Vermont Society of Association Executives v. Milne

Annotate this Case

Vermont Society of Association Executives v. Milne (2000-032); 172 Vt. 375;
779 A.2d 20

[Filed 08-Jun-2001]

[Motion to Amend Denied 15-Aug-2001]

NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.

No. 2000-032

Vermont Society of Association Supreme Court
Executives, et al.

On Appeal from
v. Washington Superior Court

James F. Milne, Secretary of State January Term, 2001

David A. Jenkins, J.

Robert B. Hemley of Gravel and Shea, Burlington, Nory Miller of Jenner & Block,
and Jerald A. Jacobs of Shaw Pittman Potts & Trowbridge (Of Counsel),
Washington, D.C., for Plaintiffs-Appellees.

William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant Attorney
General, Montpelier, for Defendant-Appellant.

PRESENT: Amestoy, C.J., Dooley, Morse and Skoglund, JJ., and Cheever,
Supr. J., Specially Assigned

SKOGLUND, J. In this appeal, the Secretary of State challenges the
superior court's ruling that Vermont's tax on lobbying expenditures is
unconstitutional. We conclude that, in singling out and burdening
interests protected by the First Amendment, the lobby tax violates the
United States Constitution under the heightened scrutiny required.
Accordingly, we affirm the superior court's judgment.

Effective January 1, 1998, the Legislature imposed a five-percent tax
"on the expenditures of lobbyists and employers of lobbyists. . . . in
excess of $2,500.00." 2 V.S.A. § 264a(a). (FN1) The tax

is expressly restricted to expenditures connected with communications or
activities aimed at influencing legislation or administrative action. See
2 V.S.A. § 261(5), (9) (defining terms "Expenditure" and "lobbying"). The
lobby tax was enacted as part of a campaign finance reform statute that
established a fund to provide public grants to candidates running for the
offices of governor and lieutenant governor. 1997, No. 64, § 2. The tax
was earmarked as one of the primary sources to fund these grants. §
264a(d) (all revenues collected from lobby tax "shall be submitted

to the state treasurer for deposit in the Vermont campaign fund established
under section 2856 of Title 17").

Plaintiffs, a group of nonprofit organizations employing lobbyists,
initially filed a declaratory judgment action in the superior court
alleging that the lobby tax unconstitutionally singled out and burdened
protected First Amendment activities and violated equal protection
guarantees. Plaintiffs requested that the court declare § 264a
unconstitutional and enjoin the Commissioner of Taxes from enforcing the
tax. The Secretary of State (hereinafter "the State") moved to dismiss the
suit on the ground that plaintiffs had failed to exhaust administrative
remedies established by statute for challenging the imposition of a tax.
See 32 V.S.A. § 9777(a) (taxpayer may request hearing before commissioner
to challenge assessment of unpaid taxes); 32 V.S.A. § 9781(a) (taxpayer may
request tax refund from commissioner). The superior court denied the
motion. Later, pursuant to the parties' agreement, one of the plaintiffs,
Home Builders Association, requested a refund of taxes it had paid under §
264a. The commissioner denied the request, and that denial was appealed to
the superior court, where it was consolidated with the declaratory
judgment action. The parties then filed opposing motions for summary
judgment.

The superior court granted summary judgment in favor of plaintiffs.
Applying strict scrutiny, the court ruled that the lobby tax violates the
First Amendment under the analysis set forth in Leathers v. Medlock, 499 U.S. 439 (1991). The court also concluded that the tax violates the equal
protection provision of the Fourteenth Amendment and results in an
unconstitutional double taxation of lobbyist expenditures. The court made
no separate analysis under the Vermont Constitution, but determined that
the tax violated the Vermont counterparts to the relevant federal
constitutional

provisions. The parties have not addressed on appeal whether the Vermont
Constitution provides an alternative basis to strike down § 264a. (FN2)

The State argues on appeal that the superior court erred in (1)
subjecting § 264a to heightened scrutiny under the First Amendment, (2)
holding the statute unconstitutional under the First and Fourteenth
Amendments to the United States Constitution, (3) reaching unbriefed claims
under the Vermont Constitution, and (4) asserting jurisdiction over
plaintiffs' claims without requiring them to first exhaust their
administrative remedies. There are no facts in dispute. We apply de novo
review to resolve the legal issue raised by the parties. See O'Donnell v.
Bank of Vermont, 166 Vt. 221, 224, 692 A.2d 1212, 1214 (1997) (motion for
summary judgment is reviewed under same standard as that applied by trial
court).

The parties' characterizations of the lobby tax are in marked contrast
to one another. In the State's view, § 264a is merely a generally
applicable sales tax on the expenditures of a commercial service -
lobbying - without regard to the content of the message provided by the
service. To plaintiffs, however, § 264a is a special tax that
unconstitutionally singles out and burdens core political speech protected
by the First Amendment's right to petition the government. Under United
States Supreme Court case law, if the State's characterization of § 264a as
a generally applicable, content-neutral extension of the sales tax is
correct, the statute is reviewed under a deferential rational-basis
standard. On the other hand, if plaintiffs are correct that § 264a is a
special tax burdening First Amendment interests, we apply a heightened
standard of review, under which the

State has conceded it cannot prevail. For the reasons set forth below, we
agree with plaintiffs that the lobby tax is a special tax singling out
First Amendment interests and thereby requiring heightened scrutiny.

Because the State questions the general notion of applying heightened
scrutiny to a tax directed at lobbyists, as opposed to the press, we first
consider the status of lobbying as a protected First Amendment interest.
In relevant part, the First Amendment of the United States Constitution,
which was made applicable to the states with the ratification of the
Fourteenth Amendment, forbids laws "abridging the freedom of speech, or of
the press; or the right of the people . . . to petition the Government for
a redress of grievances." The United States Supreme Court has never
defined the scope of the right to lobby in any in-depth analysis, but
lobbying unquestionably concerns core political speech that "implicates
First Amendment guarantees of petition, expression, and assembly." Kimbell
v. Hooper, 164 Vt. 80, 83, 665 A.2d 44, 46 (1995); see United States v.
Harriss, 347 U.S. 612, 625 (1954).

The venerable right to petition one's government to redress grievances
extends back to the Magna Carta, where the Crown first formally recognized
its duty to be accessible to all citizens. A. Thomas, Easing the Pressure
on Pressure Groups: Toward a Constitutional Right to Lobby, 16 Harv. J.L.
& Pub. Pol'y 149, 181-82 (1993). In America, the history of influencing
legislative action began with the New Englander's personal appearance in
the town meeting to make a complaint or request some sort of action. 1 N.
Singer, Statutes and Statutory Construction § 13.02, at 657 (5th ed. 1994).
At times, a neighbor might speak for a fellow citizen unable to attend the
meeting. "That neighbor was the first American lobbyist." Id.

That innocent beginning was soon to fall upon "evil ways" as
aggressive new industries sought to obtain concessions from local, state,
and federal legislators. Singer, supra, at 657. Recognizing the
potential danger to our democratic system posed by abuses in lobbying,
Congress and state governments passed reform statutes that required
lobbyists to disclose who they were representing and how much they were
spending on their clients' behalf. See id. § 13.04, at 663. These
disclosure laws were generally upheld because they prevented special
interest groups from drowning out "the voice of the people" and yet placed
only an incidental burden on the right to petition one's government.
Harriss, 347 U.S. at 625; see Kimbell, 164 Vt. at 85, 665 A.2d at 43
("lobbying disclosure laws are supported by several compelling
[governmental] interests" vital to protecting integrity of democratic
process); Fair Political Practices Comm'n v. Superior Court, 599 P.2d 46,
53-54 (Cal. 1979) (requiring lobbyists to register and disclose
expenditures does not substantially interfere with ability of lobbyists to
raise their voices). Although courts, at least implicitly, recognized in
these and other decisions that lobbying implicates First Amendment
interests, there has been no detailed judicial analysis concerning the
scope of the right to lobby, perhaps because of the lingering distrust of
lobbying that has persisted in our society. See generally Thomas, supra,
at 149-51, 160-66, 179-80.

