Cox Cable Hampton Roads, Inc. v. City of Norfolk

• Decision Date: 08 November 1991
• Docket Number: No. 910207,910207
• Parties: , 19 Media L. Rep. 1656 COX CABLE HAMPTON ROADS, INC., et al. v. CITY OF NORFOLK. Record
• Court: Virginia Supreme Court

Page 652

410 S.E.2d 652

242 Va. 394, 19 Media L. Rep. 1656

COX CABLE HAMPTON ROADS, INC., et al. v. CITY OF NORFOLK.

Record No. 910207.

Supreme Court of Virginia.

Nov. 8, 1991.

Robert D. Seabolt, Richmond (James C. Roberts, Wayne Lustig, Richmond, Timothy J. O'Rouke; Maria L. Olsen, Washington, D.C., Mays & Valentine, Richmond, Dow, Lohnes & Albertson, Washington, D.C., on briefs), for appellants.

M. Wayne Ringer, Norfolk (Jack E. Greer; Philip R. Trapani, City Atty., Daniel R. Hagemeister; Williams, Kelly & Greer, on brief), for appellee.

Present: All the Justices.

HASSELL, Justice.

In this appeal, we consider certain challenges to the City of Norfolk's taxing power, as well as the constitutionality of the tax imposed.

Cox Cable Hampton Roads, Inc. filed this suit for injunctive, declaratory, and other relief against the City of Norfolk. Cox Cable sought a declaration that an ordinance enacted by the City which permits it to impose a utility tax on cable television service is invalid. John Patrick Teixeira and William Robert Wilson, subscribers of cable television service provided by Cox Cable, filed a separate bill of complaint in which they sought injunctive relief and a declaration that the ordinance is invalid. The City filed demurrers to both bills, and the trial court consolidated the proceedings. ¹

Cox Cable alleged that: the City lacked the legislative authority to impose a tax upon the purchase of cable television service; the ordinance which imposed the tax abridged Cox Cable's rights guaranteed by the First Amendment of the United States Constitution; and the tax infringed upon Cox Cable's rights guaranteed by the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution. ²

The trial court granted the City's demurrer to Cox Cable's Equal Protection claim. Cox Cable's claims that the City lacked the power to enact the tax and that the tax abridged Cox Cable's First Amendment rights were tried by the court.

We shall recite the facts in accordance with well-established principles that a demurrer admits the truth of all material facts that are properly pleaded, facts which are impliedly alleged, and facts which may be fairly and justly inferred from alleged facts. Palumbo v. Bennett, 242 Va. 248, 249, 409 S.E.2d 152 (1991). On demurrer, a court may also examine exhibits which are filed with the pleadings. Flippo v. F & L Land Company, 241 Va. 15, 17, 400 S.E.2d 156, 156 (1991). Furthermore, we will, when necessary, discuss those facts, which relate to Cox Cable's First Amendment claims, which were adduced during the trial.

Cox Cable executed a franchise agreement with the City. The Norfolk City Council approved the franchise agreement by the enactment of an ordinance on July 25, 1989. The franchise agreement, which is a part of the pleadings, is for a term of 15 years. Cox Cable is required to provide cable television service to anyone in Norfolk who requests and pays for such service. On May 22, 1990, the Norfolk City Council enacted an ordinance which permitted the City to establish a utility tax base and utility tax rate for cable television service at a rate of seven percent of a consumer's total bill, excluding certain charges.

I.

Cox Cable argues that Norfolk lacks authority from the Virginia General Assembly to impose a utility tax on consumers of cable television service. The City, however, argues that § 2(1) of its Charter is a general grant of taxing authority and authorizes the City to impose a tax on television cable service.

Section 2(1) of the Norfolk City Charter states, in part:

In addition to the powers mentioned in the preceding section the said city shall have power:

(1) To raise annually by taxes and assessments in said city such sums of money as the council hereinafter provided for shall deem necessary for the purposes of said city, and in such manner as said council shall deem expedient, in accordance with the Constitution and laws of this state and of the United States; provided, however, that it shall impose no tax on the bonds of said city.

This Court has on numerous occasions construed language virtually identical to the language contained in the Norfolk City Charter and, on each occasion, we have held that the General Assembly conferred upon the municipality the general power of taxation. For example, in Norfolk v. Norfolk Landmark Pub. Co., 95 Va. 564, 28 S.E. 959 (1898), we considered whether the City of Norfolk's Charter authorized it to impose a license tax. The Charter contained the following provision:

For execution of their powers and duties, the city council shall raise, annually, by taxes and assessments, in said city, such sums of money as they shall deem necessary to defray the expenses of the same, and in such manner as they shall deem expedient, in accordance with the constitution and laws of this State and of the United States; provided, however, that they shall impose no tax upon the bonds of said city.

