, Inc., 177

Ind. App. 450, 380 N.E.2d 555, 558 (Ind. App. 1978).

* Cable Petitioners also rely on various state court decisions.

However, no state court, other than those below, has considered

whether a sales or comparable tax may be imposed on the sale of

cable services if not also imposed on the sale of newspapers and

magazines. All but two of the decisions cited by Cable Petitioners

deal with the issue reserved in Ragland—i.e., tax treatment of

magazines and newspapers; the remainder deal with the tax treat-

ment of newspapers and conventional broadcasting.

17

A. The Court in Minneapolis Star invalidated on First

Amendment grounds a Minnesota tax imposed on the ink

and paper purchased by the state’s largest newspapers.

The Court found that the discrimination took two dif-

ferent forms: 1) it singled out newspapers among all

enterprises for a special tax; and 2) it targeted a small

group of newspapers to pay that tax (less than four per-

cent of all the state’s newspapers were actually subject

to the tax). The Court held that such discriminatory

taxation could not stand absent “an overriding govern-

mental interest.” 460 U.S. at 582-83.

Neither form of discrimination is present here. The

Arkansas tax is a sales tax of general applicability

which applies to a broad range of goods and services.

See 460 U.S. at 581, 588 n.9 (suggesting that Minne

sota could have constitutionally applied its general sales

tax to newspapers). Furthermore, it applies uniformly

to all cable operators and, indeed, to all those who (like

cable operators) sell video programming to the public.

See pages 5-6 supra. Such a broad-based, content-

neutral statute poses little risk of the illicit government

intent or distortion of ideas inherent in the Minnesota

tax. 460 U.S. at 591-92."

The Court in Minneapolis Star explained that differ-

ential tax treatment may be “justified by some special

characteristic of the press... .” 460 U.S. at 585. Pre-

cisely such a justification exists with regard to cable.

Unlike newspapers and magazines, cable operators receive

substantial governmental benefits through use of public

™ The Court in Minneapolis Star expressed its suspicion that

the targeting of small segments of the press is really a guise for

content discrimination, by reference to its decision in Grossjean V.

American Press Co., 297 U.S. 233 (1936). In that classic case of

content-based taxation, the Court explained, the Louisiana govern-

ment deliberately attempted to silence the expression of the largest

state newspapers because they had “ganged up” against Senator

Huey Long. 460 U.S. at 579-80, referring to Grossjean, 297 U.S.

at 250-51.

18

resources. See pages 9-11 supra. The State of Arkansas

is fully justified in choosing not to accord cable any

further subsidy in the form of a tax exemption granted

. newspapers and magazines.

B. The Court in Ragland invalidated the Arkansas

sales tax insofar as it applied to sales of general inter-

est magazines and not to “religious, professional, trade

and sports journals.” The Court found that, as in Min-

neapolis Star, the Arkansas tax impermissibly singled

out a “small group” within the press for special taxation

—specifically, only three publications. 481 U.S. at 228.

The Court noted that the “burden of the tax” rested

upon a very narrow grouping of publishers, 481 U.S. at

229 n.4, which might indicate that the distinctions drawn

were content-based. Again, no such “small group” is

singled out by the Arkansas tax as it applies to cable

operators and others who seli video programming.

Moreover, the Court in Ragland found particularly

“disturbing” the fact that the state had differentiated

among magazines solely on the basis of content—i.e., in

order to determine whether the magazine was exempt

from taxation, state officials had to consider whether the

magazine was devoted solely to religious, professional,

trade or sports issues. 481 U.S. at 230. The Arkansas

sales tax, insofar as it applies to the sale of all cable

services, contains no such content-based discrimination.

Nor is there any real danger of content-based discrim-

ination where, as here, an entire medium of communica-

tions is subject to a particular tax.

