Adult Entertainment Company Seeks Review of Decision Denying Amusement Tax Exemption

2. Whether the government can impose a differential amusement tax on expression based entirely on the content of performances without violating the First Amendment?

3. Whether the government can impose a differential amusement tax on expression based entirely on the arbitrary esthetic judgments of local officials?

The respondents, defendants below, are the County of Cook, an Illinois County, and the City of Chicago, an Illinois municipal corporation.

                          TABLE OF CONTENTS

The Memorandum Decision and Judgment of the Circuit Court of Cook County, Illinois (Mar. 21, 2003) is included at App. A-91. Its Memorandum Decision and Judgment (Aug. 9, 2005) denying reconsideration is included at App. A-77.

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging freedom of speech, or of the press; or the right of the people to peaceably assemble, and to petition the Government for a redress of grievances."

United States Constitution, Fourteenth Amendment:

"No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law * * *."

2. Effective January 1, 1999, the City and County amended their respective amusement tax ordinances to add "small venue" exemptions for "live theatrical, live musical or other live cultural performances" in spaces with a maximum capacity of 750 people. Cook County Amusement Tax Ordinance § 3(D)(1); Chicago Municipal Code § 4-156-020 (the "Small Venue Exemption"). To qualify for the tax exemption, such performances must involve "disciplines . . . commonly regarded as part of the fine arts, such as live theater, music, opera, drama, comedy, ballet, modern or traditional dance, [or] book or poetry readings." Cook County Amusement Tax Ordinance § 2; Chicago Municipal Code § 4-156-010.

The Small Venue Exemption specifically excludes "performances [] at adult entertainment cabarets" as defined by ordinance. The definition of "adult entertainment cabaret" is provided by cross-reference to the respective City and County zoning ordinances, which define such venues as any "establishment which features . . . entertainers who . . . [d]isplay or simulate the display of 'specified anatomical areas.'" Cook County Zoning Ordinance of 2001, art. 14.2.1. See Chicago Municipal Code § 16-16-030.

The County Small Venue Exemption's preamble recites that it reflects "the intent of the County Board to foster . . . live performances that offer theatrical, musical or cultural enrichment to . . . Cook County." Cook County Bd. of Comm'r's Resolution, Nov. 17, 1998, amending amusement tax ordinance. A City Council Journal entry on passage of its Small Venue Exemption similarly reflects the City's "wishes to foster . . . live performances that offer theatrical, musical or cultural enrichment[.]" Council Journal Entry, Nov. 12, 1998, amending § 4-156-020(D).

Pooh Bah claimed the Small Venue Exemption for the Club because its capacity is less than 750 patrons, and its featured entertainment includes "live theatrical, live musical, or other live cultural performances." The County denied the Club the Small Venue Exemption on grounds its dances are "performances conducted at adult entertainment cabarets." Pooh Bah has paid the tax under protest, and filed for refunds. (App. A-7, A-60.)

3. In 2001, Pooh Bah filed suit in Cook County Circuit Court seeking declaratory and injunctive relief against the County on grounds the Small Venue Exemption's exclusion of adult entertainment cabarets violates the First Amendment of the federal Constitution and the free speech clause of the Illinois Constitution. The City intervened as a party defendant because of the substantial similarity of its amusement tax exemption, and Pooh Bah amended the complaint to include constitutional claims against the City.¹ The City and County filed motions to dismiss, which the circuit court granted. Pooh Bah moved for reconsideration, which was denied. (App. A-8 - A-10, A-77 - A-114.)

On appeal, the Illinois Appellate Court reversed the circuit court decision on Pooh Bah's facial First Amendment challenge. It held that the Small Venue Exemption's exclusion of adult entertainment cabarets was a content-based differential tax on exotic dance and that applicable U.S. Supreme Court precedents do not allow such discriminatory, content-based taxation. The Appellate Court applied this Court's speech-tax line of cases, including Arkansas Writers' Project, Inc. v. Ragland, 481 U.S. 221 (1987), and Speiser v. Randall, 357 U.S. 513 (1958), and held the Small Venue Exemption was not content-neutral because determining whether a theatrical, musical or other performance constitutes "adult entertainment cabaret" depends on governmental review of the content of expression. (App. A-63 - A-70.) Applying strict First Amendment scrutiny, it also found no compelling state interest justified the discriminatory amusement tax exemptions. (App. A-70 - A-76.)