Id. at 566-67, 28 S.E. at 960. We held that this language conferred upon the City the general power of taxation.

When the legislature confers upon a municipality the general power of taxation, it grants all the power possessed by itself in respect to the imposition of taxes; and the city can then impose taxes, in its discretion, upon all subjects within its jurisdiction not withheld from taxation by the legislature, whether they be taxed by the State or not.

Id. at 567, 28 S.E. at 960.

In Fallon Florist v. City of Roanoke, 190 Va. 564, 58 S.E.2d 316 (1950), we also considered language contained in the Roanoke City Charter which is identical to the language found in the Norfolk City Charter, and we held that such language conferred upon the City of Roanoke the general power of taxation. Fallon Florist v. City of Roanoke, 190 Va. at 577, 58 S.E.2d at 322. See also Fredericksburg v. Sanitary Grocery Co., 168 Va. 57, 68-69, 190 S.E. 318, 323 (1937). We find no reason to depart from our established precedent. Accordingly, we hold that § 2(1) of the Norfolk City Charter confers upon the City the general power of taxation, which includes the power to impose a tax on cable television service. ³

II.

In its bill of complaint, Cox alleged that its First Amendment rights were violated because the "[o]rdinance singles out cable television for a burden not imposed upon other communications media," and there was no compelling governmental interest to justify this burden which "violated Cox Cable's right to freedom of speech." The trial court rejected this argument, stating that the tax did not "single out Cox Cable for special treatment" but was applied to all public utilities, including telephone, electric, water, gas, and cable service. Relying upon Minneapolis Star v. Minnesota Comm'r of Revenue, 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 (1983), and Arkansas Writers Project, Inc. v. Ragland, 481 U.S. 221, 107 S.Ct. 1722, 95 L.Ed.2d 209 (1987), the trial court held that the government does not contravene First Amendment rights by subjecting the press to economic regulation which is generally applicable to all businesses.

The principles upon which the trial court relied were discussed by the United States Supreme Court in a case decided after the trial court's decision. The Supreme Court in Leathers v. Medlock, 499 U.S. 439, 111 S.Ct. 1438, 113 L.Ed.2d 494 (1991) specifically addressed the issue whether the "First Amendment prevents a State from imposing its sales tax on only selected segments of the media." Id., 499 U.S. at ----, 111 S.Ct. at 1442. In Leathers, cable operators contended that the Arkansas sales taxation of cable television services and exemption or exclusion of the tax on newspapers, magazines, and satellite broadcast services violated their First Amendment rights.

The Supreme Court stated that "taxation of First Amendment speakers is constitutionally suspect when it threatens to suppress the expression of particular ideas or viewpoints." Id., 499 U.S. at ----, 111 S.Ct. at 1443. The Court identified three circumstances where this threat exists and can be justified only by a compelling governmental interest: (1) when the tax applies only to the press, as the taxes based on circulation or use of paper and ink in publication production at issue in Grosjean v. American Press Co., 297 U.S. 233, 56 S.Ct. 444, 80 L.Ed. 660 (1936) and Minneapolis Star, respectively, in contrast to a general sales tax as in Ragland and Leathers; (2) when the tax targets a small group of First Amendment speakers as in Minneapolis Star which applied only to the thirteen publishers of the state's 374 paid circulation newspapers, or to the "few Arkansas magazines" which were not religious, sport, trade or professional magazines in Ragland; and (3) when the taxation is based on content as in Ragland. Leathers, 499 U.S. at ----, 111 S.Ct. at 1442-43. All of these circumstances impact a "limited range of views" and risk the "distort[ion of] the market for ideas." Id., 499 U.S. at ----, 111 S.Ct. at 1444.

The Supreme Court held that none of these circumstances were applicable to the sales tax at issue in Leathers. The tax did not apply only to the press but was a tax of general application. It did not target a small group of First Amendment speakers because it applied uniformly to all cable systems in the state, totaling approximately 100. While acknowledging that the provision of television service through the use of satellite communications was not subject to the sales tax, the application of the tax to 100 cable companies "hardly resembles a 'penalty for a few.' " Finally, the Arkansas tax was not based on content. Id., (citing Minneapolis Star, 460 U.S. at 592, 103 S.Ct. at 1375).

In considering whether there was "an additional basis," for holding that the sales tax violated the First Amendment, the Supreme Court specifically rejected the contention that taxing cable television while exempting satellite television...