WASHINGTON -- The U.S. Supreme Court yesterday again dismissed a case Tennessee officials had hoped would restore the validity of the state's sales tax, a move that may cost the state at least $6 million in refunds.
Without comment, the court's justices denied a request by Tennessee officials that the high court reconsider its April 22 order declining review of the case, Revenue Commissioner v. Newsweek.
Last year, the Tennessee Supreme Court ruled the tax unconstitutional because newspaper sales are exempt but magazine sales are not. The state court said the levy "targets individual publications within the press" in violation of the U.S. Constitution's free press guarantees.
Tennessee officials have been caught in a confusing legal cross fire since mid-April. Then, the U.S. Supreme Court in an Arkansas case, Leathers v. Medlock, held that states may tax cable television services while exempting newspapers without violating the First Amendment -- a ruling that would appear favorable to the Tennessee sales tax.
But the following week, the high court denied Tennessee's petition for review, leaving the Tennessee Supreme Court's ruling intact. It also directed the Florida Supreme Court to reconsider a ruling invalidating a state levy that taxed magazines but not newspapers and declined to review an Iowa Supreme Court ruling upholding the constitutionality of that state's sales tax, which also taxed magazines but not newspapers.
Tennessee officials petitioned the court for a rehearing -- an often invoked but rarely granted procedure for plaintiffs who believe they were shortchanged by the court attempt to have their cases reviewed -- and pointed out the apparent inconsistencies of the court's action. But as usual, the court denied the petition.
"It is a strange position they've put us in," a state lawyer said.
A spokeswoman for the Tennessee attorney general's office said officials will review the situation and discuss options with the state revenue commission. She did not elaborate, but one lawyer said the state could go back to the state supreme court and ask for a reconsideration in light of the Leathers ruling.
As courts sort out what taxes may be constitutional imposed on media outlets, state officials are anxiously awaiting the high court's ruling in James B. Beam Distilling Co. v. Georgia. That case, which will decide whether the state owes the liquor distiller $2.4 million in tax refunds, could unhinge state treasuries across the country.
Should the court adopt a blanket retroactivity rule requiring refunds of any unconstitutional taxes, states could be hit for an estimated $6 billion to $15 billion.
The Beam case was argued Oct. 30, making the dispute the oldest still before the court. The length of time the matter has been under review suggests the court may be struggling in an attempt to craft a new rule on retroactivity. Last year, the court ruled refunds may be necessary when taxes are collected under statutes later deemed unconstitutional, but that refund liability may be limited when the states had relied on Supreme Court precedent.
The court is slated to return to the bench Thursday to issue opinions.