The Illinois Supreme Court issued an opinion on March 19, 2009 that reversed and remanded the Appellate Court decision and upheld the facial validity of the small venue exemption. (App. A-1 - A-54.) It found that this Court's First Amendment case law on differential taxation did not apply. Instead, it held the Chicago amusement tax exemptions were permissible "subsidies" of selected local live performances under Regan v. Taxation with Representation of Washington, 461 U.S. 540 (1983), Rust v. Sullivan, 500 U.S. 173 (1991), and National Endowment for the Arts v. Finley, 524 U.S. 569 (1998). It also reversed the Appellate Court's holding that the Small Venue Exemption's adult entertainment cabaret exclusion was content-based. In doing so, it equated the differential tax treatment based on medium of expression approved in Leathers v. Medlock, 499 U.S. 439 (1991), with the subject matter exemptions in the County's and City's ordinances. (App. A-42 - A-52.)

Finding it had "settled the first amendment issue," the Court upheld dismissal of Pooh Bah's facial freedom of expression claims, and remanded for the Appellate Court to consider Pooh Bah's remaining claims. Pooh Bah subsequently dismissed those claims and the Illinois Supreme Court decision is now final.

On June 8, 2009, Petitioner filed a consent application for an extension of time within which to file a petition for certiorari to, and including, July 17, 2009. That application was granted on June 12, 2009.

The decision below exploits the absence of direction in a way that further blurs the lines and threatens to obliterate the body of law governing discriminatory tax exemptions. Among other things, the Pooh Bah court misinterpreted Regan, Rust, and Finley to circumvent the rule of Arkansas Writers' Project and other speech-tax cases, and it distorted this Court's holding in Leathers with respect to the core meaning of content-neutrality. This coincides with a flurry of legislative activity at the state and local level and a growing number of conflicting decisions in lower courts. Review by this Court therefore is essential to clarify and preserve the First Amendment prohibition against content-based taxation.

Just as this Court has always understood that "the power to tax involves the power to destroy," McCulloch v. Maryland, 17 U.S. (Wheat.) 316, 431 (1819), it has long held the power to tax also includes the power to censor. Murdock v. Pennsylvania, 319 U.S. 105, 112 (1943) ("[t]he power to tax the exercise of a privilege is the power to control or suppress its enjoyment"). To be sure, generally applicable taxes may be levied on the press and entertainment industry, much as they are on any other business. However, this Court has characterized "special" taxes on expression as "a form of prior restraint on speech" and has regarded such taxes as inherently suspect. This Court has explained that such "obnoxious" taxes led to adoption of the First Amendment. Minneapolis Star, 460 U.S. at 583-84 & n.6 (citing Grosjean, 297 U.S. at 248).

Differential taxes on expression requiring strict First Amendment scrutiny fall into three distinct categories: (1) taxes that single out the press; (2) taxes that target a small group of speakers; and (3) taxes that discriminate based on the content of expression. Leathers, 499 U.S. at 447. See Grosjean, 297 U.S. at 250-51. Because the Framers of the Constitution deemed special taxes on the press as particularly suspect, there is "a heavier burden of justification" than usual in this context. Minneapolis Star, 460 U.S. at 583-84 n.6. Selective taxes on expression are invalid even where there is no apparent "impermissible or censorial motive." Id. at 592 ("Illicit legislative intent is not the sine qua non of a violation of the First Amendment.").

This Court has held consistently that these principles apply equally to discriminatory tax exemptions as well as to direct taxes. E.g., Speiser v. Randall, 357 U.S. 513, 518 (1958) ("[A] discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech."). In Minneapolis Star, the Court invalidated an exemption for the first $100,000 in paper and ink that treated some newspapers more favorably than others. 460 U.S. at 591-92. This principle was extended in Arkansas Writers' Project to invalidate a state sales tax exemption that benefited religious, professional, trade and sports magazines, among other publications. Arkansas Writers' Project, 481 U.S. at 229.

