Cammarano v. United States

Background

A married couple who owned part of a beer-wholesaling partnership in Washington and a wholesale liquor company in Arkansas each paid into industry groups that ran wide public advertising urging voters to defeat state ballot initiatives. Those initiatives would have regulated or banned alcohol sales and threatened the taxpayers’ businesses. Each taxpayer tried to deduct its payments as ordinary business expenses on federal income tax returns, and tax officials disallowed the deductions. Lower courts agreed with the Government and denied the deductions.

Reasoning

The Court addressed whether Treasury rules that bar deductions for money spent on “lobbying,” promoting or defeating legislation, or propaganda apply to public advertising aimed at voters and whether those rules are valid. The Justices said the regulations cover publicity directed to the public as well as direct lobbying and that ballot initiatives count as legislation. The Court relied on a long line of earlier decisions and on the fact that Congress repeatedly reenacted the underlying tax provision, concluding the regulations have the force of law. The Court rejected the argument that protecting a business from destruction made the expenses deductible under earlier cases.

Real world impact

The decision means businesses and trade groups cannot treat the cost of public campaigns to influence legislation or ballot measures as deductible ordinary business expenses. Companies that pay for newspaper ads, mailings, or similar publicity to sway voters will bear those costs without tax relief. The ruling rests on longstanding tax policy and is final unless changed by Congress or later cases.

Dissents or concurrances

Justice Douglas, while agreeing with the result, emphasized that business advocacy can implicate First Amendment speech protections and warned against treating political speech as less protected because it is tied to profit. He nevertheless concurred with the judgment.