CITY COUNCIL OF BALTIMORE v. AS Abell Co.

Prescott, J., delivered the opinion of the Court. These appeals involve the validity vel non of Ordinances 1097 and 1098 approved by the Mayor and City Council of Baltimore on November 15, 1957. At the conclusion of the trial below, a final order was passed which declared that both ordinances were unconstitutional and void except insofar as they provided for a refund of the taxes paid thereunder, and enjoined the Mayor and City Council of Baltimore and the City Treasurer from enforcing the provisions of said ordinances except insofar as they provided for a refund of the taxes already paid. From this order, the City and the City Treasurer have appealed.

Ordinance No. 1097 levied and imposed, upon the purchasers, a tax at the rate of 4% upon the gross sales price, if used for or in connection with advertising or advertising purposes, of the following: every sale of space in all newspapers, magazines, periodicals, programs, directories and other printed matter published in Baltimore; in, on or upon or attached to any vehicle or airbourne device by any person whose principal operations are in the City of Baltimore; each and every sale of time on, or in connection with, any intrastate radio or television broadcast originating in the City of Baltimore and directed to persons in the State of Maryland or any part thereof. The ordinance then provided for certain exemptions, the manner of collecting the tax and other matters with which we are not immediately concerned. Ordinance No. 1098 levied and imposed, upon the sellers ²⁷⁸ of the same space and time named in Ordinance 1097, a 2 °/o gross receipts tax. Both of the ordinances in question have been repealed, effective December 31, 1958; so the taxes in question involve only impositions for the calendar year 1958.

The appellees may be divided into four general classifications: (1) newspaper publishers; (2) radio and television broadcasters; (3) bill-board operators; and (4) the purchasers of advertising, both out-of-state and local. They were the complainants below, and all of their cases having been consolidated resulted in the final order mentioned above. The evidence discloses that in the fall of 1957 the Mayor and City Council of Baltimore met to consider the budget for the fiscal year 1958. Ordinance No. 1097 as originally introduced provided for a 7j4% tax upon the gross sales of advertising space and time.

As finally passed and approved, it imposed a tax of 4% upon the gross sales price of every sale of space for advertising as noted above; and Ordinance 1098 imposed an additional 2% on the gross receipts from the sale of advertising space and time. The Budget Director of Baltimore City estimated that these taxes combined would produce the sum of $2,653,000 for the year 1958. On January 28, 1958, the City Treasurer, charged with the enforcement of the ordinances and the collection of the taxes thereunder, issued a regulation prepared by his legal adviser, the City Solicitor of Baltimore. This regulation, apparently based on the interstate character of most radio and television broadcasting, had the effect of exempting the major portion of such business from the two taxes.

Pursuant to the ordinances and the regulations promulgated thereunder, the various advertisers and media filed their reports and paid the taxes. The three television stations in Baltimore City, which are also complainants in the case, collected gross receipts for the first three months of 1958 totaling $1,636,701.44. However, the total tax paid by their advertisers at the rate of 4% on sales was only $5,005.27. The reason for this great disparity between gross receipts and taxes paid lies in the fact that exempt sales amounted to $1,560,772.66, thus leaving taxable sales of only $75,928.78. ²⁷⁹ The gross receipts of the radio stations for this period were $733,001.49, with exempt sales of $499,933.64, leaving taxable sales of $224,110.01.

The taxes paid by the advertisers on radio stations at the rate of 4% of the gross sales subject to the tax were $11,298.51. With respect to the newspapers, however, the picture is strikingly different. Their gross receipts for the same three-month period were $5,985,784.85 and their taxable sales were $5,393,442.13, their exempt sales being only $630,309.41. The taxes paid at the rate of 4% on these sales were $216,243.58.

Under Ordinance 1098, which imposed the 2% gross receipts tax, the newspapers, for the same period paid $114,334.12, the radio stations $5,423.99 and the television stations $2,502.62. In paying these taxes, the Bureau of Receipts of Baltimore City computed that with reference to the 4% sales tax the radio and television stations had 26.5% of the gross receipts of the media whose advertising was subject to said tax, but paid only 6.5% of the actual tax paid. The newspapers received only 66.9% of the gross receipts, but their advertising was required to pay 86.2% of the tax paid. The gross receipts tax of 2% discloses a similar situation according to the Bureau of Receipts.

