STATE OF NEh' YORK STATE TAX COMMISSION In the Matter of the Petitlon of McGraw-Ilill, Inc.

AFFIDAVIT OF IIAILING

for Redeteroinatlon of a Deflclency or Revisl.on of a Deternlnatlon or Refund of Corporatlon Franchlse Tax under Artlcle(s) 9-A of the Tax Law for the Years Ended L2l3Il76, L2l3Ll77,

L z l 3 L l 7 8& L 2 l 3 L / 7 9 .

State of New York : ss. : County of Albany :

Davld Parchuck/Janet M. Snay, belng duly sworn, deposes and says that he/she ls an enployee of the State Tax Coumlsslon, that he/she ls over 18 years of age, and that on the 20th day of JuLy, L987, he/she served the wlthtn nottce of Declslon by certlfled nall upon McGraw-Itlll, Inc. the petltloner ln the wlthln proceedlng' by encloslng a true copy thereof in a securely sealed postpald wrapper addressed as follows: McGraw-Hlll, Inc. 1221 Avenue of the Amerlcas New York, Mf 10020 and by deposlting saoe enclosed in a postpald properly addressed wrapper ln a post offlce under the excluslve care and custody of the Unlted States Postal Servlce wtthln the State of New York. That deponent further says that the sald addressee ls the petltloner heretn and that the address set forth on sald wrapper ls the last knowrt address of the petltloner.

Sworn to before tre thls 20th day of July, 1987.

tzed to

STATE OF NEWYORK STATE TAX CO}NIISSION In the Matter of the Petltlon of McGraw-IlllL, Inc,

AFFIDAVIT OF MAILING

for RedeternLnatlon of a Deflclency or RevLslon of a DeternLnatlon or Refund of Corporatlon Franchlse Tax under Artlcle(s) 9-A of the Tax Law for the Years Ended L2/3L/76, I2l3Il77,

L2/31/78 & r2l3Ll7e.

State of New York :
SS. :

County of Albany

Davld Parchuck/Janet M. Snay, belng duly sworn, deposes and says that he/she ls an employee of the State Tax Conmlsslon, that he/she ls over 18 years of age, and that on the 20th day of July, 1987, he served the wlthln notlce of Declslon by certlfted of the nall upon Deborah M. Flanagan, the representatlve petltloner ln the wlthln proceedlng, b)r encloslng a true copy thereof ln a securely seaLed postpald wrapper addressed as foLlolts: Deborah M. Flanagan McGraw-Hill, Inc. 1221 Avenue of the Americas New York, NY 10020 and by deposltlng same enclosed ln a postpald properly addressed wrapper ln a post offlce under the excl-uslve care and custody of the Unlted States Postal Servlce nlthln the State of New York. That deponent further says that the sald addressee ls the representatlve of the petltloner heretn and that the address set forth on sald wraPper ls the last known address of the representative of che petltloner.

Sworn to before me this 20th day of Ju1y, 1987.

to nt to Tax

ster

STATE OF NEW YORK STATE TAX COMMISSION A L B A N Y , N E i ^ IY O R K L 2 2 2 7

JuLy 20'

1987

IlcGraw-Illll, Inc. 1221 Avenue of the Amerlcas New York, NY 10020

Gentlemen: Please take notlce herewlth. of the Declslon of the State Tax Conntsslon enclosed

You have non exhausted your rlght of revlew at the adnloistratlve level. Pursuant to sectlon(s) 1090 of the Tax Law, a proceeding Ln court to revlert an adverse declslon by the State Tax Counission may be lnstituted only under Artlcle 78 of the Clvll Practlce Law and Rulesr 8rd must be co'nmencedln the Suprene Court, of the State of New York, Albany County, wlthln 4 uonths fron the date of thls notlce. InquLrles wlth thls concernlng the conputatlon of tax due or refund declsion nay be addressed to: allowed ln accordance

NYS Dept. Taxatlon and Flnance Audlt Evaluatlon Bureau Assessuent Revlelr Unlt Bullding /19, State Campus Albany, New York 12227 Phone # (518) 453-43OI

Very truly

yours,

STATETAx COMMISSION
cc: Taxlng Bureaufs Representatlve Petltloner's Representatlve: Deborah M. Flanagan Inc. McGraw-Illll, 1221 Avenue of the Amerlcas New York, NY 10020

STATE OF NEWYORK STATE TAX COMMISSION

In the Matt,er of the Petltion of McGMI,I-HILL, INC. for Redetermlnation of a Deficiency or for Refund of Corporatlon FranchLse Tax under Artlcle 9-A of the Tax Law for the Years E n d e d D e c e m b e r3 1 , L 9 7 6 , D e c e m b e r3 1 , 1 9 7 7 , December 31, 1978 and December 31, 1979. DBCISION

Petltloner, York 10020, filed of corporation

McGraw-HlLL, Inc. r 1221 Avenue of the Americas, a petition for redetermlnation of a deflciency

New York, or for

New

refund

franchise

tax under Artlcle

9-A of the Tax Law for

the years

e n d e d D e c e m b e r3 1 , L 9 7 6 , D e c e m b e r3 1 , L 9 7 7 , D e c e m b e r3 1 , 1 9 7 8 a n d D e c e m b e r3 1 , L979 (Flle No. 53705). A hearing was held before Dorls E. Steinhardt, offices Hearing Offlcer, at the New by

of the State Tax Commission, Two Worl-d Trade Center, all- briefs

New York'

York, on January 30, 1986 at 9:15 A.M., with November 14, 1986. Petitioner

to be subnltted

appeared by Deborah M. Flanagan, Esq.

