Dow Jones & Co., Inc. v. State ex rel. Oklahoma Tax Com'n

• Decision Date: 30 January 1990
• Docket Number: No. 70663,70663
• Citation: 1990 OK 6,787 P.2d 843
• Parties: 17 Media L. Rep. 1401, 1990 OK 6 DOW JONES & COMPANY, INC., Appellant, v. The STATE of Oklahoma ex rel. OKLAHOMA TAX COMMISSION, Appellee.
• Court: Oklahoma Supreme Court

Page 843

787 P.2d 843

17 Media L. Rep. 1401, 1990 OK 6

DOW JONES & COMPANY, INC., Appellant, v. The STATE of Oklahoma ex rel. OKLAHOMA TAX COMMISSION, Appellee.

No. 70663.

Supreme Court of Oklahoma.

Jan. 30, 1990.

Robert D. Nelon, Andrews, Davis, Legg, Bixler, Milsten & Murrah, Oklahoma City, and Charles F. Feldman, Richard J. Tofel, Gibson, Dunn & Crutcher New York City, for appellant.

Joe Mark Elkouri, Gen. Counsel, Marjorie Welch, Asst. Gen. Counsel, Oklahoma Tax Com'n and Robert H. Henry, Atty. Gen., Neal Leader, Asst. Atty. Gen., Oklahoma City, for appellee, Oklahoma Tax Com'n.

OPALA, Vice Chief Justice.

The dispositive issue on review is whether a use tax levy on some but not all publications--based on sales price or mode of delivery--is an impermissible burden on rights protected by the First Amendment to the U.S. Constitution. We answer in the affirmative.

I

THE ANATOMY OF LITIGATION

A.

Dow Jones & Company, Inc. [Taxpayer] publishes and daily circulates The Wall Street Journal. The Taxpayer also publishes Barron's National Business and Finance Weekly, the National Business Employment Weekly and The Asian Wall Street Journal Weekly. Most issues of these publications are sold by subscription and delivered by mail.

Oklahoma exacts a tax for all nonexempt sales of tangible personal property. 68 O.S.Supp.1987 § 1354(A). ¹ This levy would include sales of newspapers and other periodicals were it not for the exemption in 68 O.S.1981 § 1357(C), ² which extends to

"[c ]arrier sales of newspapers and periodicals made directly to consumers. Other sales of newspapers and periodicals where any individual transaction does not exceed seventy-five cents ($0.75) ...." [Emphasis added.]

To complement the sales tax, Oklahoma imposes a use tax on goods purchased in another state and consumed (or used) within Oklahoma. 68 O.S.Supp.1987 § 1402. ³ By the terms of 68 O.S.1981 § 1404(e) the exemption provided in § 1357(C) also extends to the use tax. ⁴

The Business Tax Division of the Oklahoma Tax Commission [Commission] assessed a use tax deficiency against the Taxpayer on distributions of its publications within the state during 1980 through 1985. The Taxpayer challenged the assessment, arguing (1) a subscription to The Wall Street Journal is a "series of transactions", each less than seventy-five cents, and should hence be exempt from taxation by § 1357(C), AND (2)⁵ taxation of its publications based on sales price or distribution method offends both the U.S. and the Oklahoma Constitution. ⁶

An administrative law judge, who reviewed the protest, concluded: (a) the purchase of a magazine or newspaper subscription is a single transaction and (b) since the § 1357(C) exemption does not apply, the assessment was proper because during the assessment period the price of a subscription to The Wall Street Journal exceeded seventy-five cents. The judge did not address the Taxpayer's second argument, reasoning that inasmuch as the Commission is an administrative agency rather than a court, it is without power to decide the constitutional validity of a taxing statute. ⁷ The Commission based its denial of the Taxpayer's protest on the disposition recommended by the administrative law judge.

B.

We agree with the Commission that, as an administrative agency, it is powerless to strike down a statute for constitutional repugnancy. Within the framework of Oklahoma's tripartite distribution of government powers, the authority to invalidate an unconstitutional enactment resides solely in the judicial department. Art. 7, § 1, Okl. Const. confers on administrative agencies only that quantum of "judicial power" which is necessary to support their exercise of adjudicative authority in individual proceedings brought before them. The power assigned to boards and commissions is not coextensive with that which is vested in the courts. ⁸ Every statute is hence constitutionally valid until a court of competent jurisdiction declares otherwise. See State ex rel. York v. Turpen, Okl., 681 P.2d 763, 767 [1984]. ⁹