The Court acknowledged that the Arkansas scheme did not "single out" the press, but instead involved "a more disturbing use of selective taxation than Minneapolis Star, because the basis on which Arkansas differentiates between magazines is particularly repugnant to First Amendment principles: a magazine's tax status depends entirely on its content." Arkansas Writers' Project, 481 U.S. at 229 (emphasis in original). Using content "as the basis for imposing a tax is entirely incompatible with the First Amendment's guarantee of freedom of the press." Id. at 230. This Court has reaffirmed the principle that discriminatory tax exemptions violate the First Amendment.²

Applying this well-established body of law, numerous state decisions have struck down various types of content-based tax distinctions as unconstitutional. See, e.g., Ahlburn v. Clark, 728 A.2d 449 (R.I. 1999) (exemption for Bibles under state sales tax); H.J. Wilson Co. v. State Tax Comm'n, 737 So.2d 981 (Miss. 1998) (content-based tax exemption for newspapers); City of Fresno v. Press Commc'ns, Inc., 36 Cal. Rptr. 2d 456 (Cal. Ct. App. 1994) (tax on "general interest magazines" but not on newspapers, or religious, professional, trade or sports journals or magazines published in the state); City of Hallendale v. Miami Herald Publ'g Co., 637 So.2d 929 (Fla. Dist. Ct. App, 1994) (discriminatory tax on newspaper vending machines); Emmis Publ'g Corp. v. Indiana Dept. of State Revenue, 612 N.E.2d 614 (Ind. Tax. 1993) (tax exemption defining newspapers based on content subject to heightened First Amendment scrutiny); Department of Revenue v. Magazine Publishers of Am.; Inc., 604 So.2d 459 (Fla. 1992) (sales tax on secular magazines that exempted retail newspaper sales); Globe Newspaper Co. v. Comm'r of Revenue, 571 N.E.2d 617 (Mass. 1991) (sales tax scheme imposing differential tax on newspaper publishers); Newsweek, Inc. v. Celauro, 789 S.W.2d 247 (Tenn. 1990) (sales tax on news magazines that exempted newspapers containing general interest news and current events); Southern Living, Inc. v. Celauro, 789 S.W.2d 251 (Tenn. 1990) (same); Louisiana Life, Ltd. v. McNamara, 504 So.2d 900 (La. Ct. App. 1987) (sales tax exemption for newspapers but not magazines).

The Illinois Appellate Court below similarly applied these seemingly settled principles and found the selective exemption from the amusement tax violated the First Amendment. (App. A-62 - A-76.) It found that the case turned on "the third circumstance that triggers heightened scrutiny analysis under the first amendment -- that the tax discriminates on the basis of the content of the speech." (App. A-66.) In construing the exemptions for "fine arts" venues, as well as the exclusions for adult entertainment cabarets, the court observed that one cannot determine whether the exclusions apply to a particular small venue "without considering the content of the small venue's featured speech or expressive conduct." (App. A-69.) It concluded the government had failed to advance a compelling state interest that could justify "the content-based adult entertainment cabaret exclusions contained in defendants' amusement tax schemes." (App. A-75 - A-76.) The Illinois Supreme Court reversed, and adopted a starkly different analysis to uphold the tax exemptions. (App. A-42 - A-52.)

B. The Decision Below Exploits Confusion Between Cases Prohibiting Content-Based Taxes on Private Speech and Cases Permitting Government-Sponsored Speech

The Illinois Supreme Court did not dispute the lower court's reading of this Court's speech-tax jurisprudence, but based its holding on "which line of first amendment cases apply to the facts of this case." (App. A-14.) Sidestepping the differential tax cases altogether, it upheld the amusement tax exemptions under what it dubbed the "government speech/subsidy cases" of Regan, Rust, and Finley. It did so even though none of those cases involved tax exemptions determined by the content of expression. The ruling below tacitly adopted the reasoning of the dissent in Arkansas Writers' Project while purporting to "distinguish" the opinion of the Court.³

Implicit in the Illinois Supreme Court's reasoning is that if this Court's speech-tax cases do apply, then the Chicago tax scheme unquestionably must be invalidated. The state court's decision to avoid settled authority raises the question whether cases prohibiting discriminatory tax exemptions may be bypassed altogether by local governments and lower courts simply by re-branding as "subsidies" selective tax breaks for favored speech while ignoring the selective taxation of disfavored speech.

This Court has in other contexts made clear quite recently that constitutional limitations on taxation cannot be evaded merely by "redesignation." Polar Tinkers, Inc. v. City of Valdez, 557 U.S. __, 129 S.Ct. 2277, 2285 (2009). See also id. at 2283-84 ("Nor can Valdez escape application of the Clause by claiming that the ordinance imposes, not a duty or a tax, but a fee or a charge for 'services rendered' to a 'vessel,' such as 'pilotage,' 'wharfage,' 'medical inspection,' the 'use of locks,' or the like."). However, because this Court has never before addressed such a redesignation attempt to circumvent its speech-tax jurisprudence, the decision below threatens to spawn much confusion and to undermine well-established doctrine.

