Lee Enterprises, Inc. v. Iowa State Tax Commission

• Citation: 162 N.W.2d 730
• Decision Date: 12 November 1968
• Docket Number: No. 53132,WMT-T,I,53132
• Parties: LEE ENTERPRISES, INCORPORATED; WOC Broadcasting Company; American Broadcasting Stations, Inc.;nc.; KTIV Television Co.; Perkins Brothers Co.; Petersen-Herned-Von Maur, Inc.; Lujack Schierbrock Chevrolet Co.; Bawden Bros., Inc.; and Creswell Munsell Schubert & Zirbell, Inc.; Appellees, v. IOWA STATE TAX COMMISSION; E. A. Burrows, Jr.; Lynn Potter and X. T. Prentis, Members of the Iowa State Tax Commission; and Melvin H. Kramer and Raymond L. Larson, Representatives of the Iowa State Tax Commission; Department of Revenue of the State of Iowa, William J. Forst, Director of the Department of Revenue of the State of Iowa, and Gene M. Ford, A. H. Hinkle and George W. Weiny, Members of the State Board of Tax Review, Appellants.
• Court: United States State Supreme Court of Iowa

Page 730

162 N.W.2d 730

LEE ENTERPRISES, INCORPORATED; WOC Broadcasting Company; American Broadcasting Stations, Inc.; WMT-TV, Inc.; KTIV Television Co.; Perkins Brothers Co.; Petersen-Herned-Von Maur, Inc.; Lujack Schierbrock Chevrolet Co.; Bawden Bros., Inc.; and Creswell Munsell Schubert & Zirbell, Inc.; Appellees, v. IOWA STATE TAX COMMISSION; E. A. Burrows, Jr.; Lynn Potter and X. T. Prentis, Members of the Iowa State Tax Commission; and Melvin H. Kramer and Raymond L. Larson, Representatives of the Iowa State Tax Commission; Department of Revenue of the State of Iowa, William J. Forst, Director of the Department of Revenue of the State of Iowa, and Gene M. Ford, A. H. Hinkle and George W. Weiny, Members of the State Board of Tax Review, Appellants.

No. 53132.

Supreme Court of Iowa.

Nov. 12, 1968.

Rehearing Denied Jan. 13, 1969.

George W. Murray, Special Asst. Atty. Gen., Harry M. Griger, Asst. Atty. Gen., and Herrick, Langdon, Belin & Harris, Des Moines, for appellants.

Lane & Waterman, Davenport, and Shuttleworth & Ingersoll, Cedar Rapids, for appellees.

LARSON, Justice.

This is a suit in equity brought by plaintiffs-appellees, who are also cross-appellants for declaratory judgment and injunctive relief. As affected taxpayers, they challenged the constitutionality of the service tax portions of Division VII of an Act known as House File 702 enacted by the Sixty-second General Assembly, especially Section 25 thereof which relates to advertising services.

Defendants-appellants are the members of the State Tax Commission and specified local enforcement agents. The Tax Commission was abolished on December 31, 1967, and its successor, the Department of Revenue, and its director, and members of the State Board of Tax Review, were joined as additional parties.

Plaintiffs are corporations, the collective activities of which include the publication and circulation of newspapers, the operation of radio and/or television stations, the conduct of retail merchandising and automobile businesses which purchase newspaper, radio and television advertising, and the operation of advertising agencies which prepare and place advertising in newspaper, radio and television media.

In their pleadings, consisting of eight divisions and some twenty pages of the record, plaintiffs allege that the provisions of H.F. 702 relating to 'a service tax upon advertising in certain media, specifically including newspapers, radio and television' are 'unconstitutional and invalid for the reasons hereinafter set forth.' In substance, they allege: (a) H.F. 702 violates the title requirements of Section 29 of Article III of the Iowa Constitution. (b) Division VII delegates legislative powers to the State Tax Commission in violation of Section 1 of Article III of the Iowa Constitution. (c) Division VII violates the Due Process Clause of the Fourteenth Amendment to the Constitution of the United States, the Due Process Clause of Section 9 of Article I of the Iowa Constitution, and the tax specificity requirement of Section 7 of Article VII of the Iowa Constitution, because it is vague, ambiguous, unworkable and incapable of enforcement. (d) Division VII violates 'the interstate commerce immunity protected by the Commerce Clause of the Constitution of the United States, which insulates the press, radio and television against direct taxation of their advertising revenues derived from interstate commerce.' (e) Division VII is discriminatory, denies to certain taxpayers equal protection of the laws and lacks uniform application in violation of the Fourteenth Amendment to the Constitution of the United States and Section 6 of Article I of the Iowa Constitution. (f) Division VII abridges the freedom of the press, radio and television guaranteed by the First Amendment to the Constitution of the United States and Section 7 of Article I of the Iowa Constitution.

Defendants denied the foregoing contentions and challenged the petition on the ground that the plaintiffs had no standing to challenge the constitutionality of a legislative enactment.

