Bellsouth Telecommunications, Inc. v. Farris

• Decision Date: 09 September 2008
• Docket Number: No. 07-5424.,No. 07-5397.,07-5397.,07-5424.
• Citation: 542 F.3d 499
• Parties: BELLSOUTH TELECOMMUNICATIONS, INC., et al., Plaintiffs-Appellees, v. John FARRIS, Secretary of the Finance and Administration Cabinet, Commonwealth of Kentucky, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

542 F.3d 499

BELLSOUTH TELECOMMUNICATIONS, INC., et al., Plaintiffs-Appellees, v. John FARRIS, Secretary of the Finance and Administration Cabinet, Commonwealth of Kentucky, et al., Defendants-Appellants.

No. 07-5397.

No. 07-5424.

United States Court of Appeals, Sixth Circuit.

Argued: March 12, 2008.

Decided and Filed: September 9, 2008.

ARGUED: Laura M. Ferguson, Finance and Administration Cabinet, Frankfort, Kentucky, for Appellants. Geoffrey M. Klineberg, Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., for Appellees. ON BRIEF: Laura M. Ferguson, Douglas M. Dowell, Finance and Administration Cabinet, Frankfort, Kentucky, for Appellants. Geoffrey M. Klineberg, Daniel G. Bird, Michael K. Kellogg, Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., for Appellees. Helgi C. Walker, Wiley Rein, Washington, D.C., Douglas R. Cole, Jones Day, Columbus, Ohio, Bruce V. Griffiths, Office of the Texas Attorney General, Austin, Texas, for Amici Curiae.

Before: DAUGHTREY and SUTTON, Circuit Judges; POLSTER, District Judge.^*

SUTTON, J., delivered the opinion of the court, in which POLSTER, D.J., joined. DAUGHTREY, J. (pp. 511-13), delivered a separate opinion concurring in part and dissenting in part.

OPINION

SUTTON, Circuit Judge.

In 2005, Kentucky imposed a 1.3% tax on the gross revenues of telecommunications providers. Ky.Rev.Stat. Ann. § 136.616(1), (2)(b). In connection with the new tax, the legislature banned providers from "collect[ing] the tax directly" from consumers and from "separately stat[ing] the tax on the bill." Id. § 136.616(3). The providers filed this lawsuit because they want to identify the new tax as a line item on all customer invoices to explain why they have raised prices, while the Commonwealth says that the new law prevents them from doing so.

No one disputes Kentucky's authority to impose this tax, the providers' responsibility to pay it or Kentucky's authority to prevent providers from switching the legal incidence of taxation to their customers. And no one disputes the providers' right to raise prices to account for this additional cost of doing business. The question is whether the Commonwealth may permit providers to raise prices but prohibit them from using their invoices to say why without running afoul of the "freedom of speech" protections of the First (and Fourteenth) Amendment. Whether the no-stating-the-tax provision is more akin to a price-advertising ban (governed by the commercial-speech doctrine) or to a ban on protesting a new tax in the forum most likely to get consumers' attention (governed by the political-speech doctrine) need not detain us. For it fails to satisfy even the intermediate scrutiny that applies to restrictions on commercial speech. The district court having come to a similar conclusion, we affirm. To the extent the district court also meant to invalidate the provision that bars providers from collecting the tax directly from the consumer, a point not entirely clear from the decision, we reverse that portion of its decision, as this provision regulates conduct, not speech.

I.

On March 18, 2005, Kentucky enacted a statute taxing "the gross revenues received by all [telecommunications] providers." Id. § 136.616(1). The statute makes providers responsible for a tax of "[o]ne and three-tenths percent (1.3%) of the gross revenues received for the provision of communications services ... billed on or after January 1, 2006." Id. § 136.616(2)(b). The law also regulates the way providers may collect the tax and what they may say in doing so: "The provider shall not collect the tax directly from the purchaser or separately state the tax on the bill to the purchaser." Id. § 136.616(3). A separate section of the Kentucky tax code penalizes those providers who violate the provision with a fine "of twenty-five dollars ($25) per purchaser offense, not to exceed ten thousand dollars ($10,000) per month." Id. § 136.990(11).

BellSouth and AT & T filed separate lawsuits against the Kentucky officials responsible for administering the tax, each seeking a declaration that (1) § 136.616(3) and § 136.990(11) violate the First (and Fourteenth) Amendment of the United States Constitution, (2) the two laws violate the Commerce Clause of the United States Constitution and (3) the Federal Communications Act, 47 U.S.C. § 151 et seq., preempts both laws. In each case, the district court held that the Tax Injunction Act did not bar the lawsuit, granted the providers' motion for summary judgment on the First Amendment claim, denied their motion on the Commerce Clause claim and declined to reach the preemption claim. Kentucky challenged the adverse rulings, and we consolidated the cases on appeal.

