Taxing Newspapers Tests Press Freedom

AMERICAN newspapers in the 1990s may have to contend with a variety of attempts to tax their production and sale. Financially strapped statehouses around the country are casting about for new, untapped sources of income. Like cigarettes, alcohol, and gasoline, newspapers are a tempting target for lawmakers. The newspaper industry has traditionally enjoyed a variety of exemptions from state sales and use taxes, both on First Amendment (freedom of the press) grounds and because it is a manufacturing sector worth billions of dollars. The raw materials for manufacturing have traditionally been exempt from such taxes in the interest of promoting economic development.

But those days appear to be ending. Today, 10 states tax newspaper sales. In 1987, Florida imposed a full-blown services tax that included newspaper advertising, although this was repealed after Gov. Bob Martinez (R) took office in 1987. Last week, the Iowa Supreme Court upheld a law that exempts newspapers from the state's 4 percent sales taxes, but also ruled that magazines did not enjoy the same protection.

The latest ongoing attempt to tax newspapers - an attempt that has publishers around the country up in arms - is unfolding here in Massachusetts. Trying to balance a budget awash in red ink, Bay State lawmakers this summer enacted a $1.2 billion package of new and expanded taxes. Among other things, they repealed the exemption newspapers enjoyed for purchases of ``materials, tools, and fuel ... which are consumed and used directly and exclusively ... in an industrial plant in the actual manufacture of some tangible personal property to be sold.'' The new law took effect Sept. 1.

Currently, newspaper equipment and machinery purchases are tax-exempt in at least 35 states. The situation varies in another 15 states, where some parts of the production process have been made subject to tax, not by statute, but by audit rulings which so far have gone unchallenged.

The Massachusetts law that was amended covers all sectors of manufacturing in the state. But newspapers were the only manufacturing category singled out in the repeal. This, industry officials say, makes the law unconstitutional. The Boston Globe and the Massachusetts Newspaper Publishers' Association (MNPA) have filed a suit with the state Supreme Judicial Court to have the new tax overturned.

``If they were to tax all raw materials used in manufacturing for all manufacturers, we would have no case,'' says Bill Plant, the MNPA's executive director.

``The Globe has always paid its fair share of state taxes and will continue to do so, including increased taxes resulting from the effect of the recently passed bill,'' said Globe publisher William Taylor in a written statement. ``However, the provision of this bill that singles out the newspaper industry as the only manufacturing industry in the state whose raw material and machinery purchases are subject to sales and use tax is an unfair discrimination against the press and is clearly in violation of the US and state Constitutions.''

Critics point to a 1983 US Supreme Court decision, Minneapolis Star and Tribune v. Minnesota, which barred a similar attempt to tax Minnesota newspapers. That tax, enacted in 1971, was amended in 1974 to exempt the first $100,000 worth of newsprint and ink used each year.

The Supreme Court threw out the law in an 8-to-1 decision. Justice Sandra Day O'Connor wrote that ``a power to tax differentially, as opposed to a power to tax generally, gives a government a powerful weapon against the taxpayer selected.''

``We need not fear that a government will destroy a selected group of taxpayers by burdensome taxation if it must impose the same burden on the rest of its constituency,'' Justice O'Connor wrote. ``When the state singles out the press, though, the political constraints that prevent a legislature from passing crippling taxes becomes acute. That threat can operate as effectively as a censor to check critical comment by the press, undercutting the basic assumption of our political system that the press will often serve as an important restraint on government.''

Critics say that besides the constitutional questions, the new law will put an additional financial burden on newspapers of all sizes at a time when many are strapped for funds. ``The law pertains to newspapers of all sizes - the Globe, The [Christian Science] Monitor, the smallest monthly or weekly,'' says Richard Gulla, the Globe's spokesman.

The state revenue commissioner, Stephen Kidder, significantly mitigated the law's economic effects last month, when he ruled that paper and ink were not taxable. These constitute a newspaper's major production expenses. The move brought Massachusetts back into line with its sister states, none of which tax newsprint or ink.

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