The following is an analysis prepared by FSC Legislative Affairs Director Kat Sunlove of Senate Bill 1507, the Internet Safety and Child Protection Act of 2005 introduced last month by Sen. Elaine Lincoln, which would impose a tax on sexually-oriented websites:
BILL ANALYSIS
S 1507 (Lincoln) - “Internet Safety and Child Protection Act of 2005”
What the Bill Does:
Requires the use of Age Verification Software (AVS) or other methods for ascertaining the age of visitors to “regulated pornographic Web Site(s)”; requires Internet financial processing services to process only age-verified credit card transactions of “regulated pornographic Web site(s); grants enforcement power to the Federal Trade Commission (FTC); defines the failure to use AVS as an “Unfair or Deceptive Practice” under FTC rules; imposes a 25% tax on all amounts charged by a “regulated pornographic Web site”; establishes the Internet Safety and Child Protection Trust Fund within the Treasury for depositing taxes collected under the Act; and establishes priorities for the allocation of taxes collected.
Current Law:
Under Chapter 33 of the Internal Revenue Code, current law provides for an excise tax on “communication services” to be paid by the person paying for such services. Among the services listed in Subchapter B are (A) local telephone service; (B) toll telephone service; and (C) teletypewriter exchange service. Services subject to the tax in Subchapter C are transportation of persons or property by air.
This bill would add Subchapter D – Internet Display or Distribution of Pornography.
Definitions:
S1507 uses as the definition of “pornography” (which has no legal definition) the definition provided in USC Title 18, Section 2256 which defines “sexually explicit conduct” as actual or simulated:
(i) sexual intercourse, including genital-genital, oral-genital, anal-genital, or oral-anal, whether between persons of the same or opposite sex; (ii) bestiality; (iii) masturbation; (iv) sadistic or masochistic abuse; or (v) lascivious exhibition of the genitals or pubic area of any person.
S1507 defines a “regulated pornographic website” as a person required to maintain documents pursuant to USC Title 18, Section 2257, the federal record-keeping and labeling law, currently being challenged by Free Speech Coalition.
Comments:
Purpose of the Bill: The stated purpose of this bill is to protect children from Internet pornography and support law enforcement and other efforts to combat Internet and pornography-related crimes against children.
First Amendment Issues: Taxation of material based on its content poses distinct free speech issues.
In a line of cases beginning in 1936 with Grosjean v. American Press, the US Supreme Court has rejected efforts by states to impose taxes on expression. In Grosjean, the state of Louisiana had imposed a 2% tax on the gross receipts of any newspaper, magazine, periodical or publication having a circulation of more than 20,000 copies per week as a “license tax for the privilege of engaging in such business in this State.” Although the court did not mention it, the tax in question was likely inspired by then-Governor Huey P. Long in retaliation for unfavorable coverage of him in certain newspapers. In a fascinating historical review, the court traces efforts by the British government to prevent or abridge the free expression of any opinions critical of the government. As early as 1644, the court wrote, John Milton penned an “Appeal for the Liberty of Unlicensed Printing” in opposition to an act of Parliament providing for censorship of the press prior to publication through a licensing scheme. Again in 1712, Parliament imposed a tax on all newspapers and advertisements. That and the stamp tax of 1765 are generally seen as having led to the American Revolution. Even in the new republic in 1785, only four years before Congress proposed the First Amendment, the Massachusetts legislature tried to copy the English example by imposing a stamp tax on newspapers. The tax was so violently opposed that it was quickly repealed.
The court’s point in engaging in such an historical review was to highlight the fact that the framers of the First Amendment were familiar with the struggle in England and were determined to preclude the states from adopting any form of restraint upon printed publications or their circulation. Although the court grants that publications are not immune from ordinary taxation, they held that the Louisiana tax was not ordinary, but rather was the same as those historical examples of government hostility toward freedom of the press. Emphasizing the value of a free press, the court stated: “[This law] is bad because, in the light of its history and of its present setting, it is seen to be a deliberate and calculated device in the guise of a tax to limit the circulation of information to which the public is entitled in virtue of the constitutional guaranties. A free press stands as one of the great interpreters between the government and the people. To allow it to be fettered is to fetter ourselves.”