II.

Before reaching the merits of the First Amendment question, we must consider our jurisdiction to do so. Under the Tax Injunction Act, federal courts may not "enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. The district court concluded that the Act did not bar this lawsuit. We agree—for several reasons.

First, the Act applies only when a claimant seeks to "enjoin" or otherwise hinder "the assessment, levy or collection" of a state tax. Yet there is nothing about this lawsuit that seeks to avoid paying taxes or to limit the amount of taxes due. In challenging § 136.616(3), the providers do not disclaim responsibility for paying the 1.3% gross-receipts tax. To the contrary: the tax appears in a separate part of the statute, see Ky.Rev.Stat. Ann. § 136.616(2), and the providers not only have declined to challenge that provision but also have accepted its validity for purposes of this case. If successful, this injunction thus will not hinder the Commonwealth's interest in collecting the tax.

Second, consistent with the language of the Act, the Supreme Court has construed it to apply "only in cases ... in which state taxpayers seek federal-court orders enabling them to avoid paying state taxes." Hibbs v. Winn, 542 U.S. 88, 107, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004) (emphasis added). And what the Court has said in construing the Act is consistent with what it has done: It has permitted lawsuits that do not seek to avoid paying taxes, and it has barred lawsuits that do. Compare, e.g., id. at 112, 124 S.Ct. 2276 (permitting suit challenging tax credits for donations to private-school scholarship funds), and Jefferson County, Ala. v. Acker, 527 U.S. 423, 435, 119 S.Ct. 2069, 144 L.Ed.2d 408 (1999) (permitting suit brought by a State to collect taxes), with Arkansas v. Farm Credit Servs. of Cent. Ark., 520 U.S. 821, 824, 117 S.Ct. 1776, 138 L.Ed.2d 34 (1997) (barring suit that sought exemption from sales and income taxes), California v. Grace Brethren Church, 457 U.S. 393, 411, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982) (barring suit that sought to prevent a State from collecting unemployment-compensation taxes), and Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 512, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981) (barring suit that sought to disclaim liability for property taxes). The district court's assumption of jurisdiction over this lawsuit fully respects these precedents.

Third, what the providers want is something that neither the language of the Act nor the Court's cases cover: to invalidate a law that prevents them from "collect[ing] the tax directly from the purchaser or separately stat[ing] the tax on the bill to the purchaser." Ky.Rev.Stat. Ann. § 136.616(3). That is not a request for a tax injunction; that is a request to end a ban on what the provider may say about the tax and on what the provider may do to collect the tax from someone else. If granted, this relief would not interfere with the relationship between the body that imposed the tax (the Commonwealth) and the bodies that owe the tax (the providers). It merely would allow the providers to identify the tax on the bill and allow them in the process to explain to their customers why they have raised prices. The Tax Injunction Act does not prevent such relief, relief that does not halt the collection or assessment of taxes but that merely facilitates what businesses have done for a long time—recover the costs of doing business (including paying new taxes) from customers for as long as the market will bear it.

Fourth, this application of the Act falls in line with several lower-court decisions, starting with our own. In American Civil Liberties Union of Tennessee v. Bredesen, 441 F.3d 370 (6th Cir.2006), while we did not have occasion to issue a holding on the point, we hinted that today's interpretation was the right one. Plaintiffs challenged the validity of a Tennessee law that permitted them to choose certain license plate options but not others. "Plaintiffs in this case," we said, "are of course not seeking to avoid paying for a `Choose Life' license plate, and it is therefore at least questionable whether the [Act] would apply even if the payment for the license plates were a `tax.'" Id. at 373 n. 1. And in other cases, we have recognized that the Act operates "particularly" to protect the States' "revenue raising" mechanisms, Wright v. McClain, 835 F.2d 143, 144 (6th Cir.1987), and only to shield "taxes" defined in relevant part as "assessment[s] ... for general revenue raising purposes," Hedgepeth v. Tennessee, 215 F.3d 608, 614 (6th Cir. 2000). All of this suggests that when a lawsuit does not directly threaten the "ultimate ... public benefit" of raising tax revenue, Am. Landfill, Inc. v. Stark/Tuscarawas/Wayne Joint Solid Waste Mgmt. Dist., 166 F.3d 835, 838 (6th Cir.1999), as is true here, the Act does not apply.

In a case not unlike this one, the Second Circuit held that the Act did not apply to a challenge to a state law restricting a taxpayer's efforts to recover the costs of a new tax from its customers. "[T]he State," the court explained, "has the...