While it is surely true that, in some circumstances, content-based subsidies may present no constitutional problem, it does not follow that discriminatory, content-based tax exemptions can be reconciled with the First Amendment simply by characterizing them as "subsidies" of favored speech. The court below nevertheless reached that result by reading far too much into this Court's statement in Regan that tax exemptions "are a form of subsidy . . . administered through the tax system" that have "much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income." (App. A-9, A-17) (quoting Regan, 461 U.S. at 544) (emphasis added).

The Pooh Bah court glossed over Regan's admonition that "[i]n stating that exemptions and deductions . . . are like cash subsidies . . . we of course do not mean to assert that they are in all respects identical."⁴ In doing so, the court below committed the precise error this Court warned against, and concluded without qualification that "the tax exemptions in defendants' ordinances may be analyzed as subsidies." (App. A-38.) This erroneous equating of tax exemptions and subsidies is the linchpin of the decision below, one that starkly illustrates the "hazards of placing too much weight on a few words or phrases of the Court." Walz, 397 U.S. at 670.

Analytically, it is insufficient to assert that a tax exemption is "like" a subsidy or that it has "much the same effect." This Court has explained that "tax exemptions and subsidies serve similar ends, [but] they differ in important and relevant respects, and our cases have recognized these distinctions." Camps Newfound/Owatonna, 520 U.S. at 589. Because the Constitution bars discriminatory treatment, "there is a constitutionally significant difference between subsidies and tax exemptions," and even though "a direct subsidy . . . would be permissible, our cases do not sanction a tax exemption serving similar ends." Id. at 589-90. In striking down a discriminatory tax exemption in Speiser, this Court explained that "[w]hen we deal with the complex of strands in the web of freedoms which make up free speech, the operation and effect of the method by which speech is sought to be restrained must be subjected to close analysis and critical judgment in the light of the particular circumstances to which it is applied." Speiser, 357 U.S. at 520 (emphasis added).

In the particular circumstances presented here -- a tax exemption contingent on providing government-favored expression -- this Court has explained that "[t]o deny an exemption to claimants who engage in certain forms of speech is, in effect, to penalize them for such speech. Its deterrent effect is the same as if the State were to fine them for this speech." Id. at 518. See Perry v. Sindermann, 408 U.S. 593, 597 (1972) ("[I]f the government could deny a benefit to a person because of his constitutionally protected speech or associations, his exercise of those freedoms would in effect be penalized and inhibited."). Cf. Bullock, 489 U.S. at 14 ("Every tax exemption constitutes a subsidy that affects nonqualifying taxpayers, forcing them to become 'indirect and vicarious donors'"). Given the long history of speech-tax cases in which content-based discrimination is "presumptively unconstitutional," Minneapolis Star, 460 U.S. at 585, it is altogether too facile to rehabilitate preferential tax exemptions by calling them plain vanilla "subsidies." Cf. Polar Tankers, Inc., 557 U.S. __, 129 S.Ct. at 2284.

Contrary to the central premise of the decision below, this Court has never before equated content-based tax exemptions with subsidies or grants. Unlike taxes on expression, subsidies lack "the power to destroy." Such differential treatment in the tax context has always been considered "presumptively unconstitutional" because the complex burdens associated with taxation pose "too great a threat to concerns at the heart of the First Amendment." Minneapolis Star, 460 U.S. at 585, 589-90. As a consequence, this Court has applied an even stricter standard limiting taxes on expression than in other cases involving differential tax exemptions (such as in the Commerce Clause context) because "[w]hen delicate and cherished First Amendment rights are at stake . . . the constitutional tolerance for error diminishes drastically." Id. at 589 n.12.

The Illinois Supreme Court's erroneous reliance on Regan elevated dictum over substance. Regan did not approve a content-based subsidy. Instead, this Court held that an organization that engages in substantial lobbying activities may qualify for tax exempt status under Section 501(c)(4) of the Internal Revenue Code but not under Section 501(c)(3). Regan, 461 U.S. at 543. Thus, in Regan, the issue was not whether the group would qualify for a tax exemption. Id. at 544. Moreover, the provisions at issue involved tax deductibility by contributors, not tax exemptions for the organization itself.⁵

To be analogous to the tax exemption issue in this case, the Code provisions in Regan would have to have granted an exemption to organizations that lobbied on behalf of the fine arts, but not for other causes. However, this Court's holding in Regan could never be extended to approve such content discrimination.⁶ Under the line of cases culminating in Regan, content-neutral tax provisions designed to put "everyone in the community . . . on the same footing" are permissible, Cammarano v. United States, 358 U.S. 498, 513 (1959), but such provisions are entirely different from tax laws that "leave room for discriminatory denial of tax-exempt status." Big Mama Rag, Inc. v. United States, 631 F.2d 1030, 1034 n.7 (D.C. Cir. 1980). As this Court explained in Regan, "[t]he case would be different if Congress were to discriminate invidiously in its subsidies in such a way as to 'aim at the suppression of dangerous ideas.'" Regan, 461 U.S. at 548 (citation omitted).