Nevertheless, it is beyond dispute that lobbying directly involves
core political speech that lies at the very heart of what the First
Amendment was designed to safeguard. See Burson v. Freeman, 504 U.S. 191,
196 (1992) (plurality opinion) (noting that one of three central concerns
of First Amendment jurisprudence is "regulation of political speech");
Liberty Lobby, Inc. v. Pearson, 390 F.2d 489, 491 (D.C. Cir. 1968) ("While
the term 'lobbyist' has become encrusted with invidious connotations,
every person or group engaged . . . in trying to persuade Congressional
action is

exercising the First Amendment right to petition."); Moffett v. Killian,
360 F. Supp. 228, 231 (D. Conn. 1973) (it is "beyond dispute that
lobbyists and their employers . . . have First Amendment rights); Fidanque
v. Oregon Gov't Standards and Practices, 969 P.2d 376, 379 (Or. 1998)
("Lobbying is political speech, and being a lobbyist is the act of being a
communicator to the legislature on political subjects."). "Whatever
differences may exist about interpretations of the First Amendment, there
is practically universal agreement that a major purpose of that Amendment
was to protect the free discussion of governmental affairs." Mills v.
Alabama, 384 U.S. 214, 218 (1966). That is the case because "speech
concerning public affairs is more than self-expression; it is the essence
of government." Garrison v. Louisiana, 379 U.S. 64, 74-75 (1964).

This is no less true because lobbyists are often paid to petition the
government on behalf of others. See Fair Political Practices Comm'n, 599 P.2d at 53 (lobbyist's function is obviously to exercise constitutional
right to petition on behalf of employer); N. Singer, supra § 13.16, at 684
(need and right to communicate with legislative bodies through medium of
third party acting as spokesperson "appears hardly less fundamental" than
other most basic tenants of our constitutional liberties safeguarded by
First Amendment). "The mere fact . . . that one earns a living by
exercising First Amendment rights does not vitiate the ability to assert
those rights." Moffett, 360 F. Supp. at 231. Nor does one forfeit First
Amendment rights merely by paying another to exercise them for him. Id.
Indeed, notwithstanding the potential abuses posed by lobbying, the
modern-day reality is that, in order to be effective, groups and
organizations across the political spectrum are compelled to retain
skilled legislative counsel to present positions concerning complex issues
that often require significant research and investigation. N. Singer,
supra § 13.16, at 684 (legislatures should have benefit of best
information available when legislating). Thus, the communications of paid
lobbyists

deserve no less constitutional protection than that afforded to the direct
entreaties of individuals citizens. Id.

Of course, we do not mean to suggest that lobbying is immunized from
regulation. To the contrary, as noted, courts have routinely upheld
lobbying disclosure statutes. See Harriss, 347 U.S. at 625-26; Kimbell,
164 Vt. at 85-88, 665 A.2d at 47-49. Courts have also suggested that the
government may impose a regulatory fee "to defray the cost of administering
legitimate regulation of First Amendment activity." Moffett, 360 F. Supp. at 231-32 (relying on Cox v. New Hampshire, 312 U.S. 569, 577 (1941) and
Murdock v. Pennsylvania, 319 U.S. 105, 116-17 (1943) in striking down $35
fee for lobbying activities because funds from fee were far in excess of
sums needed to administer statute's registration provisions).

In the instant case, however, the State does not claim that revenues
from the lobby tax are intended to compensate it for administering
Vermont's lobbyist disclosure statute. Cf. Thrifty Rent-A-Car v. Denver,
833 P.2d 852, 855 (Colo. Ct. App. 1992) (transaction fee imposed on car
rental company for each airport customer after company received $25,000 in
gross monthly revenues was permissible user's fee, not illegal income tax,
because it was used to defray expense of operating and improving airport
facility). Indeed, § 264a(d) explicitly provides that all revenues
collected from the lobby tax "shall be submitted to the state treasurer
for deposit in the Vermont campaign fund established under section 2856 of
Title 17." Thus, the tax cannot be construed as a regulatory fee,
assuming that such a fee would pass constitutional muster. See Fidanque,
969 P.2d at 379-80 (holding that lobbyist registration fee violated state
constitution, and noting that, whatever might be permissibility of
regulatory fee imposed to administer statute, "the statute on its face does
not tie the fee to the costs associated with registering lobbyists"); see
also Murdock, 319 U.S. at 138

(Frankfurter, J., dissenting) ("There is no constitutional difference
between a so-called regulatory fee and an imposition for purposes of
revenue.").

Apart from regulatory fees, the Supreme Court has also acknowledged
that First Amendment activities are not immunized from "any of the
ordinary forms of taxation for support of the government." Grosjean v.
Am. Press Co., 297 U.S. 233, 250 (1936). The Court in Grosjean
emphasized, however, that a tax singling out interests protected by the
First Amendment cannot stand. Id. at 244, 250 (it is settled law that
freedoms of speech and press "are rights of the same fundamental
character" safeguarded against abridgment by state legislation). In making
this point, the Court examined the history and circumstances that led to
the adoption of the First Amendment's abridgement clause. Id. at 244-48.
The Court noted that the dominant purpose underlying the British taxes on
the press and other modes of communication was to curtail "the acquisition
of knowledge by the people in respect of their governmental affairs." Id.
at 247. Accordingly, the Court concluded that the abridgment clause
prohibited not only laws that directly censored First Amendment interests,
but also laws that singled out those interests for special taxation. Id.
at 248-50 (evil to be prevented by First Amendment was not merely
censorship, but rather any government action that might prevent such free
and general discussion of public matters as seems absolutely essential to
prepare people for intelligent exercise of their rights as citizens).

The United States Supreme Court has consistently adhered to this
principle of disallowing special taxes that single out and burden First
Amendment interests. (FN3) For example, in Minneapolis

Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 592-93
(1983), the Court struck down, on two independent grounds, a special use
tax imposed on paper and ink products consumed in the production of
publications. The first ground, the one most relevant to the instant case,
was that the tax singled out a First Amendment interest for special
treatment. While acknowledging that the government can subject First
Amendment interests to "generally applicable" economic regulations without
creating constitutional problems, the Court rejected the State's claim that
the paper and ink tax was a substitute for the sales tax and thus part of
a general scheme of taxation. Id. at 581. The Court noted that its
previous cases approving such economic regulation "emphasized the general
applicability of the challenged regulation to all businesses." Id. at 583
(emphasis added). The Court reasoned that there is less concern 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." Id. at 585. When the tax singles out a select group,
however, the political constraint is absent, and "the threat of burdensome
taxes becomes acute." Id.

According to the Court, where First Amendment interests are at stake,
heightened scrutiny is required. See id. Hence, if a tax singles out and
burdens freedoms protected by the First Amendment, the tax is
unconstitutional "unless the State asserts a counterbalancing interest of
compelling importance that it cannot achieve without differential
taxation." Id. The Court emphasized that the State's interest in raising
revenue, standing alone, could never satisfy this

stringent standard because the State could raise revenue by taxing
businesses generally, and thereby avoid imposing a special burden on First
Amendment interests. Id. at 586.

The Court acknowledged the absence of evidence that the special use
tax on paper and ink products was the result of any impermissible or
censorial motive on the part of the legislature, but nonetheless struck
the tax down because it singled out First Amendment interests without a
compelling government interest to support it. Id. at 580, 586. The Court
also rejected as immaterial the State's contention that the special tax
was less burdensome than what a straightforward sales tax would have been,
holding that special treatment threatens First Amendment interests "not
only with the current differential treatment, but also with the
possibility of subsequent differentially more burdensome treatment." Id.
at 588; see Moffett, 360 F. Supp. at 231 (under Supreme Court case law, "a
tax on the exercise of First Amendment freedoms is unconstitutional even
when there is no proof that the tax actually restrains the exercise of
those freedoms").

These principles were reaffirmed in later cases in which the Supreme
Court upheld generally applicable taxes that burdened First Amendment
interests. See Leathers, 499 U.S. at 453 ("the State's extension of its
generally applicable sales tax to cable services . . . does not violate the
First Amendment"); Jimmy Swaggart Ministries v. Bd. of Equalization, 493 U.S. 378, 392 (1990) (collection and payment of generally applicable sales
and use tax on distribution of religious materials does not violate First
Amendment). In Leathers, the Court considered the constitutionality of an
extension of Arkansas's gross receipts tax to cable, television, and radio
services but not the print media. Reviewing its previous cases, the Court
noted that a tax on First Amendment interests is "constitutionally
suspect" and thus subject to heightened scrutiny when it singles out those
interests, targets a small group of speakers, or discriminates on the basis
of the content of the

taxpayer's speech. Leathers, 499 U.S. at 447. In upholding the statute
under the first criterion, the one most relevant here, the Court stated
that the tax in question was one "of general applicability" that applied
to "a broad range of services," including telecommunications and utility
services, as well as personal services such as furnishing services, repair
services, and cleaning services, among others. Id. Thus, the Court
concluded that tax did not "single out" the First Amendment interest being
burdened. Id.