II

UNEQUAL TAX TREATMENT OF THE PRINT MEDIA VIOLATES THE FIRST

AMENDMENT'S FREEDOM-OF-SPEECH GUARANTEE

The Taxpayer asserts the § 1357(C) exemption is discriminatory and hence unconstitutional when measured by the current standards of federal jurisprudence. The Taxpayer relies on two recent decisions by the U.S. Supreme Court--Minneapolis Star and Tribune Company v. Minnesota Commissioner of Revenue ¹⁰ and Arkansas Writers' Project, Inc. v. Ragland. ¹¹

In Minneapolis Star the Court invalidated a discriminatory use tax levied on the cost of paper and ink products consumed by publishers in excess of $100,000.00. Although there was no indication of improper legislative motive, ¹² the Court held the discrimination condemned there took two distinct forms--the use tax improperly treated the press differently from other enterprises and its levy targeted a small group of publications within the press. ¹³

Economic regulation of the press is, of course, permissible if the tax generally applies to all businesses, ¹⁴ but an exaction that either singles out the press or targets some but not all publishers or publications raises First Amendment concerns. ¹⁵ A heavy burden rests on the state to show a compelling governmental interest that cannot be achieved without differential taxation. ¹⁶ The state's stake in raising revenue, standing alone, will not justify special tax treatment of the press. ¹⁷

In Ragland the state sales tax scheme exempted all newspapers and certain other publications based on their content. The Court held the tax violated the First Amendment's freedom-of-speech guarantee because it treated some publications less favorably than others. In short, the tax suffered from the second form of discrimination condemned in Minneapolis Star. ¹⁸

Although not based on content, § 1357(C) targets only certain publications and hence violates the spirit, if not the letter, of both the First Amendment and the teachings of Ragland. The section is a narrowly "targeted" levy exemption in the sense that its provisions aim at taxing a specific class of publications which are singled out from the rest of the press. Here, publications which are sold for more than seventy-five cents or distributed by mail receive less favorable treatment than those marketed for less than seventy-five cents or delivered directly by carrier.

The Commission argues that because the Ragland and Minneapolis Star scenarios differ from the present case, the rules announced in those opinions should not govern this assessment protest. We cannot accede to this view. Oklahoma's sales tax scheme is sufficiently similar to that condemned in Minneapolis Star, and particularly so in Ragland, to enjoin application of their teachings to the present case. Moreover, extant jurisprudence gives no indication that the two pronouncements invoked by the Taxpayer were intended to be rigidly confined within their specific scenarios. Rather, we find that the Court-announced constitutional standards are meant for broad and general application to the press.

In sum, although there is here no hint of a legislative attempt at censoring the press, the appropriate standard for our constitutional review is strict scrutiny, not the rational basis test. ¹⁹ A heavy burden lies with the state to advance some compelling interest. Raising revenue alone is insufficient justification for selective exaction. Whenever the onus cannot be met, the differential tax treatment of the press must be held to offend the First Amendment's freedom-of-speech guarantee. In simpler terms, if the State fails to sustain its burden on this point, we must rule favorably for the Taxpayer.

III

SECTION 1357(C)

IS INVALID AS AN IMPERMISSIBLE BURDEN ON THE

RIGHT TO DISSEMINATE INFORMATION

Aside from the state's need for revenue raising, the Commission has advanced no overriding considerations for the § 1357(C) differential treatment of the press. It simply suggests the limited exemption is warranted because neither the "door-to-door carrier" nor the "vending machine" sales method is conducive to collection of sales tax. ²⁰

Contrary to the Commission's view, a state's stake in orderly administration and efficient tax collection is not an interest separate and distinct from that in raising revenue. A convenient, problem-free collection system is merely the means to achieve the primary objective of raising funds.

We see no counterbalancing state interest sufficient to serve as a vehicle for affording fundamental-law legitimacy to Oklahoma's differential taxation of some publications in distribution. The plain First Amendment teachings of both Ragland and Minneapolis Star command that we invalidate Oklahoma's sales tax and use tax scheme insofar as its provisions affect newspaper and periodical sales. ²¹ That part of today's decision by which we invalidate the tax scheme will apply to this case, to cases like this one which are now pending before the Commission, the district courts, or in the appellate litigation process, and to taxpayers' assessment protests timely brought after the date mandate is issued in this appeal. ²²

Today's opinion strikes both the invalid exemptions as well as the underlying sales and use taxes insofar as they concern the print media. While the extent of our statutory surgery may seem overly extensive, it is necessary for we have no other constitutional options. If we were merely to void the exemptions while allowing the taxes to stand, we would be extending the scope of the exactions by judicial fiat. ²³ Alternatively, if we were to limit our pronouncement only to this case, the statutory schemes would remain exactly as we found them--tainted by a differential flaw.

Although in some instances it may be appropriate to sever the invalid from the valid, ²⁴ that cannot be done here. The exemptions provided by §§ 1357(C) and 1404(e) were included in the current Sales and Use Tax Codes as...