Does charging sales tax on the paper and ink used to print a free community newspaper violate freedom of the press?

Plain-English summary

A member of the Maryland Senate asked the Attorney General whether the state's retail sales tax, as applied to the materials (like ink, paper, and photographic components) used to produce free publications such as shopping guides or community newsletters, violated the First Amendment's guarantee of freedom of the press. Under Maryland's tax scheme, publications sold to the public are taxed on their final sale price, with the underlying production materials exempt to avoid double taxation, while publications given away for free are not "sold" to anyone, so instead the tax falls on the materials used to make them.

The Attorney General concluded this scheme was constitutional. Drawing on a line of United States Supreme Court and Maryland Court of Appeals cases addressing taxes on the press, the opinion explained that a state may apply generally applicable economic regulation, including sales tax, to publications without running afoul of the First Amendment, but a tax becomes constitutionally suspect if it discriminates against the press as a whole or singles out particular publications, especially based on their content. Because Maryland's tax applies the same basic sale-or-materials framework across every type of publication and does not single out free publications, target any subject matter, or exempt some publications while singling out others for special burdens, the opinion found no constitutional problem, even though the practical effect is that free and for-sale publications end up taxed at different points in the production process.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why does Maryland tax the ink and paper used to make a free shopper's guide but not the ink and paper used to make a newspaper sold at a newsstand?
Because the sales tax only reaches an actual "sale," meaning a transfer of property for payment. A publication sold to readers gets taxed on its final sale price, with the production materials exempted to prevent double taxation, but a publication that is never sold has no sale to tax, so instead the underlying materials used to produce it are taxed. According to this opinion, that difference in timing does not amount to unconstitutional discrimination against free publications.

Does Maryland's separate sales tax exemption for newspapers make this scheme unconstitutional, since magazines and other publications don't get the same break?
The opinion concluded it does not. It noted the U.S. Supreme Court has never struck down a tax scheme merely because it exempts newspapers specifically, and that such exemptions have a long history in this country, while acknowledging the Supreme Court has left open exactly how far distinctions between different types of publications can go before becoming unconstitutional.

What kind of tax on publications would actually cross the constitutional line under this opinion's reasoning?
A tax that discriminates against the press as a whole compared to other businesses, or that singles out a narrow subset of publications for special burden, particularly based on their content, size, or circulation. The opinion pointed to prior Supreme Court cases striking down a tax paid only by a few large newspapers, a use tax on ink and paper that hit only a handful of publications, and an Arkansas sales tax that discriminated based on a publication's content, as examples of what does not survive First Amendment review.

Background and statutory framework

Maryland's Retail Sales Tax Act, Article 81, taxes most transactions where property is transferred for payment, §324(d), with the seller collecting the tax based on the sale price, §325(a). To prevent double taxation, materials used to produce an item that will itself be sold are exempt as intermediate goods, §324(f)(ii) and (iii), so the tax on a for-sale publication falls only on its eventual retail price. Publications that are given away are never "sold," so no sales tax applies to their distribution, but because they are not exempt intermediate goods either (since nothing downstream will be sold), the materials used to produce them remain taxable. The Act separately exempts newspapers meeting a Comptroller regulation's definition, which requires publication at least weekly and excludes shopping guides, community newsletters, and similar items, COMAR 03.06.01.05(2).

The opinion applied the constitutional framework set out in Minneapolis Star & Tribune v. Minnesota Commissioner of Revenue and Arkansas Writers' Project, Inc. v. Ragland: generally applicable, nondiscriminatory economic regulation may reach the press, but a tax that singles out the press as distinct from other businesses, or singles out particular publications (especially by content), must survive strict scrutiny. Reviewing Grosjean v. American Press Co. (invalidating a license tax paid only by large-circulation newspapers), Minneapolis Star (invalidating a use tax on ink and paper that fell on only a few publishers), and the Maryland Court of Appeals' decision in Baltimore v. A.S. Abell Co. (invalidating a tax limited to advertising sales revenue), the opinion found Maryland's scheme different in kind: it taxes all publications under the same materials-or-final-sale framework, does not examine content, and was not shown to burden any narrow group of publishers. The opinion also considered and rejected the argument that Maryland's separate newspaper exemption made the scheme unconstitutional, noting the Supreme Court in Arkansas Writers' Project had expressly declined to decide that question and had never invalidated a scheme solely because of a newspaper exemption, while flagging that a since-unadopted 1987 bill defining an "independent advertising publications" exemption by reference to a publication's content would likely have been constitutionally vulnerable had it passed.