The dissent contends that the lobby tax, like the tax deemed
constitutional in Leathers, is one "imposed on other types of services,
including utility and telecommunications." Post, at 7. Applying this
premise, the dissent then cites Turner Broad. Sys., Inc. v. Fed.
Communications Comm'n, 512 U.S. 622, 660 (1994) for the proposition that
the First Amendment does not always demand strict scrutiny of regulations
that discriminate among media or different speakers within a single medium.
See post, at 7-8. The problem with this argument is that the premise is
wrong. The lobby tax is not a generally applicable tax that merely
discriminates between First Amendment speakers. Rather, as explained more
fully below, the lobby tax is a special tax that is aimed exclusively at
lobbying expenditures and is completely distinct from the generally
applicable sales tax, which is expressly applied to utility and
telecommunication services. 32 V.S.A. § 9771(5).

We also find unavailing the State's suggestion, accepted by the
dissent, that Leathers stands for the proposition that a tax burdening
First Amendment interests is unconstitutional only if it suppresses the
expression of particular ideas or viewpoints. In Leathers, the principal
issue upon which the Court focused was whether Arkansas's generally
applicable gross receipts tax could be imposed on cable and television
services while exempting newspapers and magazines. The Court

determined that a generally applicable tax would be upheld under these
circumstances as long as it did not discriminate on the basis of
viewpoint, which would present the danger of suppressing particular ideas.
Id. at 453. The Court did not suggest, however, that taxes are
presumptively valid as long as they do not discriminate based on
viewpoint. Indeed, the Supreme Court has never upheld a tax that singled
out First Amendment interests, irrespective of whether it suppressed
particular viewpoints.

In sum, under Supreme Court case law, generally applicable laws
burdening First Amendment interests may or may not be subject to
heightened scrutiny, but laws that "single out" those interests "are
always subject to at least some degree of heightened First Amendment
scrutiny." Turner, 512 U.S. at 640-41; see Los Angeles v. Preferred
Communications, Inc., 476 U.S. 488, 496 (1986) ("Where a law is subjected
to a colorable First Amendment challenge, the rule of rationality which
will sustain legislation against other constitutional challenges typically
does not have the same controlling force.").

Applying this case law, we conclude that the lobby tax plainly
warrants heightened scrutiny, under which it cannot pass constitutional
muster. Indeed, it would be difficult to conceive of a more distinct,
independent tax singling out a discrete group of First Amendment speakers.
An examination of the particulars of the lobby tax belies the State's view
that it is merely an extension of the sales tax assessing the financial
transactions of a commercial enterprise.

As noted, the revenues generated from the lobby tax are submitted for
deposit into the public campaign fund established in 17 V.S.A. § 2856.
This suggests that lobbyists, who arguably represent the interests of the
principal contributors to political campaigns, were specifically targeted
in an

effort to redirect, at least in part, some of the available funds of those
contributors to a neutral public fund for candidates for the offices of
governor and lieutenant governor. We need not delve into the underlying
motives behind the tax, however. Notwithstanding the dissent's assertion
that there is no basis to invalidate the lobby tax because it is not
intended to inhibit freedom of speech and poses no real threat to lobbying
activities, see post, at 8, 14, "legislative intent is not the sine qua non
of a violation of the First Amendment." Minneapolis Star, 460 U.S. at
592. Whatever its underlying purpose, a tax that singles out First
Amendment interests "places a heavy burden on the State to justify its
action." Id. at 592-93.

That is the case here. The lobby tax is triggered by any type of
expenditure made by a lobbyist or an employer of a lobbyist that
ultimately furthers the employer's efforts to influence legislative or
administrative action. See 2 V.S.A. § 264a (tax is imposed on expenditures
of lobbyists and employers of lobbyists); 2 V.S.A. § 261(5) ("Expenditure"
means any "payment, distribution, loan, advance, deposit or gift of money
or anything else of value and includes a contract, promise or agreement,
whether or not legally enforceable, to make an expenditure;" expenditure
also includes any "sums expended in connection with lobbying, including
research, consulting and other lobbying preparation and travel, meals and
lodging"); 2 V.S.A. § 261(9) ("Lobby" or "lobbying" means activities,
communications with legislators or administrative officials, or
solicitation of others "for the purpose of influencing legislative or
administrative action"). Thus, not only is the tax triggered by
expenditures connected with political speech, but it is even further
specialized by being limited to expenditures aimed at influencing
legislative or administrative action in particular, and not municipal
action, for example. See id. § 261(1), (8) (limiting definition of
"Administrative action" and "Legislative action" to activities of
statewide administrative officials and legislators).

In short, it singles out a component of the lobbying profession directed
toward influencing statewide political action.

No other tax in Vermont is even remotely comparable to the lobby tax.
Notably, lobbying is the first and only personal or professional service
taxed in Vermont. See 32 V.S.A. § 9741(35) (excluding personal service
transactions from sales tax, even if tangible goods are transferred, as
long as goods are inconsequential and not separately priced). That fact
alone distinguishes the lobby tax as one that singles out the
communications and activities of lobbyists. Cf. Brown v. Commonwealth,
624 A.2d 795, 796 n.3, 797 (Pa. Commw. Ct. 1993) (concluding that
Pennsylvania's sales tax on lobbying services sold at retail does not
offend First Amendment because tax is imposed on wide variety of services
- including credit collection services, secretarial services, pest control
services, employment agency services, computer programming services, lawn
care services, and storage services - and thus does not single out
lobbying for special tax treatment).

But the lobby tax is far more than a tax on lobbying services or sales
transactions involving lobbying services. Rather, the broad-based tax
reaches all types of expenditures-whether or not they can be deemed sales
or services-of both lobbyists and their employers, including salaries,
meals, lodging, newsletters, loans, gifts, contracts or any other type of
expenditure (or agreement to make an expenditure) aimed at influencing
legislation or administrative action. Thus, notwithstanding the State's
and the dissent's claims to the contrary, the lobby tax is completely
distinct, in both form and function, from a sales tax. The taxable event
upon which a sales tax is imposed is the sale of a product or perhaps a
service. See Thomas Steel Strip Corp. v. Limbach, 575 N.E.2d 114, 116
(Ohio 1991). Generally, the seller of goods or services collects a sales
tax from the purchaser of those goods or services at the time of the
purchase for the benefit of the state. State Farm Mut. Auto. Ins. Co. v.
Berthelot, 732 So. 2d 1230, 1234-35 (La. 1999).

In contrast, the taxable event for the lobby tax is not a sales
transaction, but rather the reporting of a taxable expenditure. The tax
is imposed on the "expenditures" of lobbyists and their employers at the
time that they are reported, not at the time that they are made. Further,
at least where the paid lobbyist makes unreimbursed expenditures, the
provider, not the purchaser or ultimate consumer, of the service pays the
tax. (FN4) See Apollo Stereo Music v. City of Aurora, 871 P.2d 1206, 1209
(Colo. 1994) (when tax is imposed directly on business rather than on
customers of business, it is more like income tax than sales tax); see also
Cox Cable v. City of New Orleans, 624 So. 2d 890, 893 (La. 1993) (tax on
cable television services has essential characteristics of sales tax
because it is paid by the purchaser at time service is purchased, is
collected by seller but cannot be assumed by seller, and is calculated by
percentage of purchase price of service); Radiofone, Inc. v. City of New
Orleans, 616 So. 2d 1243, 1247 (La. 1993) (same conclusion with respect to
tax on telecommunications services). In short, § 264a taxes certain
aspects of the lobbying profession and is triggered, not by a sales
transaction, but by the reporting of an expenditure associated with a
taxable lobbying activity.

Not surprisingly, the tax on lobbying services is not mentioned
anywhere in the statutes dealing with the sales tax, even though, as
noted, the sales tax statute explicitly exempts all personal services.
See 32 V.S.A. § 9741(35). Further, although the lobby tax necessarily
results in an additional tax on products that have already been subjected
to a sales tax, it is not specifically exempted from Vermont's generally
applicable sales tax. (FN5) Cf. 32 V.S.A. § 9741 (listing sales that

are exempt from generally applicable sales tax). Moreover, not only is the
trigger for payment of the tax unique, but the tax is paid to the
Secretary of State rather than the Commissioner of Taxes. Compare 2
V.S.A. § 264a(b) with 32 V.S.A. §§ 9771, 9776. The lobby tax uses special
filing forms requiring different types of information and computation
methods from what is required by sales or use tax forms. Unlike sales tax
forms, copies of the special lobby tax forms must be filed with
legislative counsel.