The Illinois court's reliance on Rust is even more flawed. In that case, this Court expressly distinguished Minneapolis Star and Arkansas Writers' Project, which involved discriminatory taxes, from cases like Rust, which involved nothing more than conditioning expenditures for a government program. Rust, 500 U.S. at 194-97. Rust did not purport to limit or modify this Court's speech-tax jurisprudence, but held only that the government can exert control over its own programs and messages.⁷ As this Court later made clear in Rosenberger v. Rector and Visitors of the University of Virginia, 515 U.S. 819, 833-34 (1995), Rust was limited to situations involving "government speech," where the state is the speaker or when it enlists private entities to convey a government message.⁸

The Pooh Bah court's reliance on Finley is further removed from this Court's historic concerns about discriminatory taxation. Finley involved a facial challenge to a requirement that NEA grants take into consideration "general standards of decency and . . . the diverse beliefs and values of the American public" in addition to "artistic excellence and artistic merit." Finley, 524 U.S. at 572, 576. Such a competitive award program, in which seeking a grant is entirely voluntary and most are rejected, including "many that propose 'artistically excellent' projects," id. at 585, is a far cry from a tax scheme, which by its nature is compulsory, and where some speakers are favored with exemptions if their expression is "commonly regarded as part of the fine arts," as the Chicago ordinances provide. (App. A-4, A-44, A-49, A-58, A-115, A-118.)

The NEA program at issue in Finley received less rigorous constitutional review because, as this Court explained, "the Government [was] acting as patron rather than as sovereign."⁹Finley is inapposite to the tax scheme here because "assessment and computation of taxes [is] a primeval governmental activity." New Energy Co. of Ind., 486 U.S. at 277 (invalidating discriminatory tax exemption). Finley thus has no relevance to the speech-tax line of cases.

The Pooh Bah court's statement that Chicago was not acting "as a regulator" through its tax scheme is contradicted by the court's reliance on the assumption that adult entertainment cabarets "are known to have negative secondary effects." (App. A-16.) This stands as a stark admission that content-based taxation has a suppressive regulatory component. In any event, such considerations lend no support to the holding below. This Court has made clear that reference to zoning cases cannot support a content-based tax like the one at issue in this case. City of Los Angeles v. Alameda Books, Inc., 535 U.S. 425, 450-51 (2002) (Kennedy, J., concurring) ("a content-based tax may not be justified in this manner"). See also Forsyth County v. Nationalist Movement, 505 U.S. 123, 134-35 (1992) (possibility of secondary effects cannot justify differential fee on speech). See 729, Inc. v. Kenton County Fiscal Ct., 515 F.3d 485, 510 (6th Cir. 2008).

C. Unless Reversed, the Decision Below Will Provide a Roadmap for Evading the Rule Against Discriminatory Taxes on Speech

By discounting the obviously applicable speech-tax cases and instead embracing the government speech/subsidy line of authority, the decision below marks a path for state and local governments to evade this Court's holdings prohibiting discriminatory content-based taxes. The Illinois Supreme Court did not actually distinguish the speech-tax cases so much as "overrule" them from below by adopting an analysis identical to the dissenting opinion in Arkansas Writers' Project.

Under the theory of the Pooh Bah opinion, Illinois would be able to implement tax exemptions for publications dedicated to subjects "commonly regarded as part of the fine arts," while expressly excluding other selected subjects, so long as the enabling legislation labeled the tax scheme as a "cultural enrichment subsidy." This Court has held that any such scheme must be subjected to strict First Amendment scrutiny. Arkansas Writers' Project, 481 U.S. at 232 (rejecting state's characterization of discriminatory tax as a subsidy for "fledgling publications"). But under the doctrinal sleight of hand of the decision below, First Amendment scrutiny may be avoided entirely simply by structuring content-based taxes as exemptions for preferred expression and labeling the scheme a "subsidy program." (App. A-46 - A-49) ("defendants were entitled to make reasonable content-based distinctions in creating a program to subsidize the fine arts, and . . . they clearly have done so").

