Redwood Empire Publishing Co. v. State Bd. of Equalization

• Decision Date: 16 February 1989
• Citation: 207 Cal.App.3d 1334,255 Cal.Rptr. 514
• Court: California Court of Appeals
• Parties: , 16 Media L. Rep. 1257 REDWOOD EMPIRE PUBLISHING CO. et al., Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. A038555.

Page 514

255 Cal.Rptr. 514

207 Cal.App.3d 1334, 16 Media L. Rep. 1257

REDWOOD EMPIRE PUBLISHING CO. et al., Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

A038555.

Court of Appeal, First District, Division 2, California.

Feb. 16, 1989.

Richard B. Weinstein, Weinstein and Weil, San Francisco, Paul N. Halvonik, Halvonik & Halvonik, Berkeley, for plaintiffs and appellants.

John K. Van de Kamp, Atty. Gen., Patricia Streloff, Deputy Atty. Gen., San Francisco, for defendant and respondent.

SMITH, Associate Justice.

Revenue and Taxation Code section 6362 exempts from this state's sales and use tax the gross receipts from any "newspaper" or "periodical" issued at regular intervals not exceeding three months. By administrative regulation, the State Board of Equalization (Board) has adopted a definition of newspapers and periodicals which excludes publications consisting of more than 90 percent advertising. The primary issue raised on this appeal is whether the classification created by this regulation constitutes an impermissible infringement on First Amendment liberties or a denial of equal protection as to publications which are devoted entirely, or almost entirely, to advertising. We hold that it does not.

BACKGROUND

Plaintiff-appellant Redwood Empire Publishing Co. (Redwood) is the publisher of a shopping guide called the Tri-City Weekly (the Weekly) which is distributed without charge in Humboldt County. It is conceded that more than 90 percent of the Weekly's entire printed area consists of advertising. The other appellants, Paradise Post, Hadley Newspapers, Inc. and Sparks Printing handled the printing of the Weekly during the time period in question. Each of the printers collected sales tax on the printing charges from Redwood and remitted them to the Board. Subsequently, appellants filed claims with the Board for a refund of $43,736.40 in such taxes, on grounds that the Weekly qualified as a "newspaper or periodical" under section 6362 of the Revenue and Taxation Code and that section 1590 of title 18 of the Administrative Code ¹ (hereafter regulation 1590), which denies the exemption to publications devoted primarily to advertising, was both in violation of the statute and unconstitutional. After exhausting their administrative remedies before the Board, appellants filed a complaint for a refund in San Francisco Superior Court.

The trial court upheld the Board's denial of the refund, specifically rejecting appellants' First Amendment attack on the validity of regulation 1590. Appellants appeal from the ensuing judgment denying them relief. ²

APPEAL

California's Sales and Use Tax Law (Rev. & Tax.Code, § 6001 et seq.) ³ imposes a general sales and use tax on tangible personal property in this state. Chapter 4 of that legislation ( § 6351 et seq.) grants certain exemptions from the tax. Section 6362, the statute under review, confers an exemption upon regularly published newspapers and periodicals, or the components thereof. ⁴

Pursuant to its legislative authority ( § 7051) the Board adopted regulation 1590, which defines a "newspaper" and "periodical" for purposes of section 6362. That definition expressly excludes "shopping guides" such as the Weekly, or any other publication, 90 percent or more of which is devoted to advertising. ⁵

Appellants do not question the validity of the exemption granted by section 6362--on the contrary, they wish to reap the benefits of it. Their purpose is to defeat regulation 1590. In doing so they launch the following three-pronged attack: (1) it is an impermissible infringement on protections of freedom of speech guaranteed by the First Amendment; (2) it is a denial of equal protection; and (3) it is unauthorized by the Legislature. We address each of these arguments in turn.

I The First Amendment Challenge

In interpreting the legislative intent behind section 6362, regulation 1590 draws a distinction between commercial and noncommercial publications, withholding the benefits of the tax exemption from the former and granting them to the latter.

Regulation 1590, however, antedated the United States Supreme Court decision in Va. Pharmacy Bd. v. Va. Consumer Council (1976) 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (Virginia Pharmacy ), in which the court forever abandoned the notion that commercial speech is not entitled to First Amendment protection. Recognizing that "the free flow of commercial information" is indispensable in modern society (id., at p. 764, 96 S.Ct. at p. 1827), Virginia Pharmacy concluded that governmental suppression of such information must be analyzed within the context of the First Amendment. (Id., at p. 770, 96 S.Ct. at p. 1829.)

