Tucson Newspapers, Inc. v. City of Tucson
| Decision Date | 27 August 1992 |
| Docket Number | CA-TX,No. 1,1 |
| Citation | 837 P.2d 180,172 Ariz. 378 |
| Parties | , 20 Media L. Rep. 2066 TUCSON NEWSPAPERS, INC., an Arizona corporation in dissolution, and TNI Partners, an Arizona general partnership, successor in interest to Tucson Newspapers, Inc., Plaintiffs-Appellants, v. The CITY OF TUCSON, a Municipal corporation, Defendant-Appellee. 91-0012. |
| Court | Arizona Court of Appeals |
Tucson Newspapers, Inc., and its successor in interest, TNI Partners (collectively "TNI"), appeal from summary judgment entered in favor of the City of Tucson on TNI's claim for a refund of some $4.42 million in business privilege taxes paid for the period April 1, 1984, through December 31, 1987. The appeal requires us to consider (1) whether the City of Tucson's business privilege tax on TNI's gross income derived from notices, subscriptions and local advertising violates TNI's rights under the First Amendment to the United States Constitution and art. II, § 6 of the Arizona Constitution and (2) whether the manner in which Tucson applies the privilege tax to TNI and its competitors violates TNI's right to equal protection of the law under either the federal or state constitution. We find no constitutional violation and therefore affirm the judgment of the trial court.
Star Publishing and Citizen Publishing jointly own all the shares of Tucson Newspapers, Inc. Effective December 26, 1988, Tucson Newspapers, Inc. transferred its assets and liabilities to TNI Partners, a general partnership between Star Publishing and Citizen Publishing. TNI Partners has continued the business operations of Tucson Newspapers, Inc., publishing the Arizona Daily Star and the Tucson Daily Citizen. TNI maintains its editorial office and printing facility in Tucson, which licenses TNI under the publishing and retail classifications of Tucson's business privilege tax provisions. Tucson Code §§ 19-435 and 19-460.
TNI derives approximately seventy-five percent of its gross revenue from advertising in the form of "run-of-the-press" ads, printed in the newsprint portion of the newspaper, and advertising supplements, inserted into each newspaper. The remainder of TNI's gross revenue comes from circulation revenue.
Tucson Code § 19-400(a)(1) levies business privilege taxes "upon persons on account of their business activities, to the extent provided elsewhere in this Division, to be measured by the gross income of persons, whether derived from residents of the City or not, or whether derived from within the City or from without." Sections 19-405 through 19-480 enumerate fourteen distinct classifications of business activities subject to taxation. Each is taxed at two percent of gross income. Four of the fourteen classifications are pertinent to this appeal.
Tucson Code § 19-405, "Advertising," taxes the business of "local advertising," which generally includes "delivery or disseminating of information directly to the public or any portion thereof for a consideration...." Section 19-460, "Retail sales," taxes the business of selling tangible personal property at retail, with certain exclusions and exemptions. Section 19-470, "Telecommunication services," taxes the business of providing telecommunication services to consumers within Tucson. Section 19-470(e) specifically exempts "gross income from the providing of telecommunication services by a cable television system...."
Section 19-435, "Publishing and periodicals distribution," taxes the business of publishing newspapers, magazines or other periodicals within the city, measured by the taxpayer's gross income from notices, subscriptions and local advertising. Subsection 2 of § 19-435(a) taxes the business of distributing or delivering newspapers, magazines, and other periodicals not published in the city, measured by gross income from subscriptions. On April 25, 1988, Tucson's Mayor and City Council added to the Tucson Code new regulations 19-405.2 and 19-435.2, effective retroactively to April 1, 1987, which extended to newspaper and other periodical publishers and distributors the "local advertising" tax imposed by Tucson Code § 19-405.
During the audit period, the City of Tucson imposed taxes under the advertising, publishing and/or retail sales classifications on twelve other publications based in Tucson, including Tucson Magazine, Tucson Homes Illustrated, and the Greater Tucson Apartment Journal. The City imposed no taxes on nationally circulated publications such as TV Guide, The New York Times, The Los Angeles Times, or The Chicago Tribune, because none derived gross income from local advertising, subscriptions or job printing, and their sales in Tucson were made by distributors who were themselves taxed under the retail classification.
