Local news organizations are vital to a well-functioning democracy. But they struggle financially and many fail, creating local news deserts. Some legislators believe that tax breaks for local news organizations may help.
This sounds reasonable. It might even feel fair. But legislative efforts at the national and state levels have not yet been successful. Why?
Some historical context.
Court cases (and protests) have established that while newspapers are not immune from ordinary forms of tax, they cannot be subject to discriminatory taxes.
The history of the United States is replete with challenges to tax the newspapers. Do you remember the Stamp Act of 1765? It allowed the British to tax all official papers and documents (including newspapers) in the American colonies but not in England. Colonists protested, helping to lay the groundwork for the American Revolution.
In 1936, the US Supreme Court repealed Louisiana’s 2 percent license tax in newspapers with a weekly circulation of more than 20,000, newspapers that turned out to be critical of then-Governor Huey Long.
In 1983, the High Court repealed Minnesota’s “use tax” on the cost of paper and ink for periodicals in excess of $100,000 a year. The tax would have applied to only 11 publishers, and most would have been paid by just one, He Minneapolis Star Tribune.
And in 1987, the the court struck down an Arkansas law which exempted some publications from the state sales tax, but not others.
No state currently charges a general sales tax on newspaper purchases, but Delaware, New Mexico, and Washington do charge a tax on publishers’ gross receipts. In fact, recent efforts are focusing on reducing the taxes paid by newspapers.
Two years ago: The Build Back Better effort failed.
President Biden’s initial Build Back Better Act would have allowed newspapers, digital news outlets, and radio and television stations, including networks that employ thousands, to claim a federal payroll tax credit up to $25,000 in the first year and $15,000 in years two through five. would have cost $1.67 billion for the next five years.
The measure did not survive. One complaint was reminiscent of the Huey Long era. Louisiana Republican Representative Steve scalise said the tax break was an effort by Democrats to help “pay the salaries of the reporters who cover them.”
And last week in Virginia: the income tax credits also failed.
Democratic Del. Alfonso Lopez introduced Bill 2061 last month, which would have created a non-refundable state tax credit for local newspaper publishers equal to 10 percent of the salaries paid to local journalists, up to $5,000. After the first year, the credit would have dropped to 5 percent of wages, up to $2,500. Total appropriations in the five-year program would have been capped at $5 million annually.
The bill would also have given local businesses with fewer than 50 employees a tax credit for advertising in a local newspaper, radio or television station.
Last week, the bill could not advance of a House committee.
Washington state has another idea.
Since 2009, qualified newspaper printers and publishers in Washington state have been eligible for a reduced business and occupancy (B&O) tax rate of 0.35 percent, compared to the standard rate of 0.484 percent. The reduced rate expires on July 1, 2024. (Washington’s B&O tax is essentially a gross income tax.)
Last month, the state’s attorney general, Bob Ferguson, and Democratic lawmakers, Sen. Mark Mullet and Rep. Gerry Pollet, proposed replacing that rate reduction with a tax deduction. He bill would allow Washington newspapers and online news outlets eligible for deduct posting costs of your B&O tax.
The backers insist the deduction would be substantial enough to help local news organizations, but not excessive. B&O rate reduction reduces state revenue by less than $500,000 in the current budget cycle. The cost of income from the proposed deduction is unknown.
The bill has been referred to the legislature’s Ways and Means committee.
But these tax breaks can be too specific…or one-sided.
Judge Thurgood Marshall said“The power to tax differentially, as opposed to the power to tax in general, gives the government a powerful weapon against the selected taxpayer.”
Tax breaks for struggling local newspapers may not be the kind of discriminatory tax treatment rejected by the Supreme Court, but they do raise the question: Is it good for democracy and its free press for local newspapers and journalists to receive financial assistance from the government? What are they? Do you have a mission to cover independently?
“follow the money,” after all.
There are other options that focus on the demand side of the newspaper industry market. Could tax benefits, such as exemptions or deductions, encourage more people to subscribe to local news?
Business readers can now deduct the cost of newspaper subscriptions from their federal income tax. But should budgets accommodate more exceptions to your tax bases? They could, but if tax revenues fall too much, those exceptions could go away or rates could go up.
Maybe there is a better way.
Local newsrooms may seek a different organizational structure, one that does not rely on subscribers or advertisers. can become non-profit, tax-exempt newsroomsWhat The Texas Tribune either The Colorado Independent.
Tax exemption is also a tax benefit, but as a tax-exempt organization, a newsroom must disclose its financial information and other records to the public. That increases transparency and accountability.
Tax-exempt newsrooms are not organized to serve shareholders. Unlike private newsrooms that can be incorporated “for any lawful purpose,” the IRS requires that an incorporated nonprofit newsroom serve a specific charitable purposethat is, “educational”.
To fulfill your purpose, you must seek funding from foundations and other donors, which provides a more stable stream of income while building and maintaining community engagement. Time a non-profit newsroom can reflect the ideology of its benefactors, readers who want access to local news and reports may find it worth the risk.
While seeking tax-exempt nonprofit status can take significant time and resources, the result could be the best fit for local news. And it might be our best bet for a truly independent and free press.
Follow the money, in fact.
the tax houndPublished once a month, it helps make sense of tax policy for those outside of the tax world by connecting tax issues to everyday concerns. Do you have a question or an idea? Email Renu.