Because imposition of the lobby tax depends on the purpose behind the
expenditures rather than the nature of the transaction itself, it may
function like a sales tax at times, but at other times like an income or
payroll tax (on lobbyist fees or salaries) or a meals and rooms tax. It
is, in fact, a completely unique type of tax triggered exclusively by core
political speech concerning the right to petition one's government. Even
if the State could make a reasonable argument that the lobby tax is an
extension of the sales tax, which it cannot, it most definitely is not a
generally applicable sales tax of the type that may burden First Amendment
interests and still pass constitutional muster. See Reed v. City of New
Orleans, 593 So. 2d 368, 371 (La. 1992) (sales and use taxes may be
general, applying to all goods, or selective, applying only one specific
commodity).

In the face of seemingly irrefutable evidence that § 264a singles out
lobbyists and is distinct from a generally applicable sales tax, the State
responds that (1) the lobby tax has some similarities to Vermont's sales
tax; (2) most of the allegedly unique features of the lobby tax are also
present in various other sales taxes imposed on particular goods such as
alcohol and tobacco; (3) the remaining unique features of the lobby tax -
such as how and when it is collected - do not result from a

difference in the function of the tax, but rather from the practical
convenience of incorporating the tax into the framework already
established in the lobbyist registration and disclosure law for reporting
expenditures.

These arguments are not persuasive. First, the differences between
the lobby tax and the sales tax far outnumber the relatively few
similarities noted by the State, such as § 264a(c)'s adoption of the
enforcement provisions contained in chapter 233 of Title 32. Second, while
it may be true that some of the atypical features of the lobby tax are
shared by particular sales taxes on special items such as alcohol and
tobacco, no sales tax contains all, or even most, of the lobby tax's
distinctive features. More importantly, merely because a few specially
taxed items share one or two atypical features of the lobby tax does not
suggest that the lobby tax is a generally applicable sales tax burdening
"all businesses." Minneapolis Star, 460 U.S. at 583. Rather, it
demonstrates the contrary. Generally applicable tax statutes are not
subjected to heightened scrutiny because "[w]e 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." Id. at 585. Given this rationale, the lobby tax cannot
possibly be considered a tax generally applicable to all Vermonters.

Third, the incorporation of the lobby tax into the framework of the
lobbyist registration and disclosure statute could just as easily be
construed as demonstrating that § 264a is a unique tax on lobbying, quite
apart from any generally applicable sales tax. Indeed, given § 264a's
objective of taxing all expenditures ultimately aimed at influencing
legislation - whether the expenditure be hiring a lobbyist, inviting a
legislator to dinner, renting a room near the Statehouse, or purchasing
ballpoint pens - the only possible way to administer the tax is to
piggyback it onto the disclosure law. The tax could not be administered
as a sales tax because of what is being taxed.

In sum, by statutory definition, the lobby tax is a tax imposed
directly on expenditures connected with communications and activities
aimed at influencing legislation. The tax is not part of a generally
applicable sales tax that applies to a broad range of services, but rather
singles out lobbying, a protected First Amendment interest, for special
treatment. In fact, the very trigger for the tax is the reporting of
associated with the right to petition the government to redress grievances.
As such, heightened scrutiny is warranted. Because the State proffers no
government interest apart from the raising of revenue, the tax cannot
withstand such scrutiny.

The State insists that because the lobby tax is not directed at any
particular viewpoint, it is content-neutral, and thus entitled to a
presumption of validity. See Hill v. Colorado, 530 U.S. 703, 719 (2000)
(principal inquiry in determining content neutrality is whether government
has regulated speech because of disagreement with message conveyed);
Turner, 512 U.S. at 643 (as general rule, laws are content-based if they
distinguish favored speech from disfavored speech on basis of ideas or
views expressed; by contrast, laws are, in most instances, content-neutral
if they impose burdens on speech without reference to ideas or views
expressed). This argument is unavailing.

The Supreme Court has emphasized on several occasions that the First
Amendment's hostility to content-based regulations is not limited to
restrictions on particular viewpoints, but rather extends to government
restrictions on "'expression because of its message, its ideas, its subject
matter, or its content.'" (emphasis added) Consolidated Edison Co. v.
Public Serv. Comm'n, 447 U.S. 530, 537 (1980) (quoting Police Dep't of
Chicago v. Mosley, 408 U.S. 92, 95 (1972)); see Arkansas Writers' Project,
Inc. v. Ragland, 481 U.S. 221, 230 (1987) (same); see also See Hill, 530 U.S. at 723 ("Regulation of the subject matter of messages, though not as
obnoxious as viewpoint-

based regulation, is also an objectionable form of content-based
regulation."); Simon & Schuster, Inc. v. New York State Crime Victims Bd.,
502 U.S. 105, 116 (1991) (statute restricting speech about crime is
content-based); Fed. Communications Comm'n v. League of Women Voters, 468 U.S. 364, 381, 383-84 (1984) (regulation singling out commercial
broadcasters and denying them right to address their chosen audience on
"controversial issues of public importance" is content-based). (FN6)

But we need not resolve any perceived inconsistency in Supreme Court
case law concerning when a law may be deemed content-neutral. As we
emphasized earlier, a special tax that singles out and burdens First
Amendment interests, as § 264a does, is subject to heightened scrutiny
regardless of whether it is content-neutral. See Turner, 512 U.S. at
640-41, 642 (laws that single out First Amendment interests "are always
subject to at least some degree of heightened First Amendment scrutiny" -
those "regulations that are unrelated to the content of speech are
subjected to an

intermediate level of scrutiny"). Taken to its logical conclusion,
refusing to subject a tax on political speech to heightened scrutiny
unless it disfavored particular viewpoints would allow the State to impose
a tax so great that it could effectively destroy the right to petition
one's government, as long as the tax burdened all viewpoints equally.
That is not the law.

II.

Because our resolution of the instant dispute under the First
Amendment is controlling, we need not address whether § 264a violates the
Equal Protection Clause of the Fourteenth Amendment.

III.

Finally, the State argues that the superior court erred in asserting
jurisdiction over plaintiffs' claims, except for those of plaintiff Home
Builders Association, because those plaintiffs failed to exhaust their
administrative remedies by seeking tax refunds before challenging the
constitutionality of the lobby tax in the superior court. See 2 V.S.A. §
264a(c) (adopting rights of appeal contained in chapter 233 of Title 32);
32 V.S.A. § 9777(a) (taxpayer may seek hearing before commissioner to
challenge assessment of tax); 32 V.S.A. § 9781(a)-(b) (if application is
made within three years after payment, commissioner shall refund any tax
erroneously, illegally, or unconstitutionally collected; person shall not
be entitled to refund determined to be due under § 9777 "where he has had a
hearing or an opportunity for a hearing as provided in that section or has
failed to avail himself of the remedies therein provided"). The State
relies principally upon Stone v. Errecart, 165 Vt. 1, 6, 675 A.2d 1322, 1326 (1996), in which this Court stated:

We hold that 32 V.S.A. § 5887 requires that a taxpayer petition
for a refund from the Commissioner pursuant to 32 V.S.A. § 5884
before going to superior court. The failure of the taxpayer to
exhaust this administrative remedy deprives the superior court of
jurisdiction. This is so even if the petition to the
Commissioner is futile because the Commissioner is not empowered
to grant the relief requested.

We note that, unlike § 5887(a) ("exclusive remedy" of taxpayer with
respect to refund of income taxes "shall be the petition for refund
provided under section 5884 of this title" and to appeal therefrom as
provided in § 5885), § 9781 does not expressly provide that a hearing under
§ 9777 is the exclusive remedy for challenging the imposition of a tax.
But we need not resolve this question at this time. As a result of the
parties' agreement, plaintiff Home Builders Association exhausted its
administrative remedies and is a party to this appeal. Thus, our decision
today is not advisory. There is no reason to address the jurisdictional
issue concerning the plaintiffs other than Home Builders Association
unless, and until, those plaintiffs actually request, and are denied, a
refund of any taxes paid pursuant to § 264a.

Affirmed.

FOR THE COURT:

_______________________________________
Associate Justice

------------------------------------------------------------------------------
Footnotes

FN1. In its entirety, the challenged statute provides as follows:

§ 264a. Tax on expenditures of lobbyists

(a) There is imposed and shall be collected a tax on the
expenditures of lobbyists and employers of lobbyists. The tax
shall be at the rate of five percent of the amount of the
expenditures in excess of $2,500.00 required to be reported in
each calendar year by lobbyists and employers of lobbyists under
section 264 of this title.