TNI's principal competitors for advertising revenue, all Arizona publications, include the Advo Mailer, the Daily Territorial, the Weekly Territorial, and the Arizona Daily Wildcat.
The Advo Mailer is published in Phoenix and has no distribution facility in Tucson. All the Advo Mailer 's advertisement orders from the Tucson market are produced, processed and distributed from Phoenix. The Advo Mailer derives its gross income from local and nontaxable national advertising, and is subject to the City of Phoenix's business privilege tax.
Territorial Publishing Company ("Territorial"), which publishes the Daily Territorial and the Weekly Territorial, is located outside Tucson and has no distribution facility in Tucson. Tucson subjects Territorial to business privilege taxation on a pro rata share of its income from both subscriptions and advertising, as determined by the percentage of its total circulation distributed within city limits. Territorial pays privilege taxes based on revenues from publishing the City's own legal notices in the Daily Territorial, but has paid no privilege taxes on any other advertising or subscription revenues. The City of Tucson has not audited Territorial.
The Arizona Daily Wildcat, the University of Arizona's official student newspaper, falls under the control of the University and the Arizona Board of Regents. It is distributed on campus and in limited off-campus areas free of charge and also has approximately 400 paid subscribers. The Wildcat pays no taxes to the City on its subscription or advertising revenues.
TNI also competes for advertising revenue with radio and television stations and cable television systems. Three cable television companies operated in Tucson at various times during the audit period. Cooke CableVision, Inc. currently operates a cable television system in Tucson. Cooke's operating revenues come from subscriptions and from local and national advertising. Cooke pays business privilege taxes to the City on its advertising revenues, but its subscription revenues are exempt from privilege taxation. Tucson Code § 19-470(e). Tucson has not audited Cooke.
TNI has paid its Tucson privilege taxes under protest since July 1983, except for a portion of 1987, when TNI failed to protest due to clerical error. The City audited TNI for the period of April 1, 1984, through December 31, 1987. As a result, the City assessed TNI an additional $58,636.11 on grounds not material to this appeal.
TNI protested the assessment in a petition for administrative review. TNI then amended its petition to protest all taxes it had paid under Tucson Code § 19-435, contending that the ordinance, as applied to newspapers, violated the First Amendment and the Equal Protection Clause of the Fourteenth Amendment and filed an administrative claim for a refund of $4,428,935.22. TNI's administrative challenges were unsuccessful.
Pursuant to Tucson Code §§ 19-570(a) and 19-575, TNI paid the disputed assessment under protest and brought this action in the Arizona Tax Court. On cross-motions for summary judgment, the tax court ruled in favor of the City of Tucson on all issues. The tax court entered a formal judgment in accordance with its ruling, and TNI timely appealed. We have jurisdiction pursuant to A.R.S. § 12-2101.B. The appeal is assigned to Department T of this court pursuant to A.R.S. § 12-120.04.G.
TNI contends that, as applied, the City's privilege tax on the business of publishing and periodicals distribution violates its First Amendment rights. 1 TNI acknowledges the settled principle that newspapers are subject to all generally applicable laws, including general tax laws. See Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 581, 103 S.Ct. 1365, 1369, 75 L.Ed.2d 295 (1983); Giragi v. Moore, 49 Ariz. 74, 64 P.2d 819 (1937), reaffirming 48 Ariz. 33, 58 P.2d 1249 (1936). TNI asserts, however, that Tucson Code § 19-435 is not a generally applicable tax law, but applies only to one large publisher, TNI, on the income from only two newspapers, the Arizona Daily Star and Tucson Daily Citizen. According to TNI:
[T]he City has singled out the press for differential tax treatment by not applying its general sales tax to newspapers. Instead, the City has carved out a special newspaper taxing provision that applies only to publications protected by the First Amendment. While other businesses are taxed on the basis of sales, publications are taxed not only on sales but on revenues wholly apart from sales. In treating the press as equal to other businesses, the City operates within constitutional boundaries; but when it discriminates against the press, it runs into the First Amendment.
TNI's First Amendment claim is founded on two critical misstatements, one of fact and one of law. First, contrary to TNI's assertion, the publishing and periodicals distribution classification under Tucson Code § 19-435 does not fall on TNI alone,...
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