This question of constitutional law has become increasingly significant as states and local governments across the nation are considering, and some adopting, various content-based tax schemes. Whether motivated by the exigencies of the current financial crisis, hostility to erotic expression, or both, a growing number of legislatures are considering measures to impose special taxes on such speech.¹⁰ For example, the Louisiana Senate recently voted unanimously to extend a state tax credit to "family friendly" film productions in the state, but to deny such tax incentives to motion pictures "deemed harmful to minors" due to sexual content. S.B. 343 (2009).

Some state and local tax schemes have resulted in litigation in the lower courts, with mixed results.¹¹ In a case almost identical to this one, but without reaching the constitutional issues, the New York tax court reversed an initial finding of the Department of Taxation and held that an amusement sales tax exemption for "dramatic or musical arts performances" also applies to adult entertainment cabarets. 677 New Loudon Corp., d/b/a Nite Moves, DTA No. 821458 (N.Y. Tax App., Mar. 12, 2009) ("that the dance routines are seductive in nature and titillation of a patron is the outcome, simply does not render such dance routines as something less than choreographed performances, or remove them from the exception to the general rule of [the] Tax Law"). That decision, which is diametrically opposed to the ruling at issue here, is currently on appeal. 677 New Loudon Corp. d/b/a Nite Moves, Notice of Exception filed May 12, 2009. See also Combs, 2009 WL 1563549 (invalidating adult entertainment discriminatory tax on First Amendment grounds).

These developments suggest a pressing need for this Court to clarify the law governing discriminatory taxation of free expression. Without guidance from this Court, lower courts will continue to reach disparate results on this important question of constitutional law.

The Pooh Bah court conflated a distinction based on content with one based on the medium of communication when it held the exemption at issue "is as reasonable as denying cable television subscribers an exemption reserved for purchasers of magazines and newspapers." (App. A-51.) Citing Leathers, the court below concluded that the plaintiff "is simply presenting an entirely different type of activity than what defendants are subsidizing," and that the Chicago tax scheme "just as reasonably excluded adult entertainment cabarets as they did movie theaters." Id. This is not just wrong, it is unintelligible, and greatly distorts this Court's speech-tax jurisprudence. If not corrected by this Court, the Pooh Bah analysis will erroneously expand Leathers' reasoning to swallow the rule in Arkansas Writers' Project, which prohibits discrimination based on subject matter.

A. Chicago's Amusement Tax Exemptions Are Plainly Content-Based

The Chicago ordinances levy discriminatory taxes on live performances in small venues based entirely on the nature and substance of the performances. (App. A-4 - A-7) ("The seating capacity of plaintiff's establishment is less than 750 persons. At the establishment scantily clad (but not completely nude) women give live performances of exotic dancing."). The petitioner could operate the same venues and give live performances, attract the same size audiences, and even employ the same performers, but its tax burden is determined solely by the content of the shows. Such is hardly a difference in "medium" or "format" as the Illinois Supreme Court concluded. (App. A-47.) Where, as here, "[t]he speech in question is defined by its content," a discriminatory tax scheme "is the essence of content-based regulation." See United States v. Playboy Entm't Group, Inc., 520 U.S. 803, 811-12 (2000).

The Illinois appellate court correctly found that "the adult entertainment cabaret exclusions, on their face, discriminate based on content." (App. A-69.) Noting the operative language "excludes from the amusement tax small-venue exemption those amusements that are defined, insofar as applied to plaintiff, by semi-naked erotic performance art or expression," it concluded that "[o]ne cannot determine whether the operative criteria of the adult entertainment cabaret exclusions apply to a particular small venue without considering the content of the small venue's featured speech or expressive conduct." (App. A-69.) This is precisely the constitutional infirmity with content-based taxation this Court identified in Arkansas Writers' Project, 481 U.S. at 230 ("to determine whether a magazine is subject to sales tax, Arkansas' 'enforcement authorities must necessarily examine the content of the message that is conveyed'") (quoting FCC v. League of Women Voters of Cal., 468 U.S. 364, 383 (1984)).

