WASHINGTON -- The U.S. Supreme Court has dealt a financial blow to the pay-TV industry, ruling that states and cities do not violate the First Amendment when they tax cable television but exempt print media.
Voting 7-2, the justices yesterday upheld an Arkansas tax that, by one estimate, means more than $4 million a year for state coffers from cable TV services.
The court said the tax, which applies to a variety of services, from utilities to concert tickets, is constitutional because it is not based on the content of cable programming and does not burden only a small group of taxpayers.
"There is no indication in this case that Arkansas has targeted cable television in a purposeful attempt to interfere with its First Amendment activities," Justice Sandra Day O'Connor wrote for the court.
"This is not a tax structure that resembles a penalty for particular speakers or particular ideas," she said. "A tax scheme that discriminates among speakers does not implicate the First Amendment unless it discriminates on the basis of ideas."
O'Connor also said there was no evidence the Arkansas tax was "likely to stifle the free exchange of ideas."
The case was closely watched by state and local governments hungry for new revenue sources and by cable operators.
"It's a disappointment, but everybody should understand this is a tax on Arkansas cable subscribers," said Carol Vernon of the National Cable Television Association.
The group estimated that half the states impose some form of sales tax on cable services or equipment rental.
Nevertheless, Washington lawyer Robert Alan Garrett, who filed a friend-of-the-court brief in the case for New York City, the National League of Cities and the U.S. Conference of Mayors, called the ruling "a very significant victory" for state and local governments.