The central premise of this appeal is that Virginia Pharmacy signaled the end of any permissible distinction between commercial and noncommercial speech in terms of governmental regulation; that since both forms of speech are of equal dignity, any differential treatment of commercial speech from noncommercial expression (such as that contained in regulation 1590) constitutes "content-based regulation," a practice which has been repeatedly condemned as repugnant to First Amendment principles. (See, e.g., Arkansas Writers' Project, Inc. v. Ragland (1987) 481 U.S. 221, 229-230, 107 S.Ct. 1722, 1727-1728, 95 L.Ed.2d 209 (Ragland ); Consolidated Edison Co. v. Public Serv. Comm'n (1980) 447 U.S. 530, 538, 100 S.Ct. 2326, 2333, 65 L.Ed.2d 319; Carey v. Brown (1980) 447 U.S. 455, 462, 100 S.Ct. 2286, 2291, 65 L.Ed.2d 263.)

However, Virginia Pharmacy itself cautioned against drawing the inference that commercial speech is to be considered as constitutionally equal in stature to non-commercial expression. (425 U.S. at p. 771, fn. 24, 96 S.Ct. at p. 1831, fn. 24.) As the Supreme Court later explained in Metromedia, Inc. v. San Diego (1981) 453 U.S. 490, 505, 101 S.Ct. 2882, 2891, 69 L.Ed.2d 800, Virginia Pharmacy "did not equate commercial and noncommercial speech for First Amendment purposes; indeed, it expressly indicated to the contrary. See [425 U.S.] at 770-773, and n. 24 [96 S.Ct. at 1829-1831, and n. 24]...." The court went on to state that " '[t]he Constitution ... accords a lesser protection to commercial speech than to other constitutionally guaranteed expression. The protection available for a particular commercial expression turns on the nature both of the expression and of the governmental interests served by its regulation.' " (Metromedia, supra, 453 U.S. at p. 507, 101 S.Ct. at p. 2892, quoting Central Hudson Gas & Electric Corp. v. Public Service Comm'n (1980) 447 U.S. 557, 562-563, 100 S.Ct. 2343, 2349-2350, 65 L.Ed.2d 341, emphasis added.)

The distinction drawn by the court is firmly grounded in the higher value which society places upon expression which contributes to the exchange of ideas as opposed to communication designed purely to make a profit: "We have not discarded the 'common-sense' distinction between speech proposing a commercial transaction, which occurs in an area traditionally subject to government regulation, and other varieties of speech.... To require a parity of constitutional protection for commercial and noncommercial speech alike could invite dilution, simply by a leveling process, of the force of the Amendment's guarantee with respect to the latter kind of speech. Rather than subject the First Amendment to such a devitalization, we instead have afforded commercial speech a limited measure of protection, commensurate with its subordinate position in the scale of First Amendment values, while allowing modes of regulation that might be impermissible in the realm of noncommercial expression." (Ohralik v. Ohio State Bar Assn. (1978) 436 U.S. 447, 455-456, 98 S.Ct. 1912, 1918, 56 L.Ed.2d 444.)

The greater degree of judicial deference to governmental regulation of commercial speech was recently evident in Posadas de Puerto Rico Assoc. v. Tourism Co. (1986) 478 U.S. 328, 106 S.Ct. 2968, 92 L.Ed.2d 266, where the court upheld a statute banning the advertising of casino gambling (a lawful activity in Puerto Rico).

In light of the continuing judicial recognition and adherence to the distinction between commercial and other forms of expression, appellants' heavy emphasis on Minneapolis Star v. Minnesota Comm'r of Rev. (1983) 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 (Minneapolis Star ), and Ragland, supra, 481 U.S. 221, 107 S.Ct. 1722, is not convincing.

Minneapolis Star involved an "ink and paper" tax which singled out the entire press for a special tax burden not placed upon other enterprises; the court perceived this statute as a "means of abridging the freedom of the press" and therefore subjected it to the strictest scrutiny. (Minneapolis Star, supra, 460 U.S. at pp. 579, 585-586, fn. 7, 103 S.Ct. at pp. 1368, 1371-1372, fn. 7.)

In Ragland, supra, the tax was constructed in such a way as to target a small group of publishers based solely on the content of the ideas expressed. The tax contained "numerous statutory exemptions" including "newspapers and religious, trade, professional, and sports magazines," thereby falling only on petitioner's general interest monthly magazine, and perhaps one or two others. (481 U.S. at pp. 224, 229, 107 S.Ct. at pp. 1725, 1727.) The court therefore analyzed the measure as governmentally sanctioned content discrimination, which has historically been viewed as hostile to fundamental First Amendment liberties. (Id., at p. 230, 107 S.Ct. at p. 1728.)

In our view, differential tax treatment of advertising publications does not stand on an equal footing with the type of content-based discrimination invalidated in Ragland. On the contrary, the distinction promulgated by regulation 1590 is not content-discriminatory, it is "content-neutral." It is based on the form of communication (advertising) as opposed to its content. Moreover, it is a reflection of the common sense need to distinguish commercial from...