The Illinois Supreme Court's decision reversing the appellate court is based on an utter distortion of this Court's speech-tax jurisprudence. Its effort to shoehorn the case into the "subsidy" line of authority cannot change the content-based nature of the tax exemptions. It is immaterial, for example, if Chicago authorities were only trying to promote the expression they favor rather than suppress speech they dislike, (App. A-47), because "[i]llicit legislative intent is not the sine qua non of a violation of the First Amendment." Minneapolis Star, 460 U.S. at 592. Nor is it relevant whether Chicago's tax exemptions sought to promote a particular viewpoint, (App. A-48), since "[t]he First Amendment's hostility to content-based regulation extends not only to restrictions on particular viewpoints, but also to prohibition of public discussion of an entire topic." Arkansas Writers' Project, 481 U.S. at 230 (quoting Consolidated Edison Co. v. Public Serv. Comm'n of New York, 447 U.S. 530, 537 (1980)).

This Court has made clear the government "cannot justify selective taxation of certain publishers" even if its purpose is simply to "foster communication" in the state. Id. at 232. The decision below cannot be reconciled with these basic principles. Review is necessary to forestall further confusion among lower courts.

B. The Amusement Tax Exemptions Upheld Below Sanction Discrimination Based on Value-Laden Esthetic Judgments

The Illinois Supreme Court's decision approved not only the ability of local officials to impose differential tax rates to different content, it approved such discretion based on the arbitrary esthetic preferences of government officials. The Pooh Bah court concluded that the Chicago ordinances "clearly set out the type of entertainment" that would receive a tax benefit to include "only the types of modern or traditional dance that are commonly regarded as part of the fine arts." It interpreted the exemptions as benefiting only "cultural" performances, which it defined as "relating to the artistic and intellectual aspects or content of human activity." (App. A-39 - A-40, A-46 - A-48, A-49 (citation omitted).) In applying this distinction between "cultural" and supposedly "low brow" performances, the court stressed that adult entertainment cabarets are subject to the full tax but that "[a]ctors who appear naked . . . in fine arts productions would clearly not fall within the scope of the . . . ordinance." (App. A-40.) To implement this scheme, Chicago taxing authorities needn't know much about art -- they just have to know what they like . . . and dislike.

The decision below undermines not just the established rule of the speech-tax cases that the government cannot discriminate based on content without a compelling justification, it also violates the bedrock requirement that authorities cannot impose their esthetic preferences on expression. As this Court has made clear, "a requirement that literature or art conform to some norm prescribed by an official smacks of an ideology foreign to our system." Hannegan v. Esquire, Inc., 327 U.S. 146, 158 (1946). This is because "[w]hat is good literature, what has educational value, what is refined public information, what is good art varies with individuals, as it does from one generation to another."¹²

In decision after decision, the Court has emphasized that "esthetic and moral judgments about art and literature . . . are for the individual to make, not for the Government to decree, even with the mandate or approval of a majority." Playboy Entm't Group, 529 U.S. at 818. The discriminatory tax scheme of the Chicago ordinances, approved by the Illinois Supreme Court, subverts these vital principles by exploiting confusion in the application of this Court's speech-tax jurisprudence. Review by this Court is essential.

July 17, 2009

² In Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989), this Court invalidated a sales tax exemption on Establishment Clause grounds because it applied only to religious publications. See also Leathers, 499 U.S. 439 (upholding as content-neutral a gross receipts tax applied to cable television and satellite video services, but not to revenue of newspapers and magazines).

³ (App. A-14, A-22 - A-24, A-42 - A-45, A-49 - A-51). Compare, Arkansas Writers' Project, 481 U.S. at 235-38 (Scalia, J., dissenting) ("Our opinions have long recognized -- in First Amendment contexts as elsewhere -- the reality that tax exemptions, credits, and deductions are 'a form of subsidy that is administered through the tax system. . . .'").

⁴ (App. A-37.) (quoting Regan, 461 U.S. at 544). The Pooh Bah court brushed aside qualifying language from Regan by noting the Court there cited Walz v. Tax Commission of the City of New York, 397 U.S. 664 (1970), an Establishment Clause case, and that plaintiff had relied on Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 589-590 (1997), a Commerce Clause case. But it gave no reason why these cases should be disregarded. This Court has stressed in cases involving the Commerce Clause that where "[d]irect subsidization of domestic industry does not ordinarily run afoul of [the constitutional] prohibition; discriminatory taxation . . . does." Camps Newfound/Owatonna, 520 U.S. at 591 (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)). This principle applies with even greater force in the First Amendment context. Minneapolis Star, 460 U.S. at 589 n.12. Nevertheless, the court below ignored this Court's proviso in Regan that it would be unwise to treat discriminatory tax exemptions and subsidies as identical.

