Senator Ray Janssen Nebraska State Legislature
AGO 03015
No. 03015
Nebraska Attorney General Opinion
State of Nebraska Office of The Attorney General
May 14, 2003
SUBJECT:
Whether The Sales Tax on Gross Income Received for Casino
Advertising Proposed Under LB 759, as Amended, Violates the
Guarantee of Freedom of Speech in the First Amendment to the
United States Constitution .
REQUESTED
BY: Senator Ray Janssen Nebraska State Legislature
WRITTEN
BY: Jon Bruning, Attorney General L. Jay Bartel, Assistant
Attorney General
You
have requested our opinion concerning the constitutionality
of an amendment to LB 759, AM 1376. The amendment extends
Nebraska's sales tax to "[t]he gross income received
for casino advertising" when "the seller of the
advertising is located" in Nebraska and the advertising
is "broadcast, circulated, or displayed" in
Nebraska. "Casino" is defined as "any
establishment conducting games of chance which are illegal in
the State of Nebraska." "Casino advertising"
is defined as "purchasing air time on television or
radio, purchasing advertising space in newspapers, magazines,
or billboards, purchasing or circulating pamphlets or fliers,
purchasing or displaying store signs or window displays, or
purchasing any product or media time or space to sell or
promote the activities of a casino." "Casino
advertising does not include consulting, designing artwork or
advertising campaigns, or performing any other creative
processes that may result in the purchase of casino
advertising." Your question is whether the imposition of
sales tax on casino advertising under AM 1376 violates the
guarantee of freedom of speech in the First Amendment to the
United States Constitution.
For the
reasons set forth below, we conclude that the proposed tax on
casino advertising likely inhibits free speech rights in
violation of the First Amendment. First, the proposed tax on
casino advertising does not appear to be the type of
"generally applicable" tax which impacts speech
that has been approved by the United States Supreme Court.
While it is part of the general sales tax, which includes
taxation of a variety of tangible personal property and
services, it applies only to casino advertising. By singling
out a specific form of advertising for taxation, while
exempting other advertising and services, the tax likely
cannot be viewed as one of "general application."
It also appears to target a relatively small group of
speakers. Second, because of the limited and special nature
of the tax, it probably cannot withstand scrutiny under the
four-part test for assessing the constitutionality of laws
regulating commercial speech set forth in Central Hudson
Gas & Elec. Corp. v. Public Serv. Comm'n, 447
U.S. 557 (1980). This four-part analysis requires
determining: (1) Whether the commercial speech concerns
lawful activity and is not misleading; (2) Whether the law
involves a substantial governmental interest; (3) Whether the
law directly advances the governmental interest asserted; and
(4) Whether the law is not more extensive than is necessary
to serve the governmental interest. As to part 1, the casino
advertising would concern lawful activity relating to casinos
located in states where such activity is legal, and,
presumably, the advertising would not be misleading. With
respect to part 2, the tax would raise revenue, which can be
considered a substantial government interest. If raising
revenue is deemed a substantial interest, then the
requirement of part 3 that the tax directly advance that
government interest is also met, Part 4, however, likely is
not satisfied. Because the tax is not general, but narrowly
targets a specific message and limited group of speakers, it
is more extensive than necessary to achieve the governmental
interest, as more narrowly tailored alternatives which avoid
the selective taxation proposed could be enacted to further
the state's need to raise revenue.
I.
ANALYSIS
A.
The Protection of Commercial Speech Under the First
Amendment.
The
First Amendment provides that "Congress shall make no
law. . .abridging the freedom of speech, or of the
press...." U.S. Const., amend. 1.
[1] At one time, the United States
Supreme Court did not view commercial speech as worthy of
First Amendment protection. Valentine v.
Chrestensen, 316 U.S. 53, 54 (1942) ("[T]he
Constitution imposes no.. .restraint on government as
respects purely commercial advertising."). The Court has
since altered this view, and, in Virginia Bd. of Pharmacy
v. Virginia Citizens Consumer Council, Inc., 425 U.S.
748 (1976), explicitly held that commercial speech is
protected by the First Amendment. Explaining its rationale
for extending First Amendment protection to commercial
speech, the Court in Virginia Bd. of Pharmacy
stated:
Generally, society. . .may have a strong interest in the free
flow of commercial information. Even an individual
advertisement, though entirely 'commercial', may be
of genera! public interest.
***
Advertising, however tasteless and excessive it sometimes may
seem, is nonetheless the dissemination of information as to
who is producing and selling what product, for what reason,
and at what price. So long as we preserve the predominantly
free enterprise economy, the allocation of our resources in
large measure will be made through numerous private economic
decisions. It is a matter of public interest that those
decisions, in the aggregate, be intelligent and well
informed. To this end, the free flow of commercial
information is indispensable.
425 U.S. at 764-65. Expanding on this theme in its later
decision in Edenfield v. Fane, 507 U.S. 761, 767
(1993), the Court stated:
The commercial marketplace, like other spheres of our social
and cultural life, provides a forum where ideas and
information flourish. Some of the ideas and information are
vital, some of slight worth. But the general rule is that the
speaker and the audience, not the government, assess the
value of the information presented. Thus, even a
communication that does no more than propose a commercial
transaction is entitled to the coverage of the First
Amendment.
Since advertising is commercial speech protected by the First
Amendment, the proposed tax on casino advertising raises a
question as to whether the tax impermissibly restricts
advertisers' First Amendment right to free speech.
Resolution of this issue entails considering the Court's
decisions involving the validity of taxes challenged as
violative of the First Amendment, as well as the Court's
First Amendment analysis of the validity of regulations or
restrictions affecting commercial speech.
B.
Taxation and the First Amendment.
On
several occasions, the Court has addressed claims that taxes
affecting the press violated the First Amendment. In
Grossjean v. American Press Co., 297 U.S. 233
(1936), the Court struck down a state tax on the gross
receipts of advertising imposed only on newspapers with a
circulation of more than 20,000 copies per week. While noting
that its decision invalidating the tax should not be read
"to suggest that owners of newspapers are immune from
any of the ordinary forms of taxation for support of the
government...," the Court held the tax was "not an
ordinary form of tax, but one single in kind * * * with the
plain purpose of penalizing the publishers and curtailing the
circulation of a selected group of newspapers."
Id. at 250-51.
In
Minneapolis Star and Tribune Co. v. Minnesota Comm'r
of Revenue, 460 U.S. 575 (1983), the Court held a use
tax imposed on the cost of paper and ink products exceeding
$100,000 a year consumed in the production of periodic
publications violated the First Amendment guarantee of
freedom of the press. The Court noted that "[b]y
creating this special use tax, . . ., Minnesota ha[d] singled
out the press for special treatment." Id. at
582. In striking down this special tax, the Court found the
danger posed by subjecting the press to special taxation,
rather than taxes of "general applicability," was
crucial:
A power to tax differentially, as opposed to a power to tax
generally, gives a government a powerful weapon against the
taxpayer selected. When the State imposes a generally
applicable tax, there is little cause for concern. We 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
...