(b) the tax shall be paid to the secretary of state at the
time that each periodic disclosure report is required to be filed
under section 264(a) of this title.

(c) If any tax is not paid when due under subsection (b) of
this section, the secretary shall notify the commissioner of
taxes of the name, address and taxpayer identification number of
such taxpayer and any other information necessary to determine
the tax liability. The commissioner of taxes shall collect and
enforce the tax imposed by this section, and shall have all the
powers granted the commissioner for the collection and
enforcement of the sales and use tax under chapter 233 of Title
32. Persons liable for the payment of the tax imposed by this
section shall be subject to all penalties imposed on and have all
rights of appeal afforded to persons liable for payment of the
sales and use tax under chapter 233 of Title 32.

(d) All revenues collected by the secretary of state and the
commissioner of taxes from the tax imposed by this section shall
be submitted to the state treasurer for deposit in the Vermont
campaign fund established under section 2856 of Title 17.

FN2. Because plaintiffs have not challenged § 264a under the Vermont
Constitution, and our resolution of their First Amendment claim resolves
the parties' dispute, we need not consider whether the statute also
violates our state constitution. See State v. Jewett, 146 Vt. 221, 222,
500 A.2d 233, 234 (1985).

FN3. The Supreme Court has held, however, that the government is not
required to subsidize First Amendment interests through tax-exempt status
or tax deductions. See Regan v. Taxation with Representation, 461 U.S. 540, 546, 548-50 (1983) (upholding statute creating tax-exempt status that
restricted tax-deductible contributions to charitable organizations not
involved in lobbying; First Amendment does not require government to
subsidize protected activity); Cammarano v. United States, 358 U.S. 498,
512-13 (1959) (upholding regulations denying deductions for lobbying
expenses; taxpayers are simply being required to pay for their
constitutionally protected activities out of their own pocket, as all
persons engaged in similar activities are required to do).

FN4. The tax may ultimately be paid by the lobbyist's employer as part of
the fee charged by the lobbyist, but the employer is also paying tax on
the fee or salary paid to the lobbyist.

FN5. The State contends that there is no need to exempt lobbying services
because Vermont law does not have a general statutory provision that taxes
services. That acknowledgment only highlights the State's untenable
position that the tax on lobbyist services is merely an extension of the
generally applicable sales tax.

FN6. The dissent cites two cases for the proposition that the Supreme Court
in Leathers was concerned with taxes that discriminate on the basis of
viewpoint rather than subject matter. See post, at 9-10. Those cases
involved differential treatment among various media with respect to a tax
exemption, and thus are inapposite here. See Arizona Dep't of Pub. Revenue
v. Great Western Publ'g, Inc., 3 P.3d 992, 997-98 (Ariz. Ct. App. 1999);
Magazine Publishers of Am. v. Commonwealth, 654 A.2d 519, 521-22 (Pa.
1995). As the distinguished commentator cited by the dissent stated:

[A] law is content based if its application depends on either the
subject matter or the viewpoint expressed. Phrased another way,
the requirement that the government be content neutral in its
regulation of speech means that the government must be both
viewpoint neutral and subject-matter neutral. . . . If a law is
either a viewpoint or a subject-matter restriction it is deemed
to be content based.

E. Chemerinsky, Content Neutrality as a Central Problem of Freedom of
Speech: Problems in the Supreme Court's Application, 74 S. Cal. L. Rev.
49, 51 (2000).

------------------------------------------------------------------------------
Concurring

No. 2000-032

Vermont Society of Association Supreme Court
Executives, et al.

On Appeal from
v. Washington Superior Court

James F. Milne, Secretary of State January Term, 2001

David A. Jenkins, J.

Robert B. Hemley of Gravel and Shea, Burlington, Nory Miller of Jenner & Block,
and Jerald A. Jacobs of Shaw Pittman Potts & Trowbridge (Of Counsel),
Washington, D.C., for Plaintiffs-Appellees.

William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant Attorney
General, Montpelier, for Defendant-Appellant.

PRESENT: Amestoy, C.J., Dooley, Morse and Skoglund, JJ., and Cheever,
Supr. J., Specially Assigned

DOOLEY, J., concurring. Frequently in a 3-to-2 decision of this
Court, a justice finds force in both competing arguments and is ultimately
persuaded to join one side or the other on relatively narrow
considerations. This is such a case. Like the dissent, I am not
particularly persuaded by the form of this tax or the fact that it is
placed in Title 2 and paid to the Secretary of State or that the revenue
goes to a special campaign fund. I would probably uphold a sales tax on
the personal services of lobbyists, whatever its form. What persuades me
is that the tax involved in this challenge cannot fairly be called either a
sales or use tax, a point made by the majorit and

largely ignored by the dissent. The substance, not the form, of the tax
makes it invalid.

Vermont's sales and use tax law defines both sale and use. A sale is
a "transfer of title or possession or both, exchange or barter, rental,
lease or license to use or consume, conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement
therefor." 32 V.S.A. § 9701(6). The definition does not include sales of
services, even if some tangible personal property is transferred in the
process. 32 V.S.A. § 9741(35). Use is "the exercise of any right or
power over tangible personal property by the purchaser thereof." 32 V.S.A.
§ 9701(13). If the substance of the lobby tax merely removed the
exception for services with respect only to lobbyist services, the State's
characterization of the tax as just an extension of the sales tax would be
valid. Similarly, if the substance of the tax merely expanded the
definition of use to include consumption of services to compensate for
instances when the sales tax did not reach them, again the State's
position would be defensible.

But, in my judgment, the dissent is in error in its central
description of the nature of the tax:

First and foremost, the tax on lobbying expenditures indisputably
functions like a sales tax, by taxing a sales transaction. Every
commercial transaction involves an expenditure and a sale,
depending on one's perspective. The tax on expenditures is no
different from a tax on sales; there is only one transaction, and
it is generally the purchaser who pays the tax.

Post, at 5. As the dissent states in the quoted passage, the tax before us
is one on "expenditures," not sales or uses. It is a tax on expenditures
of both lobbyists and employers of lobbyists. Of course, sales
necessarily produce expenditures, even if by exchange or barter, as
described in the statutory definition set out above. Expenditures are not
necessarily based on sales, however.

The most obvious example is when an employer of a lobbyist directly
makes a gift to a

legislator. That is clearly a taxable expenditure, but it is neither a
sale nor a use. A quick perusal of the website of the Secretary of State
shows that many of the taxable expenditures of an employer of a lobbyist
are neither sales nor services. For example, if a trade association, which
employs a staff lobbyist and mails a newsletter to its members, adds
legislators or administrative officials to its mailing list, the costs of
the newsletter attributable to discussion of policy issues before the
legislative or executive branch is a taxable lobbyist employer expenditure
even if the newsletter is produced solely in-house. Lobbying FAQs: What
Constitutes Lobbying?, Vermont Secretary of State's Home Page, at
http://www.sec.state.vt.us/pubs/lobby/lobfaq1.htm (last visited Apr. 27,
2001). Indeed, The Secretary of State has opined that inviting legislators
to view the Vermont Yankee Nuclear Power Plant for general background
information would make any expenses in connection with the trip taxable if
Vermont Yankee also employed a lobbyist. Id. at
http://www.sec.state.vt.us/pubs/lobby/lobfaq7.htm (last visited Apr. 27,
2001).

As the majority points out, a tax imposed based on the purpose of an
expenditure necessarily crosses all the lines contained in traditional tax
categories. For example, advertising services generally remain untaxed,
but advertising services intended to influence legislation or
administrative rule-making are taxed if sold to an employer of a lobbyist.

For this reason, much of the tax base defined in 2 V.S.A. § 264a(a)
will be salaries paid to company or association staff who lobby as part of
their jobs. I acknowledge that employees in such circumstances could be
said to be selling their services for compensation. This is, however, a
large expansion of any concept of sales of services in the current law.
The result is a payroll tax on employers on that part of the payroll
attributable to lobbying, including presumably a share of the salary of
corporate officers and managers whose jobs necessarily include seeking
favorable

governmental action. I do not think that a broad payroll tax can be fairly
viewed as a sales or use tax.

Finally, I note that the repetitive taxation of the same event by this
tax is unparalleled in our sales tax. If a lobbyist buys a pen to use in
lobbying, the lobbyist pays a sales tax on the purchase. The lobbyist
then pays a lobbyist's expenditure tax on the same pen purchase. The
lobbyist then bills the client for the lobbyist's expenditures, including
the cost of the pen, and the lobbyist's employer pays an additional, third
tax on the cost of the same pen. I recognize that double taxation may be
unavoidable once a state taxes the sale of services, but triple taxation of
the same purchase goes well beyond anything in our sales tax, even broadly
defined.