Citations

Statutes:

• Article 81, §324(d) of the Maryland Code (retail sales generally subject to tax)
• Article 81, §325(a) of the Maryland Code (seller's duty to collect tax based on sale price)
• Article 81, §326(n) of the Maryland Code (newspaper exemption)
• Article 81, §324(f)(ii) and (iii) of the Maryland Code (exemption for intermediate goods to avoid double taxation)
• COMAR 03.06.01.05(2) (Comptroller's regulatory definition of "newspaper" for the exemption)

Cases:

• Macke Co. v. Comptroller, 302 Md. 18, 28 (1984)
• Minneapolis Star & Tribune v. Minnesota Commissioner of Revenue, 460 U.S. 575, 581-82 (1983)
• Grosjean v. American Press Co., 297 U.S. 233, 250 (1936)
• Baltimore v. A. S. Abell Co., 218 Md. 273, 288-89 (1958)
• Arkansas Writers' Project, Inc. v. Ragland, 107 S.Ct. 1722, 1726-28 (1987)
• Louisiana Life, Ltd. v. McNamara, 504 So. 2d 900 (La. App. 1987)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1987/Volume72_1987.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

TAXATION

Retail Sales Tax—First Amendment—Levying Of Sales Tax On Components Of Free Publications Does Not Violate First Amendment.

September 28, 1987

The Honorable Lewis R. Riley
Senate of Maryland

You have requested our opinion on whether the State's levying of sales tax on the components used in the production of free publications violates the First Amendment's guarantee of freedom of the press.

For the reasons stated below, we conclude that this application of the sales tax does not violate the First Amendment.

I
Transactions Subject to Sales Tax

A. Specific Exemptions

Under the Retail Sales Tax Act, most retail transactions in which title or possession of tangible personal property is transferred for a consideration are subject to tax. Article 81, §324(d).1 The seller is required to collect the tax from the buyer in an amount that is based on the price of the sale. §325(a).

In drafting the Retail Sales Tax Act, the General Assembly exempted various narrow categories of transactions, by reference either to the nature of the item or to the identity of those engaged in the transaction. For example, certain materials needed by farmers and watermen are exempt from the tax. §326(h), (v), and (y). The Act also exempts certain sales by charitable, educational, veterans', and senior citizen's groups; sales made to a nonprofit religious institution or organization; and sales by a bona fide church or religious organization when made for the general purpose of the church or religious organization.2

In general, publications are not exempt from the retail sales tax.3 One exception by type of publication is for the "printing and sales of newspapers of any and all types, and the sales of any photographic materials used in the composition and printing of newspapers." §326(n).4

B. Free items

In order to be subject to the retail sales tax, a transaction must involve a "sale," that is, a transfer of property for consideration. Therefore, the distribution of free goods to the ultimate consumer is not a taxable transaction under the Retail Sales Tax Act.

To avoid double taxation, the sale of an item to be "consume[d] . . . directly and predominantly" or "use[d] or incorporate[d] . . . as a material or part of other tangible personal property to be produced for sale by manufacturing, assembling, processing or refining" is not subject to tax. §324(f)(ii) and (iii) (emphasis added). See also §§326(dd) and (ff) (printers' products). If both intermediate goods and final products were taxed, the result would be improper double taxation. As the Court of Appeals has observed, "the purpose of Maryland's resale exclusion is to avoid the 'pyramiding' of taxes and to have the tax burden rest on only the final consumer of an item." Macke Co. v. Comptroller, 302 Md. 18, 28 (1984).

However, this rationale does not apply to the sale of intermediate goods used in producing items that are not intended for sale. In this case, the sale of the intermediate goods is taxable.

This approach to taxation is not exclusively directed at publications. However, as a consequence of it, materials used to produce publications for sale are not subject to tax; instead, the tax is assessed on the sale of the finished publication. Materials used to produce publications that are not to be sold are subject to the tax; subsequently, no tax is assessed on the free distribution of the finished publication.

II
First Amendment Considerations

A. Case law

In their consideration of the effect of the First Amendment on state taxation, the United States Supreme Court and the Maryland Court of Appeals have identified certain controlling principles. On the one hand, a state may subject publications to "generally applicable economic regulation without creating constitutional problems." Minneapolis Star & Tribune v. Minnesota Commissioner of Revenue, 460 U.S. 575, 581 (1983). See also Grosjean v. American Press Co., 297 U.S. 233, 250 (1936); Baltimore v. A. S. Abell Co., 218 Md. 273, 289 (1958). On the other hand, "a discriminatory tax on the press burdens rights protected by the First Amendment." Arkansas Writers' Project, Inc. v. Ragland, 107 S.Ct. 1722, 1726 (1987). Accordingly, it cannot stand unless it is "necessary to serve a compelling state interest and is narrowly drawn to achieve that end." 107 S.Ct. at 1728. See also Minneapolis Star, 460 U.S. at 582.5

Thus, the inquiry in this instance is whether the retail sales tax is a generally applicable, nondiscriminatory tax; or whether it impermissibly targets free publications as a group. In the words of the Court of Appeals, taxes on publications are unconstitutional if they are "so single in nature and the range of their impact is so narrow . . . that their effect makes them constitute a restraint upon the freedoms of speech and of the press . . . ." A.S. Abell, 218 Md. at 288-89.