The radio and television stations received 27.7% of the gross receipts of the advertising of the media siibject to the tax, but paid only 6.1% of the tax paid, while the newspapers paid 88.6% of the tax, but received only 66.1% of the gross receipts. The newspapers offered evidence to show they paid all of the ordinary and usual taxes to the Federal government, the State of Maryland and to the City of Baltimore. An illustration of the impact of the advertising tax is shown by the following facts: On the 2% gross receipts received by the Sunpapers, they paid in the first quarter of 1958 the sum of $78,646. Since the average Baltimore newspaper experience is that the first quarter represents 22J4% of the entire year, this would indicate a total payment for 1958 of $349,541.

Assuming that the ordinary City taxes will remain the same in 1958, the Sunpapers’ total City tax ²⁸⁰ bill will soar from $212,734 paid in 1957 to $562,602 in 1958. (This includes the negligible tax of $326.76 paid by WMARTV, owned by the same company, virtually all of whose revenues are exempt from taxation under the regulations.) Therefore, this one concern would pay an increase in City taxes of $349,868 attributable to this one tax, alone. This is vastly greater than the entire 1957 total of all of its ordinary taxes paid to the City and State. Comparable percentages and figures are applicable to the Baltimore News-Post and Sunday American.

An exhibit offered by the appellees discloses that based upon the 1957 advertising dollar volume, 41.47% of the advertising done in the Baltimore Metropolitan Area is not taxed by the ordinances. The excluded items are such as direct mail advertising, point-of-purchase advertising and advertising in consumer magazines. At this same time, the newspapers alone carried 39.23% of the total volume of advertising. The appellees assert that these taxes injured the advertising media as well as the advertiser.

Newspaper advertising linage in Baltimore in the first four months of 1958 compared with 1957 has fallen off 12%, which is nearly twice as much as in Philadelphia (6.3%), Pittsburgh (6.7%), or Washington (6.3%), while the national average of decline in 52 cities in that period has been 7.8%, compared to a loss of 12% for Baltimore. The appellees claim this additional Baltimore loss was due to these taxes. An analysis of the above facts possibly indicates discrimination in a constitutional sense against the newspapers, but they have been stated primarily to disclose the nature of the taxes imposed and where their real impact falls. It should be noted that the appellees do not claim, nor does the record disclose, any ulterior, malevolent or untoward motive against any of the advertising media in the passage of said ordinances.

We think that both ordinances may be considered together. There is no doubt that radio and television stations (sometimes herein referred to as “the stations”) are included within the constitutional guarantees of freedom of speech and of ²⁸¹ the press. American Broadcasting Co. v. United States, 110 F. Supp. 374, 389 ; United States v. Paramount Pictures, 334 U. S. 131, 166 ; Trinity Methodist Church, South v. Federal Radio Commission, 62 F. 2d 850 (App. D.C.); 11 Socolow, The Raw of Radio Broadcasting, sec. 562 p. 109 and footnotes. Cf. 47 U. S. C. A., sec. 326 (1934), and Baltimore Radio Show, Inc. v. State, 193 Md. 300, 323 , 67 A. 2d 497 .

The 2% gross receipt tax is, of course, a direct tax on the advertising media, and there can be no doubt that the newspapers and the stations may contest its constitutionality. The purchasers of advertising assert no claim that they are entitled to contest the validity of this tax. The 4% sales tax is, in form, a tax on the purchasers of advertising, but the evidence establishes the fact that its practical effect is, to all intents and purposes, virtually the same as the gross receipts tax. In the early case of Osborn v. Bank of United States, 22 U. S.

(9 Wheat.) 738 (1824), a tax imposed on the Bank by the State of Ohio was held unconstitutional as an infringement of the immunity of the Federal Government. The State defended the tax on the ground that it was not upon a branch of the Government itself, but that the Bank was to be likened to a contractor with the Government, and, therefore, it could not partake of the Government’s immunity. Chief Justice Marshall stated (at page 867) that if it were true that the connection of the Bank with the Government bore a more perfect resemblance to contractors, it would put the question on no different footing, for the tax would act as a control of the Government’s functions in the same manner whether laid upon the Government directly, or whether it singled out for special taxation the agency through which the Government acted. In Alabama v. King & Boozer, 314 U. S. 1 , a sales tax on a sale of lumber to a contractor for use in performing a cost-plus contract with the Government was held valid because the tax was of broad coverage without discrimination against Government contractors.