In a 1983 case, Minneapolis Star & Tribune Co. v. Minnesota Commissioner of Revenue, the Supreme Court overturned a Minnesota Supreme Court ruling which upheld a “use tax” on the cost of paper and ink products consumed in the production of certain publications, but that exempted the first $100,000 worth of paper and ink. The high court said that by singling out the press for special treatment, “the political constraints that prevent a legislature from imposing crippling taxes of general applicability are weakened, and the threat of burdensome taxes becomes acute. That threat can operate as effectively as a censor to check critical comment by the press, thus undercutting the basic assumption of our political system that the press will often serve as an important restraint on government.”
Writing for the majority, Justice O’Conner stated that the state’s interest in raising revenue, standing alone, “cannot justify such treatment, for the alternative means of taxing businesses generally is clearly available.”
In the same case, the court pointed out that “Minnesota’s ink and paper tax violates the First Amendment not only because it singles out the press, but also because it targets a small group of newspapers. The effect of the $100,000 exemption is that only a handful of publishers in the State pay any tax at all, and even fewer pay any significant amount of tax.”
In 1987 in Arkansas Writers' Project, Inc. v. Ragland, the U.S. Supreme Court held that a state may not levy a sales tax on certain types of magazines based on the content of those magazines. Arkansas had levied a tax on general interest magazines but had exempted newspapers and religious, professional, trade and sport journals. Here the court held that, “Even though there is no evidence of an improper censorial motive, the Arkansas tax burdens rights protected by the First Amendment by discriminating against a small group of magazines … which are the only magazines that pay the tax.” Calling this “selective taxation,” the court concludes that “its use here is even more disturbing … because the Arkansas statute requires official scrutiny of publications’ content as the basis for imposing a tax.” This, the court says, is “incompatible” with the First Amendment.
Least Restrictive Means Test: Government must have a compelling interest in restricting speech and even then it must employ the least restrictive means possible.
In 1989 in Sable Communications of Cal., Inc. v. FCC, the court recognized the government’s interest in protecting minors from “the influence of literature that is not obscene by adult standards,” citing Ginsberg v. New York (1968). But to serve this legitimate interest, and to withstand constitutional scrutiny, the government must do so by “narrowly drawn regulations designed to serve those interests without unnecessarily interfering with First Amendment freedoms.”
In terms of the stated purpose of S1507, providing funds to law enforcement to protect children from Internet pornography, a 25 percent tax on a particular subset of speech is arguably not the least restrictive means available. As Justice O’Conner pointed out in the Minneapolis Star & Tribune case, a general tax could raise the same funds for the same purpose without targeting non-obscene speech.
As the high court stated in Leathers v. Medlock (1991), “Absent a compelling justification, the government may not exercise its taxing power to single out the press … A tax is also suspect if it targets a small group of speakers. Again, the fear is censorship of particular ideas or viewpoints. Finally, for reasons that are obvious, a tax will trigger heightened scrutiny under the First Amendment if it discriminates on the basis of the content of taxpayer speech.”
All of these concerns are triggered by the language of S1507.
Excessive taxation: As early as 1819 in a seminal constitutional case, McCulloch v. Maryland, Chief Justice Marshall recognized that the power to tax was the power to destroy. Indeed, it was not until 1913 that the Sixteenth Amendment was ratified by the states, making the income tax constitutional and then it was no more than 7 percent paid by some 2 percent of the population.
In 1968 in Norfolk & W. R. Co. v. Tax Comm'n., in considering an ad valorem tax on fixed property and rolling stock of a railroad,the high court concluded that a state is obliged to provide evidence that its taxing power is confined to its constitutional limits. If it fails to do so and if the taxpayer has demonstrated that the tax is so excessive as to burden interstate commerce, the state has exceeded its powers.
Over-inclusive and Under-inclusive: Relying on Title 18, Section 2257 reporting to determine who to tax will omit much of the Internet with graphic content, including thousands of overseas sites, and will include many sites that are free and therefore have no gross income on which to base a tax. Because S1507 relies on 2257 definitions, sites featuring mere nudity, even if extremely graphic, would be unaffected. Additionally, there is no exclusion in the bill for sites offering sexually explicit educational information.
Unintentional consequences: Because Internet Websites are extremely mobile, it is likely that many U.S.-based sites would simply move off-shore to avoid paying the tax.
Analysis prepared by Kat Sunlove, M.A., Legislative Affairs Director, Free Speech Coalition, [email protected].