In short, the tax before us is a tax on lobbying and not merely a tax
on the services of lobbyists, as it is often described. It will capture
some sales of services, but it will capture a lot more than that. It has
no analog in our state tax scheme. As explained by the majority, this
unique tax on lobbying clearly transcends the lines drawn by the United
States Supreme Court in Minneapolis Star & Tribune Co. v. Minnesota Comm'r
of Revenue, 460 U.S. 575 (1983) and Leathers v. Medlock, 499 U.S. 439
(1991).

_____________________________
Associate Justice

------------------------------------------------------------------------------
Dissenting

No. 2000-032

Vermont Society of Association Supreme Court
Executives, et al.

On Appeal from
v. Washington Superior Court

James F. Milne, Secretary of State January Term, 2001

David A. Jenkins, J.

Robert B. Hemley of Gravel and Shea, Burlington, Nory Miller of Jenner & Block,
and Jerald A. Jacobs of Shaw Pittman Potts & Trowbridge (Of Counsel),
Washington, D.C., for Plaintiffs-Appellees.

William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant Attorney
General, Montpelier, for Defendant-Appellant.

PRESENT: Amestoy, C.J., Dooley, Morse and Skoglund, JJ., and Cheever,
Supr. J., Specially Assigned

MORSE, J., dissenting. The Court today invalidates a State sales tax
on the ground that it impermissibly singles-out a class of speakers,
lobbyists, in violation of the First Amendment. Although I agree that
lobbyists - as a profession specializing in "petition[ing] the Government"
- are entitled to First Amendment protection, I do not share the Court's
view that the tax impermissibly discriminates against them. U. S. Const.
amend. I. At its core, the lobbyist-expenditure tax functions as a
content-neutral extension of Vermont's general sales tax, and therefore
presents no First Amendment violation. I respectfully dissent.

The principal basis of the Court's decision is its conclusion that the
lobbyist expenditure tax

singles-out lobbyists and lobbyist-employers for disparate tax treatment.
The Court relies upon principles developed in a series of United States
Supreme Court decisions dealing with First Amendment challenges to taxes
on various segments of the media. In fact, these cases may be interpreted
to demonstrate that the tax on lobbyist expenditures is constitutionally
inoffensive.

The most recent decision on point is Leathers v. Medlock, 499 U.S. 439
(1991). There, cable television operators argued that an Arkansas
statute extending the general sales tax to cable services, while
maintaining existing exemptions for newspapers and magazines, violated the
First Amendment. After reviewing a number of earlier decisions, the
Supreme Court reaffirmed the general principle that "differential taxation
of First Amendment speakers is constitutionally suspect when it threatens
to suppress the expression of particular ideas or viewpoints." Id. at 447.
The high court then identified three circumstances where this threat may
be inferred and the law justified only by a compelling governmental
interest: (1) when the tax is so structured as to single out the press for
differential tax treatment; (2) when the tax targets a small group of First
Amendment speakers; and (3) when the tax is based upon the viewpoint or
ideas of the speakers. See id. at 447. Applying that test to the
Arkansas statute, the Supreme Court concluded that it was an extension of
the state's generally applicable sales tax, did not impermissibly target
a small group of speakers, and was content neutral. Accordingly, the tax
was not subject to heightened judicial review.

Leathers, unfortunately, provided little practical guidance or
principled framework through which to judge the validity of other taxing
or regulatory schemes, such as that presented here, and subsequent case
law, while suggestive, has not substantially advanced the analysis. See,
e.g., Department of Revenue v. Magazine Publishers of Am., 604 So. 2d 459,
461-62 (Fla. 1992) (on remand for reconsideration in light of Leathers,
court held that tax on retail sales of secular

magazines did not single out press for special tax treatment, but
unconstitutionally discriminated on basis of content); Magazine Publishers
of Am. v. Commonwealth, 654 A.2d 519, 523 (Pa. 1995) (statute deleting
sales and use tax exemption for magazines but retaining exemption for
newspapers did not constitute prohibited special tax); Cox Cable Hampton
Roads, Inc. v. City of Norfolk, 410 S.E.2d 652, 655 (Va. 1991) (municipal
utility tax on cable television service was generally applicable tax,
notwithstanding fact that it applied to only one company).

More instructive by far is the principal case on which Leathers relied
in developing the "singling out" rule, Minneapolis Star & Tribune Co. v.
Minnesota Comm'r of Revenue, 460 U.S. 575 (1983). For a number of years,
Minnesota's sales and use tax had exempted retail sales of periodicals.
Like most such schemes, the use tax augmented the sales tax by eliminating
any tax incentive for Minnesota residents to acquire goods in other states
in order to avoid the sales tax. See id. at 577. In 1971, the use tax
component was amended to impose a tax on the cost of paper and ink
products consumed in producing a publication. Thus, as the Supreme Court
noted, "[i]nk and paper used in publications became the only items subject
to the use tax that were components of goods to be sold at retail." Id.
at 578. In 1974, the legislature amended the statute again to exempt the
first $100,000 worth of ink and paper consumed by a publication in any
calendar year. The result was that only eleven publishers in the State,
including the plaintiff, incurred a tax liability in 1974.

The Supreme Court invalidated both the underlying paper and ink tax
and the tax as amended to exempt the first $100,000 in costs. The Court's
rationale was two-fold. First, it noted that the paper and ink tax was a
"special tax that applie[d] only to certain publications protected by the
First Amendment." Id. at 581. Although a use tax ordinarily serves to
complement a sales tax by eliminating the incentive to make major
purchases out of state, the use tax on paper and ink served

no such function. It "applie[d] to all uses, whether or not the taxpayer
purchased the ink and paper in-state, and it applie[d] to items exempt
from the sales tax," although in general items exempt from the Minnesota
sales tax were not subject to a use tax. Id. at 582. Thus, the Court
observed, "[b]y creating this special use tax, which, to our knowledge, is
without parallel in the State's tax scheme, Minnesota has singled out the
press for special treatment." Id. Such differential treatment, the Court
concluded, "suggests that the goal of the regulation is not unrelated to
the suppression of expression, and such a goal is presumptively
unconstitutional." Id. at 585.

In addition, the Court concluded that the paper and ink tax violated
the First Amendment "not only because it singles out the press, but also
because it targets a small group of newspapers." Id. at 591. The effect
of the $100,000 exemption was that only a handful of publishers paid any
tax, and the Court held that a tax so tailored "that it singles out a few
members of the press presents such a potential for abuse that no interest
suggested by Minnesota can justify the scheme." Id. at 592.

As commentators have noted, the rule in Minneapolis Star - and by
extension in Leathers, which expressly cited and relied on Minneapolis
Star - is that the Supreme Court will infer a censorial purpose, even in
the absence of evidence of such a purpose - where the challenged tax
differs so substantially in form or function from other state taxes that it
can be said to single-out the media for discriminatory treatment. See R.
Berzanson, Political Agnosticism, Editorial Freedom, and Government
Neutrality Toward the Press: Observations on Minneapolis Star & Tribune Co.
v. Minnesota Commissioner of Revenue, 72 Iowa L. Rev. 1359, 1369 (1987)
("the [Minnesota] tax was differential because its form was different");
Note, Leathers. v. Medlock: The Supreme Court Changes Course on Taxing the
Press, 49 Wash. & Lee L. Rev. 1053, 1072 (1992) (the Leathers test looks
to "the structure of the tax" to see if it violates the prohibition on
censorship). "The

conclusive weight placed on form," one author has observed, serves a core
value of the First Amendment by ensuring government neutrality toward the
press. Berzanson, supra, at 1369-70.

Assessed in light of these principles - and contrary to this Court's
conclusion - the lobbying expenditure tax is not so different in form or
function from Vermont's general sales tax that it requires heightened
judicial review. First and foremost, the tax on lobbying expenditures
indisputably functions like a sales tax, by taxing a sales transaction.
Every commercial transaction involves an expenditure and a sale, depending
on one's perspective. The tax on expenditures is no different from a tax
on sales; there is only one transaction, and it is generally the purchaser
who pays the tax. See 32 V.S.A. § 9778.