The Supreme Court cases are instructive on the limits of constitutionally permissible differentiation. In Grosjean v. American Press Co., the Supreme Court invalidated a license tax that was paid by only a few large-circulation newspapers. Later, in Minneapolis Star, the Supreme Court invalidated a tax on the cost of ink and paper used in publications that, again, was imposed on only a few newspapers.6 Most recently, in Arkansas Writers' Project, the Supreme Court invalidated a sales tax that discriminated among publications based on content. In addition, in Baltimore v. A. S. Abell, 218 Md. 273, in a decision consistent with these Supreme Court cases, the Court of Appeals invalidated a tax levied only on the gross sales price of advertising space in publications, billboards, radio and television.

B. Applicability of Sales Tax to Free Publications

In our view, the Maryland Retail Sales Tax Act does not contain any of the infirmities identified in these cases. First, the tax does not discriminate among publications based on content.7 Second, we are not aware of any evidence suggesting that the sales tax was intended to, or has the effect of, impressing a special burden on a small group of publications. Any differential impact among types of publications reflects an across-the-board determination concerning the taxation of all intermediate goods. Therefore, the Retail Sales Tax Act does not uniquely single out any publication.

Nevertheless, it is true that transactions for goods used to produce free publications are subject to tax, while transactions for goods used to produce for-sale publications are not. Thus, there is some differential treatment resulting from the application of the tax. However, for-sale publications are also taxed, albeit based on the final sale. In effect, the retail sales tax targets different stages of the production process, but it does not exempt either type of publication entirely.

Nor, in our view, does the exemption for newspapers in §326(n) render the Maryland taxing scheme unconstitutional. In Arkansas Writers' Project, the petitioner argued that the Arkansas tax scheme violated the First Amendment because of the different treatment of newspapers and magazines. The Supreme Court expressly refused to decide whether such a distinction constituted a basis for invalidating the sales tax. Accordingly, while some uncertainty remains as to the range of permissible distinctions that may be made among publications, we think it fair to conclude that the Supreme Court does not view the First Amendment as precluding any kind of distinction among different types of publications. Indeed, the Supreme Court has not invalidated any taxing scheme because of the exclusion of newspapers from taxation. This type of exemption has a long and unique history in this country, and we believe that it would survive a constitutional challenge.8

III
Conclusion

In summary, it is our opinion that the Maryland Retail Sales Tax Act is constitutional as applied to free publications.

J. Joseph Curran, Jr., Attorney General
Carmen M. Shepard, Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

1 All statutory references in this opinion are to Article 81.

2 Exemptions of this type apply to sales made by hospital thrift groups, §326(hh); sales to nonprofit religious or educational institutions or organizations or volunteer fire departments or rescue squads, §326(i); and sales of food by churches, religious organizations, schools, colleges and hospitals, §326(b). See also §326(c), (i) and (u).

3 Certain publications are exempt as an incidence of other general exemptions. For example, sales of publications by religious organizations may be exempt when all sales by a religious organization are exempt from the retail sales tax. In addition, the statute exempts a few other types of publications. E.g., §326(oo) (sales of official government documents, records or publications); §326(tt) (catalogues distributed outside the State).

4 The Comptroller has adopted a regulation defining "newspaper" for purposes of this exemption. Among other criteria, a publication must be published at least once a week to qualify. A "shopping advertiser, community newsletter ... or other publication which is not a newspaper in the common and popularly accepted usage of the term, is not a newspaper for the purpose of this exemption." COMAR 03.06.01.05(2).

5 A tax can be discriminatory if it either treats the press differently from other business enterprises or singles out some publications for special tax burdens. Arkansas Writers' Project, 107 S.Ct. at 1727.

6 In Minneapolis Star, Minnesota exempted newspapers from its retail sales tax but imposed a different type of tax, a use tax, on ink and paper used specifically in publications. In addition, the state exempted the first $100,000 from taxation. In rejecting this scheme, the Supreme Court held that the use tax impermissibly singled out the press.

7 House Bill 1529 (1987 Session), if enacted, would have created an exemption for the components of "independent advertising publications," a category that, among other defining characteristics, was to exclude "house organs, publications of membership organizations, [and] instruction manuals." A classification of this kind would require an examination of the content of a publication at least in some instances, and in our opinion, would be vulnerable to a First Amendment challenge.

8 We are aware of one state decision that a newspaper exemption is unconstitutional. Louisiana Life, Ltd. v. McNamara, 504 So. 2d 900 (La. App. 1987). However, that case was decided prior to Arkansas Writers' Project and does not fully reflect the Supreme Court's analysis.