Leathers v. Medlock

1991-04-16

Headline: Arkansas sales tax on cable is upheld, letting the State tax cable subscriptions while newspapers and magazines remain exempt, affecting cable operators and media taxation rules nationwide.

Holding: The Court held that Arkansas' generally applicable, content-neutral sales tax can be extended to cable television without violating the First Amendment even if other media are exempt.

Real World Impact:

Allows states to tax cable subscriptions despite exemptions for print media.
Permits collection or refund proceedings for cable taxes on remand.
Leaves state courts to resolve related equal-protection questions on remand.

Topics: media taxation, free speech, cable television, state sales tax, tax fairness for media

Summary

Background

A class action was brought by a cable subscriber, cable companies, and a cable trade group after Arkansas changed its Gross Receipts Act. The State’s law generally imposed a 4% sales tax on many services but expressly exempted newspaper and magazine sales. In 1987 the legislature extended the tax to cable by Act 188; in 1989 it extended taxation to scrambled satellite services by Act 769. The case moved from an Arkansas Chancery Court (which at one point issued and later dissolved an injunction) to the Arkansas Supreme Court and then to this Court.

Reasoning

The Supreme Court examined whether taxing cable while exempting other media violated the First Amendment. The majority relied on earlier decisions saying a tax raises First Amendment problems when it (1) singles out the press, (2) targets a small group of speakers, or (3) discriminates based on content. The Court found Arkansas’ sales tax to be generally applicable, content neutral, and applied to a large number of cable suppliers rather than a few targeted speakers. The majority concluded that this structure did not present the censorship risks that earlier cases struck down, so the State’s tax did not violate the First Amendment; it affirmed in part, reversed in part, and remanded for further proceedings.

Real world impact

The decision allows Arkansas and similar States to tax cable subscription fees even if some print media remain exempt. Cable operators who were taxed may face collection or refund proceedings on remand. The Court left open related equal-protection questions for the Arkansas Supreme Court to consider on remand.

Dissents or concurrances

Justice Marshall (joined by Justice Blackmun) dissented, arguing the First Amendment forbids singling out an information medium for heavier taxation and warning that the majority’s approach weakens press nondiscrimination protections.