⁵Regan, 461 U.S. at 543. This presents a far different First Amendment question that is separate from the tax status of the organization itself. See, e.g., Buckley v. Valeo, 424 U.S. 1, 20-21 (1976) (limitations on contributions for a third party to engage in expression are analyzed differently under the First Amendment than restrictions on expenditures by the speaker).

⁶See Rogan, 461 U.S. at 553 (Blackmun, J., concurring) ("Should the IRS attempt to limit the control these organizations exercise over the lobbying of their § 501(c)(4) affiliates, the First Amendment problems would be insurmountable.").

⁷Rust, 500 U.S. at 196. The Solicitor General's brief to the Court explained that "the government restrictions are not imposed on the grantee, but rather on the specific Title X project," and "Arkansas Writer's Project, which involves the special problem of 'a discriminatory tax on the press' . . . obviously has little relevance here." Brief of the United States in Rust v. Sullivan, Nos. 89-1391 and 89-1392, 1990 WL 10012655, at *22 (emphasis added).

⁸ Distinguishing both Rust and Regan, this Court explained that when the government creates a program to support private speakers, it may not impose "a speech-based restriction as its sole rationale and operative principle." Rosenberger, 515 U.S. at 834.

⁹Finley, 524 U.S. at 589. Citing Arkansas Writers' Project and Leathers, Finley acknowledged it would be unconstitutional if "the NEA were . . . to award subsidies on the basis of subjective criteria [that imposed] a penalty on disfavored viewpoints." Id. at 587.

¹⁰See, e.g.., S.B. 44, 95th Leg., Reg. Sess. (Mich. 2009) (proposed excise tax on adult entertainment facilities); S.B. 91 (09 LC37 0904S), 150th Gen. Assem., 1st Sess. (Ga. 2009) (proposed surcharge on sexually oriented businesses); A. 646, 2008-2009 Leg., 2009 Sess. (N.J. 2009) (proposed fee on sexually oriented businesses): A. 7126, 2009-2010 Leg., Reg. Sess. (N.Y. 2009) (proposed surcharge on sexually oriented businesses); A. 8158, 2009-2010 Leg., Reg. Sess. (N.Y. 2009) (proposed surcharge on sexually oriented media); H.B. 809, 106th Gen. Assem., 2009 Sess. (Texan. 2009) (proposed annual tax of 25% on sales of sexually oriented material); H.B. 2070, 81st Leg., Reg. Sess. (Tex. 2009) (proposed admission fee for certain sexually oriented businesses); H.B. 2291, 79th Leg., 1st Sess. (W. Va. 2009) (proposed tax on sale or rental of obscene materials); H.B. 2242, 80th Gen. Assem., 2d Sess. (Iowa 2004) (proposed 25% tax on "adult enterprises"): S.B. 821, 92nd Gen. Assem., Reg. Sess. (Mo. 2004) (proposed 5% tax on adult entertainment and services); H.B. 1532, 2005 Leg., Reg. Sess. (Okla. 2005) (proposed 10% tax on sexually explicit businesses); H.B. 2466, 2007-2008 Leg., 2007 Sess. (Kan. 2007) (proposed 10% tax on sexually explicit businesses); A.B. 1551, 2007-2008 Leg., Reg. Sess. (Cal. 2007) (proposed 8% tax on adult entertainment enterprises).

¹¹See, e.g., Big Hat Books v. Blackford County Prosecutor, 565 F. Supp. 2d 981, 994-995 (S.D. Ind. 2008) (striking down $250 assessment on sale of sexually explicit materials); Combs v. Texas Entm't Ass'n, Inc., __ S.W.3d __, No. 03-08-00213-CV, 2009 WL 1563549 (Tex. App. June 5, 2009) (invalidating five dollar per customer charge on patrons of live nude entertainment). See also 729, Inc., 515 F.3d at 510-11 (denying summary judgment to county that sought to impose discriminatory licensing fee on adult businesses). But see Bushco v. Utah State Tax Comm'n, Civ. No. 040911691 (Third Dist. Ct., Salt Lake County, July 3, 2007), appeal pending, No. 20070559-SC (Utah) (upholding ten percent gross receipts tax on sexually explicit businesses).

¹²Hannegan, 327 U.S. at 157. See Miller v. Civil City of South Bend, 904 F.2d 1081, 1098 (7th Cir. 1990) (en banc) (Posner, J., concurring) ("[A]esthetic quality cannot be the standard that judges use to determine which erotic performances can be forbidden and which cannot be."), rev'd on other grounds sub nom. Barnes v. Glen Theatre, Inc., 501 U.S. 560, 566 (1991).