Cox Cable Hampton Roads, Inc. v. City of Norfolk

Citations: 410 S.E.2d 652; 242 Va. 394; 19 Media L. Rep. (BNA) 1656; 8 Va. Law Rep. 1330; 1991 Va. LEXIS 159Docket: Record 910207

Court: Supreme Court of Virginia; November 8, 1991; Virginia; State Supreme Court

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Cox Cable Hampton Roads, Inc. and subscribers John Patrick Teixeira and William Robert Wilson challenged the City of Norfolk's ordinance that imposed a utility tax on cable television service, seeking a declaration of its invalidity and injunctive relief. The City filed demurrers, which were consolidated in trial court proceedings. Cox Cable argued that the City lacked legislative authority under Virginia law to impose such a tax, that the ordinance violated their First Amendment rights, and that it infringed upon their Equal Protection rights under the Fourteenth Amendment. The trial court dismissed the Equal Protection claim but proceeded with the other claims.

The facts were accepted as true for the purpose of the demurrer, which included the existence of a 15-year franchise agreement between Cox Cable and the City, approved by the Norfolk City Council on July 25, 1989. On May 22, 1990, the City enacted the ordinance allowing a utility tax rate of seven percent on cable television services. Cox Cable contended that Norfolk did not receive authority from the Virginia General Assembly to impose this tax, while the City argued that § 2(1) of its Charter provided a general taxing authority for such imposition, allowing the City to raise necessary funds through taxes and assessments, in accordance with applicable state and federal laws.

The Court has consistently interpreted language similar to that in the Norfolk City Charter, affirming that the General Assembly has granted municipalities the general power of taxation. In *Norfolk v. Norfolk Landmark Pub. Co.*, it was determined that the City of Norfolk could impose a license tax under its Charter, which explicitly allows the city council to raise necessary funds through taxes. This power encompasses all taxation authority possessed by the legislature, permitting the city to tax any subject within its jurisdiction unless specifically exempted by the legislature. Similarly, in *Fallon Florist v. City of Roanoke*, the Roanoke City Charter, containing identical language, was found to confer the general power of taxation.

The Court concludes that § 2(1) of the Norfolk City Charter grants the City the authority to impose a tax on cable television service. Cox alleged a violation of First Amendment rights, claiming the ordinance unfairly targeted cable television without compelling governmental interest. The trial court rejected this claim, emphasizing that the tax was uniformly applied to all public utilities, including cable service. Citing *Minneapolis Star v. Minnesota Comm'r of Revenue* and *Arkansas Writers Project, Inc. v. Ragland*, the court noted that economic regulation does not violate First Amendment rights when it is generally applicable to all businesses. The Supreme Court's decision in *Leathers v. Medlock* reinforced this view, stating that taxing First Amendment speakers is constitutionally questionable only when it threatens to suppress specific ideas, necessitating a compelling governmental interest to justify such taxation.

The excerpt outlines the legal reasoning regarding the constitutionality of a tax affecting First Amendment speakers. It distinguishes between taxes that specifically target the press, a small group of speakers, or are content-based, referencing cases like Grosjean v. American Press Co. and Minneapolis Star. The Supreme Court ruled in Leathers that the sales tax in question did not apply solely to the press, as it was a general tax affecting all cable systems in the state, not just a select few. The tax did not discriminate against a small group of First Amendment speakers, as it applied uniformly to around 100 cable companies, and was not based on content. 

The Court dismissed claims of First Amendment violations due to the tax's differential treatment of cable versus satellite services, asserting that such a distinction did not constitute discrimination. Cox's argument that the local tax on Cox Cable could only apply to a single company was rejected, as the ordinance was applicable to all potential cable companies in the city. The Court emphasized that a tax structure must raise suspicions of interfering with First Amendment rights to be considered unconstitutional, which was not the case with the Norfolk ordinance. Thus, the tax did not violate First Amendment rights or the Virginia Constitution.

Cox Cable contends that the trial court incorrectly upheld the City's demurrer to its Equal Protection claim. The basis of Cox Cable’s claim is that Satellite Master Antenna Television Systems (SMATV), which serve numerous hotels in the City, provide television programming nearly identical to that of Cox Cable, yet are exempt from a utility tax imposed by the City. Cox Cable argues there is no compelling governmental interest justifying the tax on its services while exempting SMATV. The City defended its tax classification by asserting that SMATV is a type of cable television service, thus justifying the tax on both entities.

Referencing Portsmouth v. Citizens Trust, the court highlighted that equal protection does not necessitate identical treatment but does require that classifications be based on genuine differences relevant to their purpose, avoiding arbitrary distinctions. The court concluded that Cox Cable presented sufficient allegations that the tax ordinance creates an unjust classification, warranting a trial on the merits to evaluate these claims. Consequently, the trial court's decision to sustain the demurrer to Cox Cable’s Equal Protection claim was reversed and remanded for further proceedings, while all other aspects of the trial court's judgment were affirmed.