The Court also asserts that the lobbyist-expenditure tax differs from
the general sales tax because it was incorporated into the framework of
the lobbyist registration and disclosure statute. The fact that the
Legislature borrowed the terminology and provisions of an existing
regulatory scheme requiring disclosure and reporting of lobbying
"expenditures," 2 V.S.A. § 264, does not alter the essential form of the
tax. Indeed, unlike the tax in Minneapolis Star, which the Supreme Court
noted was "without parallel" in Minnesota's taxing scheme, 460 U.S.at 582,
the tax on lobbying expenditures is essentially nothing more than an
extension of the existing Vermont sales tax to an additional service
provider. In this regard, it is also noteworthy that the Legislature
imposed the identical tax rate (five percent) on lobbying expenditures as
that imposed under the general sales tax, and expressly incorporated into
the lobbying tax the general sales tax provisions relating to collection,
enforcement, penalties, and appeal. See 2 V.S.A. § 264a(a), (c).

The Court identifies other formal distinctions between the general
sales tax and the tax on lobbying expenditures. Upon examination,
however, none appears to be significant. For example,

the tax on lobbying expenditures is codified in a different statutory
provision from the general sales tax. Yet, the same is true of other
sales taxes, including those applicable to motor vehicles, 32 V.S.A. §
8903, rooms and meals, id., § 9241, malt beverages and spiritous liquors, 7
V.S.A. §§ 421, 422, and fuel, 23 V.S.A. §§ 3003, 3106.

The Court also notes that each of the aforementioned taxes is
expressly exempt from the State's generally applicable sales tax. See 32
V.S.A. § 9741. This is hardly surprising, however, since an exemption is
necessary to prevent sales of items such as fuel or alcoholic beverages
from falling within the general sales tax on property sold at retail. The
absence of a broad-based sales tax on services renders such an exemption
for the tax on lobbying expenditures unnecessary.

Additionally, the Court observes that sales taxes are generally paid
to the Department of Taxes, while the tax on lobbying expenditures is paid
to the Secretary of State for deposit into a special campaign fund.
Again, the point is hardly compelling, as numerous other sales taxes are
paid into special funds. See, e.g., 23 V.S.A. §§ 3015(7), 3106(d) (portion
of fuel tax paid into Petroleum Cleanup Fund and wildlife fund); 32 V.S.A.
§ 8912 (sales and use tax on motor vehicles paid into Transportation
Fund); see also Magazine Publishers, 654 A.2d at 524-25 (court rejected
claim that Pennsylvania sales tax singled out press for special tax
treatment because revenues from sales tax on magazines were paid into
special Public Transportation Assistance Fund).

The Court notes further that the forms and payment schedule for the
lobbyist-expenditure tax differ from the general sales tax. There is no
uniform schedule for the payment of sales taxes to the State; some, like
the tax on lobbying expenditures, have specific schedules. See, e.g, 23
V.S.A. § 3108 (fuel tax due on 25th of month); 32 V.S.A. § 9243 (rooms and
meals tax due monthly or quarterly). The requirement of forms specific to
the product or service taxed is also not

uncommon. See, e.g., 7 V.S.A. § 421(c) (forms for reporting alcoholic
beverage sales volume).

The Court also notes that the lobbying-expenditure tax may result in
some double taxation. The acquisition of office materials, for example,
may be subject to the general sales tax upon purchase, and later form a
component of lobbying expenditures subject to taxation. Again, however,
this does not render the lobbyist-expenditure tax structurally distinct
from the sales tax. Indeed, as the State correctly points out, some
double taxation is inevitable when the general sales tax is extended to a
"service." Thus, "telecommunications service" is subject to the Vermont
sales tax, 32 V.S.A. § 9771(5), although the provider may also pay a
sales tax on the purchase of components, such as office supplies, used in
providing the service.

Finally, the Court relies heavily on the fact that, apart from the
lobbyist-expenditure tax, the general sales tax does not extend to any
other "personal or professional" service. Ante, at 15. The Court's
reliance, once again, is misplaced. That the Legislature chose to extend
the sales tax to lobbying but not other personal or professional services
does not demonstrate that it is functionally different from the general
sales tax. As the Supreme Court in Leathers observed, "[i]nherent in the
power to tax is the power to discriminate in taxation." 499 U.S. at 451.
Thus, Leathers upheld a sales tax on cable television services,
notwithstanding the fact that no other segment of the media, including
newspapers, magazines, and satellite broadcast television, was subject to
the tax at that time. There, as here, the tax was imposed on other types
of services, including utility and telecommunications, see id. at 447, but
the mere fact that it was not imposed on any similar media services did
not differentiate it in any constitutionally significant way.

This point was brought home by the Supreme Court in its subsequent
decision in Turner Broad. Sys., Inc. v. Federal Communications Comm'n, 512 U.S. 622 (1994). There, in rejecting a

claim that certain regulations applicable only to cable television
triggered strict scrutiny review, the Court observed:

It would be error to conclude, however, that the First Amendment
mandates strict scrutiny for any speech regulation that applies to
one medium (or a subset thereof) but not others. In Leathers v.
Medlock, 499 U.S. 439 (1991), for example, we upheld against
First Amendment challenge the application of a general state tax
to cable television services, even though the print media and
scrambled satellite broadcast television services were exempted
from taxation. As Leathers illustrates, the fact that a law
singles out a certain medium, or even the press as a whole, "is
insufficient by itself to raise First Amendment concerns." Id.
at 452.

Id. at 660.

The Court's holding ultimately suggests that the easy constitutional
"fix" is simply to conform certain procedural externalities of the
lobbyist-expenditure tax to the general sales tax. The legal web spun by
the Legislature was functionally suitable; it simply lacked a certain
purity of design. When all is said and done, what matters apparently is
not the Legislature's straightforward intent to capture additional revenue
through a generally applicable lobbyist-expenditure tax; nor the virtual
absence of any evidence of a legislative intent to inhibit plaintiffs'
freedom to speak and petition the government; nor even the existence of
similar sales taxes on other services involving expression, such as
telecommunications and printing. What matters is form, or appearance, and
that - as this case vividly illustrates - is plainly in the eye of the
beholder.

The concurring opinion implies that the tax on lobbying expenditures
constitutes a rare exception to the general sales tax on tangible personal
property rather than services. In fact, Vermont's general sales tax
applies to utility services, fabricating and printing services, amusements,
and telecommunication services. See 32 V.S.A. § 9771(2) - (5). The
concurring opinion also suggests that the lobbyist tax fails because
expenditures may include more than sales. The argument,

which plaintiffs did not raise, is hardly dispositive, as most expenditures
are sales, and any other taxable transaction may be treated as the
equivalent. Although the concurring opinion characterizes this as a
difference in "substance," I am not persuaded that it is anything more than
a minor difference in form.

Thus, the tax on lobbying expenditures does not represent a "special
tax" requiring heightened constitutional review. Because it concluded
otherwise, the trial court failed to address the two remaining criteria
for strict scrutiny identified in Leathers: whether the tax targets a small
group of speakers, and whether it discriminates on the basis of the
speaker's viewpoint. As explained below, the lobbyist-expenditure tax
does not offend either of these additional criteria.

In focusing on the number of speakers subject to the challenged tax,
the Leathers court cited Minneapolis Star, which involved fewer than a
dozen newspapers subject to the tax, and Arkansas Writers' Project, Inc.
v. Ragland, 481 U.S. 221, 229 (1987), where the Court invalidated a sales
tax scheme that taxed two or three magazines of general circulation and
exempted all trade, sports and professional journals. By way of contrast,
the tax in Leathers affected approximately 100 cable companies, and the
Court concluded that the extension of the Arkansas sales tax "hardly
resembles a 'penalty for a few.'" 499 U.S. at 448 (quoting Minneapolis
Star, 460 U.S. at 592). Here, similarly, the tax on lobbying
expenditures, which resulted in tax payments in 1998 by approximately 213
employers of lobbyists, or sixty percent of the total number of registered
lobbyist employers, cannot be said to target an impermissibly small number
of speakers.

Nor does the tax on lobbying expenditures require strict scrutiny on
the basis of "viewpoint" discrimination. As noted, Leathers held that a
tax will trigger heightened review under the First Amendment "if it
discriminates on the basis of the content of taxpayer speech." 499 U.S. at
447.