On December 11, 1967, the case was heard in the Scott County District Court, and on February 2, 1968, the court entered its findings of fact, conclusions of law, and judgment entry.

The trial court held (1) the plaintiffs had standing to challenge only that portion of the Act that directly affected them; (2) the title to the Act was sufficient; (3) the Act does not abridge freedom of the press or freedom of speech; (4) the portion of the Act that imposes a sales service tax on advertising media, including newspapers, radio and television, is unconstitutional in that (a) it is vague, general and indefinite; (b) it delegates absolute, unregulated and undefined discretion, as well as arbitrary and discriminatory power to the Commission; (c) it is burdensome upon and discriminates against interstate commerce; (d) it provides no reasonable relationship between the classification adopted by the legislature and the purposes of the Act.

Accordingly, the court entered judgment permanently enjoining the defendants from enforcing or attempting to enforce the advertising portions of the Act.

Defendants filed notice of appeal, and plaintiffs filed notice of cross-appeal challenging the holdings of the court adverse to them.

From the record it appears the Sixty-second General Assembly enacted what was referred to as House File 702, now Chapter 348 of the Laws of that session. Division VII of this Act amended Chapters 422 and 423, Code of 1966, to increase the rate of sales and use tax from two percent (2%) to three percent (3%) and to include as taxable the gross receipts from certain services which had not previously been listed or enumerated in the statute. Included among these services were: '* * * newspaper, directories, shopper's guides and newspapers whether or not circulated free or without charge to the public, magazine, radio, movie, and television advertising, to include such advertisement and service rendered, furnished or performed by the state of Iowa, its boards and commissions or any installation thereof; outdoor and point-of-purchase performance advertising; * * * printing and binding; promotion and direct mail; * * *.' Chapter 348, Division VII, Section 25, Laws of the Sixty-second General Assembly.

During the course of the trial plaintiffs offered testimony of four legislators who testified as to the inadequate consideration given to the Act by the legislature. Defendants properly objected to this evidence because it appears there was no claim that H.F. 702 was not properly and legally enacted, nor that there were any legal deficiencies in its enactment. See Carlton v. Grimes, 237 Iowa 912, 23 N.W.2d 883 (1946).

Henry B. Hook, publisher of the Times Democrat in Davenport, Iowa, testified that his newspaper publishes a Sunday, a morning, and an evening edition. He stated the average circulation of the Sunday edition was 49,191 in Iowa and 27,674 in Illinois and other states. The daily editions were circulated to 48,226 persons in Iowa and to 12,061 persons in Illinois and other states. As to revenues from advertising resulting from this circulation, he stated the total in 1966 was $4,385,271, that of that figure $2,345,000 was nonclassified advertising aimed primarily at the multistate Quad-City market, and $350,000 of nonclassified advertising was aimed primarily at the intrastate or Davenport market area. Of the classified ads $1,096,964 was received from advertisers aiming at the multistate market, $55,817 was received from legal notices, and $537,490 from national advertisers. He further stated advertising rates in his newspaper were substantially higher than those of other newspapers in the area because it was the only newspaper that had a multistate coverage.

W. D. Wagner, vice-president and secretary of WOC Broadcasting Company, Davenport, Iowa, testified that WOC is engaged in television and radio broadcasting in a multistate area, including Iowa, Illinois and Wisconsin, and it accepts and broadcasts advertising in connection with its broadcasting operations. It is also affiliated with a national network, National Broadcasting Company, or NBC. The programs that NBC furnishes WOC originate outside Iowa and are received via cable furnished by American Telephone and Telegraph Company, or AT & T. He further testified that WOC has one advertising rate for television and one rate for radio, that these rates are on a national basis, and that WOC has no separate rate for local advertisers. He further stated the market area served by WOC radio and television is measured by certain geographical contours, which were introduced as exhibits herein.

Kenneth Hastie, vice-president and manager of American Broadcasting Stations, Inc. at Cedar Rapids, Iowa, testified that WMT radio at Cedar Rapids and KWMT radio at Fort Dodge, Iowa, have contracts with a national advertising agency, and further that WMT is affiliated with Columbia Broadcasting Company, or CBS, and receives network programs via AT & T cables.

Lew Van Nostrand, vice-president of WMT-TV, Inc., testified that the income of WMT-TV was solely derived from advertising, that WMT-TV is affiliated with CBS, and that its national network business is furnished by CBS. The network programs are transmitted into Iowa via cable and microwave furnished by AT & T. In the year 1966 national advertisers accounted for 83% Of the total revenues received by WMT-TV. He also testified that the market area served by WMT-TV is determined by certain geographical contours, which he described.

Dietrich Dirks, president of KTIV-TV in Sioux City, Iowa, testified that the market area served by his television station is multistate in character, measured by certain geographical contours, which he also described.

E. T. Flaherty, general manager of Perkins Brothers Co., which operates radio station KSCJ in Sioux City, Iowa, testified that his station accepts and...