Times Mirror Co. v. City of Los Angeles

• Decision Date: 28 May 1987
• Court: California Court of Appeals Court of Appeals
• Parties: , 14 Media L. Rep. 1289 The TIMES MIRROR COMPANY, Tribune Newspapers West, Inc., and Lozano Enterprises, Plaintiffs and Appellants, v. The CITY OF LOS ANGELES, and Does 1 through 50, inclusive, Defendants and Respondents. B023000.

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237 Cal.Rptr. 346 192 Cal.App.3d 170, 14 Media L. Rep. 1289 The TIMES MIRROR COMPANY, Tribune Newspapers West, Inc., and Lozano Enterprises, Plaintiffs and Appellants,
v.
The CITY OF LOS ANGELES, and Does 1 through 50, inclusive, Defendants and Respondents. B023000. Court of Appeal, Second District, Division 2, California. May 28, 1987.
Review Denied Sept. 3, 1987.
Appeal Dismissed Jan. 19, 1988.
See 108 S.Ct. 743

[192 Cal.App.3d 174]

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Gibson, Dunn & Crutcher, Rex S. Heinke, William C. Foutz, and Kelli L. Sager; The Times Mirror Co., William A. Niese and Jeffrey S. Klein, for plaintiff and appellant, The Times Mirror Co.

Hufstedler, Miller, Carlson & Beardsley and Fred L. Leydorf, for plaintiff and appellant, Tribune Newspapers West, Inc.

Sheppard, Mullin, Richter & Hampton, Frank Simpson III and Kathyleen A. O'Brien, for plaintiff and appellant Lozano Enterprises.

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Harry P. Warner as amicus curiae on behalf of Southern California Broadcasters Ass'n and Nat. Ass'n of Broadcasters; Henry L. Baumann, of counsel, as amicus curiae on behalf of Nat. Ass'n of Broadcasters.

James K. Hahn, Los Angeles City Atty., Thomas C. Bonaventura, Sr. Asst. City Atty., Richard A. Dawson, Asst. City Atty. and Michael L. Klekner, Deputy City Atty., for defendant and respondent, City of Los Angeles.

COMPTON, Acting Presiding Justice.

In an action for declaratory relief, injunction, and recovery of taxes paid under protest by plaintiffs Times Mirror Company, Tribune Newspapers West, Inc., and Lozano Enterprises, each engaged in the printing and publication of a daily newspaper or newspapers, ¹ the trial court determined that a business tax levied against them by defendant City of Los Angeles (City) was constitutionally valid. Summary judgment was thereafter entered in favor of the City and this appeal followed. We affirm.

The facts are undisputed. Los Angeles Municipal Code (L.A.M.C.) section 21.03 requires that a business tax registration certificate must be obtained and a business tax paid by every person who engages in any of the businesses or occupations enumerated in subsequent sections. The section further provides that the tax is imposed pursuant to the City's taxing power solely [192 Cal.App.3d 175] for the purpose of generating revenue. ² Different businesses pay taxes calculated by a variety of methods, including flat fees, "per unit" fees, daily charges, percentages of payroll, and percentages of gross receipts. ³

Prior to January 1984, the code expressly exempted from the business tax gross receipts derived from "the publication and sale of newspapers, magazines and other periodicals regularly issued at intervals not exceeding three months" as well as the gross receipts of businesses engaged in radio and television broadcasting. (Former L.A.M.C. § 21.190(c)(7) and (8).) In 1983, however, the City Council amended the code to eliminate these exemptions and inserted provisions taxing receipts derived from newspaper sales and advertising (L.A.M.C. §§ 21.166(f), 21.167(e)) and from radio and television broadcasting (L.A.M.C. § 21.189.2). As part of this change, the business of "publishing or publishing and printing" was included within the term "manufacturing" and "newspapers, magazines, periodicals, books and other printed matter" were classified as "goods, wares or merchandise." Pursuant to L.A.M.C. section 21.166, wholesale newspaper sales became subject to an annual business tax of $20.00 per year for the first $20,000 of gross receipts, and $1.00 for each additional $1,000 of gross receipts or fractional part thereof. (L.A.M.C. § 21.166(a).) Under L.A.M.C. section 21.167, retail newspaper sales became taxed at the rate of $18.75 for the first $15,000 of gross receipts

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plus $1.25 for each additional $1,000 of gross receipts or fractional part thereof. (L.A.M.C. § 21.167(a).) ⁴

[192 Cal.App.3d 176] For purposes of determining the amount of tax due under the foregoing sections, revenue generated from the sale or furnishing of advertising by those engaged in publishing or publishing and printing was included within "gross receipts." As a further result of the amendments to the code, radio and television broadcasters became subject to the same tax rates imposed on retail newspaper sales. (L.A.M.C. § 21.189.2.) ⁵

[192 Cal.App.3d 177]

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The ordinance further imposes a tax on all theaters in the City, including movie theaters, which is calculated in the same manner and at the same rate as the tax for retail sales under section 21.167. (L.A.M.C. § 21.147.) Section 21.192 requires those engaged in renting or leasing tangible personal property, including motion picture rentals, to pay a tax of $30.00 on the first $12,000 of gross receipts, and $2.50 for each additional $1,000 or fraction thereof. Motion picture and cartoon production is classified and taxed under section 21.109. The measure of the tax is based upon the total of the gross costs of production and gross receipts from the lending of employees and the furnishing of studio facilities from other film producers. The tax itself is graduated and ranges from $125 for the first $50,000 of gross receipts and production costs, up to a maximum of $10,750 when the measure of the tax is $4.2 million and above.