Although Leathers did not specifically define what it meant by "content"
discrimination, several courts and commentators have concluded that the
Court was concerned with taxes that discriminate on the basis of ideas or
viewpoint, not on the basis of subject matter. See, e.g., Arizona Dep't of
Revenue v. Great Western Publishing, Inc., 3 P.3d 992, 997 (Ariz. Ct. App.
2000) (rejecting argument that Leathers broadly prohibited any tax
discriminating among publications on basis of content, concluding instead
that "[g]enuine 'content-based' discrimination" must be based on
"particular ideas or viewpoints"); Magazine Publishers, 654 A.2d at 523
(rejecting magazine trade group's claim that newspaper exemption from
general sales tax discriminated on basis of "content" merely because it
required reference to definition of newspaper as publication "containing
matters of general interest and reports of current events"); Note, supra,
at 1062 n.58 ("Justice O'Connor in Leathers expresses concern about
censorship which implies viewpoint distinctions."); but cf. Department of
Revenue, 604 So. 2d at 461-62 (invalidating sales tax scheme that subjected
magazines to sales tax but exempted newspapers on ground that statute
required tax department to evaluate contents of publication to determine
whether it was entitled to exemption). .

The distinction is important, for the Court has defined content-based
classifications in a variety of ways, and not always consistently. See E.
Chemerinsky, Content Neutrality as a Central Problem of Freedom of Speech:
Problems in the Supreme Court's Application, 74 S. Cal. L. Rev. 49, 51
(2000) (noting distinction between "viewpoint-neutral" standard, which
prohibits regulations that discriminate on basis of "the ideology of the
message," and "subject-matter-neutral" requirement, which prohibits laws
"based on the topic of the speech"); G. Stone, Restrictions of Speech
Because of its Content: The Peculiar Case of Subject-Matter Restrictions,
46 U. Chi. L. Rev. 81, 83-84 (1978) (providing general background on
content-based classifications and discussion of

standards of content review). Subject-matter restrictions have been upheld
in some contexts. See, e.g., Burson v. Freeman, 504 U.S. 191, (upholding
restriction on campaigning activity near polling places; Lehman v. City of
Shaker Heights, 418 U.S. 298, 302-304 (1974) (upholding ordinance
prohibiting political advertisements on buses, while permitting commercial
advertisements). Viewpoint restrictions are invariably invalidated, as
they pose "the inherent risk that the Government seeks not to advance a
legitimate regulatory goal, but to suppress unpopular ideas or
information." Turner, 512 U.S. at 641.

Justice O'Connor, writing for the majority in Leathers, repeatedly
expressed the Court's concern with taxes that discriminate on the basis of
the targeted speaker's ideas or views. That concern was expressed in a
variety of ways throughout the opinion, as follows: "[D]ifferential
taxation of First Amendment speakers is constitutionally suspect when it
threatens to suppress the expression of particular ideas or viewpoints,"
499 U.S. at 447; "a tax on a small number of speakers runs the risk of
affecting only a limited range of views," id. at 448; "[t]his is not a tax
structure that resembles a penalty for particular speakers or particular
ideas." Id. at 449. We thus agree with those authorities who have
concluded - as one author has written - that "[t]he Leathers Court . . .
focused on viewpoint-based and idea-based discrimination instead of
distinctions of form, frequency, or even subject-matter." Note, supra, at
1080.

It has not gone unnoticed that the Supreme Court's emphasis in
Leathers on viewpoint discrimination marked a subtle but nonetheless
distinct departure from language in earlier decisions, notably Ragland,
which had invalidated a sales tax because it exempted certain periodicals
based on their subject matter. See Ragland, 481 U.S. at 229. In
Leathers, however, the Court "underwent a shift . . . in viewing the
First Amendment as more concerned with viewpoint censorship and less

with mere content discrimination." Note, supra, at 1060 n.49. This
emphasis on viewpoint discrimination is particularly noticeable in the
Court's subsequent decision in Turner. There, in rejecting a challenge by
cable television operators to FCC requirements that they carry local
broadcast stations, the Court observed:

We have said that the "principal inquiry in determining content-
neutrality . . . is whether the government has adopted a
regulation of speech because of [agreement or] disagreement with
the message it conveys." . . . As a general rule, laws that by
their terms distinguish favored speech from disfavored speech on
the basis of the ideas or views expressed are content based. . .
. By contrast, laws that confer benefits or impose burdens on
speech without reference to the ideas or views expressed are in
most instances content neutral.

Turner, 512 U.S. at 642-43 (quoting Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989)).

Thus understood, the tax on lobbying expenditures is content-neutral
within the meaning of Leathers. Although the tax applies to expenditures
related to a particular subject, i.e., lobbying for the purpose of
influencing legislative or administrative action, see 2 V.S.A. § 261(9)(A),
it draws no distinctions on the basis of the viewpoint or ideas to which
such activities are directed. As the court in Brown observed, upholding
Pennsylvania's extension of the sales tax to lobbyists' services, "[t]he
tax applies to all lobbyists who sell their services at retail without
regard to the ideas or the content of the speech advanced by any
particular lobbyist." Brown, 624 A.2d at 797-98; see also Kimbell v.
Hooper, 164 Vt. 80, 82, 665 A.2d 44, 45-46 (observing that nothing in
lobbying disclosure act "attempts to censor particular messages or points
of view").

In sum, the tax on lobbying expenditures does not meet any of the
criteria identified by the Supreme Court as requiring application of the
most demanding level of constitutional scrutiny. Absent such
constitutional concerns, the question turns solely on whether the lobbyist
expenditure tax is rationally related to a legitimate governmental
purpose. See Regan v. Taxation With

Representation, 461 U.S. 540, 549-51 (1983).

Most assuredly the State's purpose in enacting the tax on lobbying
expenditures was to raise revenue to partially fund the Vermont campaign
fund. See 2 V.S.A. § 264a(d); 17 V.S.A § 2856. Raising revenue is a
legitimate, if not indeed the principal, purpose of tax legislation. See
In re Property of One Church Street, 152 Vt. 260, 267, 565 A.2d 1349, 1352
(1989); see also Quarty v. United States, 170 F.3d 961, 967 (9th Cir.
1999) ("There can be no dispute that the purpose of raising government
revenue is a legitimate legislative purpose"); Blue Cross & Blue Shield v.
State, 779 P.2d 634, 640 (Utah 1989) (in upholding tax on insurer against
equal protection claim, court observed that "[t]he first and predominant
purpose of the premium income tax is to raise revenue . . . This is a
legitimate purpose."). In accomplishing this purpose, the Legislature is
generally free to tax some groups and not others so long as the
classification rests upon a reasonable basis. See General Motors Corp v.
Tracey, 519 U.S. 278, 311 (1997) (in taxation, more than any other field,
legislatures possess greatest freedom of classification); Regan, 461 U.S. at 547 ("Legislatures have especially broad latitude in creating
classifications and distinctions in tax statutes."); One Church Street,
152 Vt. at 265, 565 A.2d at 1351 (in upholding provision for higher taxes
on nonresidential property than residential property, Court noted that
Vermont Constitution does not "forbid reasonable classifications of
property for tax purposes"). Such statutes are presumptively
constitutional, and the burden rests upon the party challenging the tax to
demonstrate that the classification is invalid. See id., 152 Vt. at 270,
565 A.2d at 1354.

The trial court here concluded that the tax on lobbying expenditures
violated equal protection by discriminating between organizations and
persons that spend money on lobbying and those who lobby without incurring
expenditures. The Legislature nevertheless enjoys broad discretion in

creating classifications and distinctions in tax statutes. See Regan, 461 U.S. at 547. Thus, it was within the Legislature's prerogative to
distinguish for tax purposes a commercial transaction - the expenditure of
funds related to lobbying activities - from non-commercial lobbying
activity.

The trial court also concluded that the statute impermissibly taxed
the class of lobbyists and lobbyist employers who expend funds to
influence legislative or administrative action, while omitting others,
such as newspapers and magazines, who expend funds for similar purposes.
Again, however, the classification was not unreasonable. The State has
broad latitude in choosing to tax different trades and professions, see
Allied Stores v. Bowers, 358 U.S. 522, 526-27 (1959), and a tax scheme,
such as that presented here, does not unconstitutionally discriminate
"unless it discriminates on the basis of ideas." Leathers, 499 U.S. at
450. As noted earlier, the tax is content neutral, applying to all
lobbying expenditures regardless of the viewpoint expressed or represented.

Here - as in Leathers - the Legislature has chosen to include a
particular class of speakers within the general sales tax. As was also
true in Leathers, "[n]othing about that choice has ever suggested an
interest in censoring the expressive activities" of those subject to the
tax. Id. at 453. Indeed, nothing in the record demonstrates that the
five percent sales tax poses any real threat - express or implied - to
plaintiffs' lobbying activities or freedom of expression. Absent such
constitutional concerns, there is no basis to invalidate the tax. I would
reverse.

I am authorized to say that Judge Cheever joins in this dissent.

_______________________________________
Associate Justice

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