Cable Petitioners state that the instant case “simply

presents the vehicle for this Court to answer the question

it reserved in [Ragland].” Cable Pet. Br. at 19. But

that statement is incorrect. The Court in Ragland re-

served the question of whether “a distinction between

different types of periodicals [i.e., newspapers and maga-

zines] presents an additional basis for invalidating the

sales tax, as applied to the press” (481 U.S. at 233

19

(emphasis added) )—not whether periodicals must be

taxed the same as a different communications medium

(cable television).

C. In focusing on Minneapolis Star and Ragland,

Cable Petitioners have overlooked Regan. The Court in

Regan upheld an internal revenue statute which gen-

erally denied tax exemptions for organizations engaged

in lobbying, though veterans’ organizations received a~

tax exemption regardless of lobbying activities. The

Court stressed the long-standing principle that “a legis-

lature’s decision not to subsidize the exercise of a funda-

mental right does not infringe the right, and thus is not

subject to strict scrutiny.” 461 U.S. at 549 (emphasis

added). The Court found that the tax statute satisfied

the general rule that statutory classifications must “bear

a rational relation to a legitimate governmental pur-

pose,” and held the tax to be valid. Jd. at 547, 549-51.

Like the statute in Regan, the Arkansas statute taxes

two distinguishable groups of speakers differently, but

does not prevent any group from exercising its First

Amendment rights. As in Regan, the Arkansas legisla-

ture has not distinguished between media groups on the

basis of the content of their speech; nor is there any in-

dication that application of the tax statute would sup-

press any particular ideas. See 461 U.S. at 546, 548.

The legislature merely seeks to fulfill its obligation to

“fit [its] tax programs to local needs and usages in order

to achieve an equitable distribution-of the tax burden.”

Id. at 547, quoting Madden v. Kentucky, 309 U.S. 83,

87-88 (1940). Given the substantial use of public re-

sources by cable companies, there is a strong, rational

basis for the Arkansas legislature’s decision not to pro-

vide a further subsidy to cable.

D. The Arkansas sales tax does not threaten First

Amendment interests. First, the tax is not content-

based, and does not suppress any particular point of

view. By exempting one medium while imposing a tax

20

on the entirety of another medium, the statute does not

provide an advantage to any side in a debate. The me-

dium of cable television is not Democratic or Republican,

not liberal or conservative. Rather, as Cable Petitioners

allege, cable television transmits a broad spectrum of

views and information. Thus, even if a government tax

on cable television services but not on newspapers and

magazines favors the print medium, the tax does not

create a distortion in the political process or increase the

risk of political extremism.’* Nor does the statute

threaten the “search for truth,” another core concern of

the First Amendment. First Nat’! Bank v. Bellotti, 435

U.S. 765, 781 (1976) (“Bellotti”).

Second, a tax on cable television does not result in a

discriminatory or lesser degree of First Amendment pro-

tection for cable, because the taxed medium is not in

direct competition with any tax-exempt or subsidized

groups. Cable television and newspapers are not substi-

tutes in any meaningful consumer sense.” Therefore,

the demand for cable television compared to newspapers

may be essentially inelastic, i.e., an individual will not

likely turn from cable television to newspapers simply

12 See Police Dep't of Chicago Vv. Mosley, 408 U.S. 92, 95-96

(1972) (“above all else, the First Amendment means that govern-

ment has no power to restrict expression because of its message,

its ideas, its subject matter, or its content. . . government must

afford all points of view an equal opportunity to be heard’) ; Note,

Content Regulation and the Dimensions of Free Expression, 96

Harv. L. Rev. 1854, 1865-66 (1983) (First Amendment protects

the community’s fundamental interest in “expression relating to

self-government” ).

13 Relying on statements contained in three newspaper articles,

NCTA claims that there is “significant competition” between cable

and newspapers; such competition, says NCTA, provides a “further

indication of the close parallels, for First Amendment purposes,”

between cable and newspapers. The FCC, however, has squarely

rejected the unsupported notion that cable and newspapers engage

in any significant competition. FCC, Report in MM Doe. No.

89-600 at pp. 35-36 (1990).