March 4, 1998
CRS Report for Congress
Received through the CRS Web
Tobacco Advertising: The Constitutionality of
Limiting its Tax Deductibility
American Law Division
Under the Internal Revenue Code, advertising is ordinarily deductible as a business
expense. 26 U.S.C. § 162. It has been proposed, however, that the deductibility of the
cost of advertising tobacco products be limited or eliminated. Since advertising is a form
of speech, this raises the question of whether such a limitation would violate the
provision of the First Amendment that “Congress shall make no law . . . abridging the
freedom of speech, or of the press . . . .” We conclude that it apparently would not. As
advertising is commercial speech, it is not entitled to the same level of First Amendment
protection as other speech, and to make it more expensive by limiting its tax deductibility
would apparently not violate the Central Hudson test that the Supreme Court applies in
determining whether governmental restrictions on commercial speech are constitutional.
Tax Deductions and Free Speech
The Supreme Court has held that Congress is not required to subsidize First
Amendment rights through a tax deduction, but that a First Amendment question would
arise if Congress were to discriminate invidiously in its subsidies in order to suppress what
it deemed dangerous ideas. In 1991, the Court wrote:
Regan v. Taxation with Representation of Wash., 461 U.S. 540 (1983),
stands for the proposition that a tax scheme that discriminates among speakers
does not implicate the First Amendment unless it discriminates on the basis of
ideas. In that case, we considered provisions of the Internal Revenue Code that
discriminated between contributions to lobbying organizations. One section of
the Code conferred tax-exempt status on certain nonprofit organizations that did
not engage in lobbying activities. Contributions to those organizations were
deductible. Another section of the Code conferred tax-exempt status on certain
other nonprofit organizations that did lobby, but contributions to them were not
deductible. Taxpayers contributing to veterans’ organizations were, however,
permitted to deduct their contributions regardless of those organizations’
Congressional Research Service ˜ The Library of Congress
The tax distinction between these lobbying organizations did not trigger
heightened scrutiny under the First Amendment. Id., at 546-551. We explained
that a legislature is not required to subsidize First Amendment rights through a
tax exemption or tax deduction. Id., at 546. For this proposition, we relied on
Cammarano v. United States, 358 U.S. 498 (1959). In Cammarano, the Court
considered an Internal Revenue regulation that denied a tax deduction for
money spent by businesses on publicity programs directed at pending state
legislation. The Court held that the regulation did not violate the First
Amendment because it did not discriminate on the basis of who was spending
the money on publicity or what the person or business was advocating. The
regulation was therefore “plainly not ‘“aimed at the suppression of dangerous
ideas.”’” Id., at 513, quoting Speiser v. Randall, 357 U.S. 513, 519 (1958).
Regan, while similar to Cammarano, presented the additional fact that
Congress had chosen to exempt from taxes contributions to veterans’
organizations, while not exempting other contributions. This did not change the
analysis. Inherent in the power to tax is the power to discriminate in taxation.
“Legislatures have especially broad latitude in creating classifications and
distinctions in tax statutes.” Regan, supra, at 547. . . .
Cammarano established that the government need not exempt speech from
a generally applicable tax. Regan established that a tax scheme does not
become suspect simply because it exempts only some speech. Regan reiterated
in the First Amendment context the strong presumption in favor of duly enacted
taxation schemes. . . . [T]he presumption of constitutionality can be overcome
only by the most explicit demonstration that a classification is a hostile and
oppressive discrimination against particular persons and classes. . . .
On the record in Regan, there appeared no such “hostile and oppressive
discrimination.” We explained that “[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.” Id., at 548. . . . But that was not the case.
The exemption for contributions to veterans’ organizations applied without
reference to the content of the speech involved; it was not intended to suppress
any ideas; and there was no demonstration that it had that effect. . . .1
Because, in Regan, “[t]he exemption for contributions to veterans’ organizations
applied without reference to the content of the speech involved,” the Supreme Court
applied a rational basis test in upholding the discrimination in favor of veterans’
organizations. It wrote:
Generally, statutory classifications are valid if they bear a rational relation to a
legitimate government purpose. Statutes are subjected to a higher level of
scrutiny if they interfere with a fundamental right, such as freedom of speech,
or employ a suspect classification, such as race.2
Leathers v. Medlock, 499 U.S. 439, 450-452 (1991).
Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547 (1983).
If Congress were to eliminate or limit the tax deduction for tobacco advertising
without doing the same for all advertising, then it would effectively be interfering with the
freedom of speech. It would not matter, from a First Amendment standpoint, that it would
make tobacco advertising more expensive rather than directly limit it, because the Supreme
Court has held “that differential taxation of First Amendment speakers is constitutionally
suspect when it threatens to suppress the expression of particular ideas or viewpoints.”3
“A statute is presumptively inconsistent with the First Amendment if it imposes a financial
burden on speakers because of the content of their speech.”4
Nevertheless, the speech whose freedom would be limited by limiting the tax
deduction for tobacco advertising would be commercial speech. This makes it probable
that such a limitation would be constitutional.
The Supreme Court has held that the First Amendment, notwithstanding its broad
language (“Congress shall make no law . . . abridging the freedom of speech”), is not
absolute. Some speech, such as obscenity, it does not protect at all.5 Other speech, such
as commercial speech, which is speech that “propose[s] a commercial transaction,”6 it
“accords a lesser protection to . . . than to other constitutionally guaranteed expression.”7
In Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, the
Court prescribed the test to be used to determine the constitutionality of governmental
restrictions on commercial speech. For such a restriction to be constitutional, it must meet
a four-prong test. This test asks initially (1) whether the commercial speech at issue is
protected by the First Amendment (that is, whether it concerns a lawful activity and is not
misleading) and (2) whether the asserted governmental interest in restricting it is
substantial. “If both inquiries yield positive answers,” then to be constitutional the
restriction must (3) “directly advance[ ] the governmental interest asserted,” and (4) be
“not more extensive than is necessary to serve that interest.”8
In Board of Trustees of the State University of New York v. Fox, the Supreme Court
made it easier for the government to satisfy the fourth prong of the Central Hudson test.
It held that the fourth prong is not to be interpreted “strictly” to require the legislature to
use the least restrictive means available to accomplish its purpose.9 Instead, the Court held,
legislation regulating commercial speech is to be upheld if there is a “‘fit’ between the
Leathers v. Medlock, supra note 1, at 447.
Simon & Schuster, Inc. v. Members of the New York State Crime Victims Board, 502 U.S.
105, 115 (1991).
Miller v. California, 413 U.S. 15 (1973).
Board of Trustees of the State University of New York v. Fox, 492 U.S. 469, 473 (1989).
Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S.
557, 563 (1980).
Id. at 566
Fox, supra note 6, at 476.
legislature’s ends and the means chosen to accomplish those ends,” — “a fit that is not
necessarily perfect, but reasonable . . . .”10
Applying the Central Hudson Test
The first prong of the Central Hudson test asks whether the advertising being limited
concerns a lawful activity and is not misleading. Tobacco advertising is lawful (except “on
any medium of electronic communication subject to the jurisdiction of the Federal
Communications Commission”11), and we will presume that only non-misleading
advertising is at issue, as misleading advertising is already illegal under § 5 of the Federal
Trade Commission Act.12
The second prong of Central Hudson asks whether the asserted governmental interest
in restricting it is substantial. The purpose of limiting the tax deductibility of tobacco
advertising presumably would be to increase its cost, in order to reduce the amount of
such advertising, in order to reduce the demand for tobacco products, in order to reduce
the incidence of tobacco-related illnesses. The Supreme Court has held that the
government’s “interest in the health, safety, and welfare of its citizens constitutes a
‘substantial’ governmental interest.”13
The third prong of Central Hudson asks whether the restriction on commercial
speech directly advances the governmental interest asserted. The Supreme Court has
found reasonable the view that restricting advertising directly advances the asserted
governmental interest by reducing the demand for the product advertised.14 The Court
has also held, however, that the government “must demonstrate that the harms it recites
are real and that its restriction will in fact alleviate them to a material degree.”15 With
respect to restrictions on tobacco advertising that the Food and Drug Administration
proposed, it concluded “that tobacco advertising plays a concrete role in the decision of
minors to smoke, and that each specific restriction on this advertising that it is adopting
will contribute to limiting its effect and thus to protecting the health of children and
adolescents under the age of 18."16 If this is true, then the advertising restrictions would
apparently satisfy the third prong of the Central Hudson test.