In James v. Dravo Contracting Co., 302 U. S. 134 , a state gross-receipts tax was held valid as applied to the receipts of an independent contractor from the performance of a Government contract on the same ground, that the indirect burden that it put upon the Government was incidental to a ²⁸² general coverage. But neither opinion leaves any doubt that a tax specifically seeking out the revenues gained by contractors from public work would be invalid as violating sovereign immunity even though they had their immediate incidence upon a private person. Cf. Railroad Company v. Peniston, 85 U. S.

(18 Wall.) 5, 36. The opinion of Justice Holmes in Miller v. Milwaukee, 272 U. S. 713, makes it quite clear that the test in such a case as this is whether a special burden is being put upon a protected activity and not who happens to be the one who pays the tax. Wisconsin taxed the income of corporations except for their constitutionally exempt income received from United States Bonds. It did not ordinarily tax stockholders on dividends, but an act was passed taxing stockholders on dividends to the extent that they represented income not taxed to the corporation.

Thus, although the state was merely taxing dividends to stockholders, it was indirectly ■ achieving the same result as though the tax were laid upon corporate income received from Government bonds. Justice Holmes stated for a unanimous court that the test was not the legal incidence of the tax but its indirect burden, and, since it amounted to a special tax upon dividends traceable to interest on Government bonds, other dividends being exempt, the tax was invalid. See also the very persuasive case of Station WBT v. Poulnot, 46 F. 2d 671 (E.D.S.C.) and the cases cited therein. There, the Court struck down, as unconstitutional, an annual license tax imposed on radio' receiving sets by the State of South Carolina, at the suit of a broadcasting station.

Although the broadcasting station did not pay the tax itself, it was held to have a standing to bring the suit by reason of the threat to its broadcasting business. We, therefore, arrive at the conclusion that both of the taxes involved in our present case may be considered together, and the question of the unconstitutionality of the 4% sales tax on advertising—if a restraint upon the freedom of the press or of speech has been shown—is available to the purchasers of advertising as well as the newspapers and the stations. The appellants apparently do not contest this ruling, i. e., if the 4% sales tax be, in fact, a restraint upon the consti ²⁸³ tutional immunities of free speech or free press of the newspapers and the stations, that such restraint may be invoked on behalf of the purchasers of advertising as well as the newspapers and the stations; but they earnestly assert, as we shall hereafter see, that the tax is not a restriction of either freedom of speech or of the press. The appellees raise many contentions as to why the ordinances are invalid and unconstitutional; but, in the view that we take of the case, we shall first consider the contention made by all of the appellees, namely, that the ordinances constitute an abridgement of the freedoms of speech and of the press as guaranteed by the First and Fourteenth Amendments to the Constitution of the United States and Article Forty of the Declaration of Rights of Maryland.

We shall first consider this contention as it applies to the newspapers, radio and television broadcasts and the local purchasers of advertising. The appellees contend that these taxes are special, extraordinary and unique as distinguished from ordinary or general taxes that affect all, or a broad segment of, businesses alike; and, as such, their imposition violates the constitutional protection of the freedoms of speech and of the press. They make no claim that the press or the stations are immune from contributing to the expenses of the government, but candidly concede that they are subject to the payment of all ordinary and general taxes, and offered proof that the newspapers and the stations have paid all of the usual Federal, State and City taxes. The basic argument of the appellants is that the taxes are on the business activity of buying and selling advertising space and time, and while they may not reach all advertising, they are broad enough in their nature and character so as to escape the designation of being “single in kind” and therefore do not violate the immunities of freedom of speech or of the press.

The issue involves one of those fundamental principles of liberty and justice which lie at the base of all of our civil and political institutions. The First Amendment to the Constitution of the United States provides: “Congress shall make no law respecting an establishment of religion, * * *; or ²⁸⁴ abridging the freedom of speech, or of the press; * * Through the medium of the Fourteenth Amendment, the States as well as Congress are proscribed from enacting any such laws. Near v. Minnesota, 283 U. S. 697, 707 . Article 40 of the Maryland Declaration of Rights states that the liberty of the press ought to be inviolably preserved; that every citizen of the State ought to be allowed to speak, write and publish his sentiments on all subjects, being responsible for the abuse of that privilege.

The celebrated case of Grosjean v. American Press Co., 297 U. S. 233 , involved a license tax for the privilege of engaging in the business of selling, or making any charge for, advertising or for advertisements in periodicals or publications having circulations of more than 20,000 copies per week. The amount of the tax was 2% of the gross receipts of “such business.” The late Huey Long had apparently centralized the executive and legislative powers of the State of Louisiana in his own hands. The larger newspapers