In computing the tax owed under the ordinance, income received from the sale of goods shipped out of state is excluded from the gross receipts of both wholesale and retail businesses, including those engaged in the publication of printed material. (L.A.M.C. § 21.168.1.) L.A.M.C. section 21.15(h) further authorizes the City Clerk to promulgate rules and regulations for the apportionment of gross receipts "according to the amount of business done in the City of Los Angeles, or in the State of California, as the case may be, ..." Pursuant thereto, Clerk's Rulings No. 13 and No. 14, relating to persons with and without a fixed place of business within the City, describe the manner in which gross receipts should and should not be considered "directly attributable" to local activities and provide procedures and practices to be followed in making that determination.

Based upon the foregoing provisions of the municipal ordinance, the Times Mirror Company paid under protest approximately $1.4 million in business taxes for the years 1984 and 1985. For the same period, Tribune Newspapers West, Inc. paid $202,000 and Lozano Enterprises paid $22,000. After exhausting their various administrative remedies to secure a refund from the City, plaintiffs initiated this litigation. Following argument on the [192 Cal.App.3d 178] newspapers' motion for summary judgment and the City's motion for summary adjudication of issues, the trial court found that the applicable provisions of the ordinance did not impose a special or discriminatory tax on the newspapers or the media in general. It further held that L.A.M.C. section 21.15(h), authorizing the City Clerk to apportion gross receipt taxes, and the rulings promulgated thereunder (i.e., Tax Rulings Nos. 13 and 14) passed constitutional muster.

In urging us to reverse, plaintiffs first contend that the business tax is unconstitutional because it unjustifiably imposes a differential tax burden on a variety of First Amendment activities and discriminates between First Amendment and non-First Amendment enterprises. In support of this argument plaintiffs allege that "the tax on fifty million dollars in production costs for the motion picture industry would be $10,750; the same gross receipts received in a year through lectures, shows, or entertainment, would be taxed at only $155; a telephone company receiving the same amount of gross receipts for the Yellow Pages would owe the City $50,000; a billboard company ... would owe the City $250,000; ... a newspaper would owe a tax of $62,500 on its retail receipts or $50,000 on its wholesale receipts; and a radio or television broadcaster would owe $62,500...." The newspapers further point out that the City taxes various non-First Amendment businesses at lower rates than

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those imposed on the broadcast and print media. ⁶

The power of the City to levy taxes derives from Article XI, section 5 of the California Constitution which authorizes charter cities to "make and enforce all ordinances and regulations in respect to municipal affairs...." Taxation for the purpose of generating revenue is a municipal affair within the meaning of Article XI. (City of Los Angeles v. A.E.C. Los Angeles (1973) 33 Cal.App.3d 933, 939, 109 Cal.Rptr. 519.) A municipal taxing scheme is thus valid unless preempted by state law or prohibited by constitutional principles. (United Business Com. v. City of San Diego (1979) 91 Cal.App.3d 156, 164, 154 Cal.Rptr. 263; Century Plaza Hotel Co. v. City of Los Angeles (1970) 7 Cal.App.3d 616, 622, 87 Cal.Rptr. 166.) Here, of course, plaintiffs maintain that the City's business tax violates the constitutional guaranties of free speech and press.

The First Amendment prohibits the enactment of any law "abridging the freedom of speech, or of the press ...," and is applicable to state and municipal action pursuant to the Fourteenth Amendment. (Douglas v. Jeannette (1943) 319 U.S. 157, 162, 63 S.Ct. 877, 880, 87 L.Ed. 1324; [192 Cal.App.3d 179] City of Alameda v. Premier Communications Network, Inc. (1984) 156 Cal.App.3d 148, 152, 202 Cal.Rptr. 684.)

There are two basic ways in which First Amendment rights may be impinged: (1) a direct regulation of speech or press based on the content of the material (see e.g., Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council (1975) 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346; Keyishian v. Board of Regents (1967) 385 U.S. 589, 87 S.Ct. 675, 17 L.Ed.2d 629; Mills v. Alabama (1966) 384 U.S. 214, 86 S.Ct. 1434, 16 L.Ed.2d 484); or (2) an indirect or incidental regulation of speech or press resulting from pursuit of governmental goals unrelated to freedom of expression...