The fourth and final requirement of the Central Hudson test is that there be a
reasonable “fit” between the legislature's ends and the means chosen to accomplish those
Id. at 480. The Court does “not equate this test with the less rigorous obstacles of rational
basis review." Florida Bar v. Went For It, Inc., 515 U.S. 618, 632 (1995). In other words,
although a restriction on commercial speech need not constitute the least restrictive means to satisfy
the fourth prong, it must be more than merely rational.
15 U.S.C. § 1335.
15 U.S.C. § 45.
Posadas de Puerto Rico Associates v. Tourism Company of Puerto Rico, 478 U.S. 328,
Id. at 341-342.
Edenfield v. Fane, 507 U.S. 761, 771 (1993).
61 Fed. Reg. 44,474 (1996).
ends.17 In light of the fact that limiting or eliminating the tax deduction for tobacco
advertising would not directly limit tobacco advertising itself, it appears likely that it
would be found a reasonable means to accomplish the end of reducing smoking.
Would it constitute unconstitutional discrimination if Congress were to limit or
eliminate the tax deduction for tobacco advertising but not for other product advertising,
or at least for advertising of other dangerous products? A law review article concedes that
elimination of the tax deduction for tobacco advertising “may arguably pass constitutional
muster under the Central Hudson test,” but nevertheless concludes that it would constitute
unconstitutional viewpoint-based discrimination.18 The article claims that “the Court, in
Central Hudson, did not address the issue of viewpoint distinctions. This type of analysis
is therefore inappropriate in the context of the Harkin Amendment,19 where the restriction
on commercial speech is content-based. . . . Based on this fact, the Harkin Amendment
is unconstitutional because the First Amendment does not allow the government to single
out any form of speech and suppress it because of its content.”20
The law review article’s analysis appears confused on this point. To say that a
restriction on advertising is viewpoint-based or content-based is to say merely that it
applies to advertisements for particular products — that it restricts, or imposes additional
costs on, what one may say in advertisements about a particular product or products
rather than with respect to all advertisements. Viewpoint-based advertising restrictions
might be contrasted with, for example, zoning restrictions on billboards that apply to all
advertisements regardless of content.
Central Hudson, contrary to the claim in the law review article, did in fact involve
viewpoint-based discrimination, as it concerned a regulation that prohibited electric utilities
from advertising to promote the use of electricity, but did not prohibit electric utilities or
anyone else from advertising any other products.21 The Supreme Court declared the
regulation unconstitutional, but not because it constituted viewpoint-based discrimination.
Rather, it declared it unconstitutional because it failed the new test that the Court created
in that case: the Central Hudson test. The Central Hudson test is the test that the
Supreme Court has mandated for determining the constitutionality of governmental actions
that restrict commercial speech, whether on the basis of viewpoint or otherwise.22
Fox, supra note 6, at 480.
Sally L. Venverloh, The Harkin Amendment: The Constitutionality of Limiting Deductions
for Tobacco Advertising, 13 St. Louis University Public Law Review 787, 818 (1994).
S. 609, 103d Cong. (1993), which would have permitted tobacco companies to deduct only
50 percent of their tobacco advertising expenses.
Venverloh, supra note 18, at 817-818.
Central Hudson, supra note 7.
Among the numerous cases involving advertisements that may be viewed as viewpointbased to which the Supreme Court applied the Central Hudson test are Bolger v. Youngs Drug
Products Corp., 463 U.S. 60 (1983), which struck down a ban on mailing unsolicited
In conclusion, it appears that the courts would assess the constitutionality of limiting
or eliminating the tax deduction for tobacco advertising under the Central Hudson test and
would likely find it not to violate the First Amendment.
advertisements for contraceptives; Posadas, supra note 13, which upheld a restriction on
advertisements for casino gambling; Ibanez v. Florida Board of Accountancy, 512 U.S. 136
(1994), which struck down a restriction on advertising by accountants; Florida Bar, supra note
10, which upheld a restriction on lawyer solicitation;and 44 Liquormart, Inc., v. Rhode Island, 116
S. Ct. 1495 (1996), which struck down a restriction on alcoholic beverage advertising.