The Audlt

DLvlsion appeared by John P. Dugan, Esq. (Anne Murphy, Esq., of counsel).

ttrhether receipts

earned by petitioner

from sales of advertising or rather

durlng

the to

years ln lssue were alLocabl-e entirely New York only to the extent of the ratio sales.

to New York, estabLished

were al-locable

by comparing sales of

magazlnes ln New York to total-

FINDINGS OF FACT

1. Inc.,

On January 30, 1984, the Audlt Divislon statements of audic adjustment for

issued to petltloner,

McGraw-Hlll,

four

the tax yqars ended December 31,

-2-

L 9 7 6 , D e c e m b e r3 1 , L 9 7 7 , D e c e m b e r3 1 , 1 9 7 8 a n d D e c e m b e r3 1 , 1 9 7 9 ( r f t h e a u d l t perLodrr). petltioner Sinul-taneously, for the Audlt DlvLsion issued notlces amounts: Total Due of deficiency to

the sane tax years in the following Tax

Period Ended

Interest

L2l3rl76 r2l3L/77 t2/31/78 1 2 l3 r/ 7 9

2.

00 $ 1 0 8 , 0 9.2 1 9 7 ,1 7 0 . 0 0 180,719.00 177,703.00

for

$ 84,535.00 136,616.00 1 0 9 ,1 0 2 .00 9 1 , 4 3 5. 0 0

.OO $r92,627 333,786.00 289,820.00 2 6 9 ,1 3 8 . 0 0

on each of

The onJ-y explanation of audit audittt.

said deflciencles

whlch was llsted

the statements ttrecent fiel-d of limitation John L. Cady. asaessment for April

adJustment was that Petitioner

the deficlencles

were based uPon a the period

executed five all

consents extendlng

of the assessment of tax, The consents ultimately

slgned by senlor

vice-president, on

extended the perlod perlod

of linltation

each of the years ln the audlt

to any tlne

on or before

30, 1984. 3. Petitloner As part is in the business of, of thls actlvity, among other thlngs, publlshing

magazines.

petitloner

derlves

revenues from sales the audit which were tax due. whlch the

of adverti-sements appearlng perlod, allocable petltioner lncluded

in said magazines.

At alL tlmes durlng

revenues from the sales of advertising of the amount of franchise based upon the ratio

t,o New York ln the calculatlon calculated

However, petLtloner

the allocation

number of magazines delivered dellvered

in New York bore to the number of magazlnes The Audlt Divlslonfs posltlon ls that al-l-

in New York and elsewhere.

revenues from sales of advertising is negotlated 4. by petLtlonerrs Dlvlsion

by petitloner,

where the advertlslng must be allocated that

contract

New York offlces, and petitioner

to New York.

The Audit

stlpulated

the tyPe and degree to sollcit orders

of activities for

performed by petltlonerts does not affect

New York sales office

advertisements

the fee charged by petitioner

slgce. al-1

-3-

charges for

advertising

are ln conformity are detetnlned

with

publlshed entlrely with

rate

cards.

Said fees

for magazine advertiselrents clrculatlon.

alnost

by the magaziners and decreasee its

Thls fee fluctuates It

proportionately

increases

ln subscriptlons. contracts for

should be noted that originated other

petitioner

dld not deny that introduce

advertising anything

ln New York nor dtd lt lts recelpts

evldence

whlch indlcated

than that

were derlved

from New

York generated sales of advertising. 5. radio Petitioner contends that advertising that a 1979 amendment to the regulatl-ons should be applicable received to the instant for advertising accordlng concernlng situatLon. shoul-d be to the number the

and televlsion

Said regulation allocated

provided

the receipts

to New York State and another or viewers in each state.

state

or states

of listeners

Further,

petitloner

contende that of

1981 anendment to Tax Law S 210.3(a) (2) (B), providing perlodicals shall compute the receipts that attrlbutable

that publlshers

to the sale of advertlslng are deLlvered Finally, is to Petitloner ln

based on the extent points hrithln

such newspapers and perlodical-s Ls applicabLe

the State,

to the years in issue. notices

contends that vLolatlon

the basis of the Audit Dlvlsionrs and Fourteenth

of deflclency

of the First

Amendnents and the Comerce Clause of the

United States Constitution. 6. varlous Petitioner advertlsing submitted six affidavlts accounts on behalf stated that, signed by persons responslble for

of Business Week Magazine, a McGraw-Illll knowledge and bellef, the same as

publlcation,

which all

to the best of their

the advertisements those carried were wlthin

carried

by Business l{eek were substantiaLly for the same perlod.

by radlo the audit

and televlsion period.

A11 the periods

-4-

OF LAW CONCLUSIONS
A. That sectlon 210.3(a) of the Tax Law provldes buslness for the allocatlon to

New York of the corporate all-ocatlon tanglble B.

taxpayerrs

lncome by neans of a buslnegs factors: (1) real and

percentage conslstlng personaL property,

of the average of three and (3) wages. sectlon

(2) recelpts

That durlng the years at lssue hereln, that the recelpts factor

210.3(a) (2) ot the Tax

Law provlded

lras to be determlned by: of the

the percentage whl.ch the recelpts "(2> ascertalnlng taxpayer ... arLslng durlng such perlod fron (A) sales of lts tanglble personal are nade to polnts wlthln thls state' (B) servlces perforned wlthln property

where shipnents

the scate..., from the

(C) rentals from property sltuated, and royaltles and use of patents or copyrlghts wlthln the state...

(D) all other busl.ness recelpts earned wlthln the state, slnllarly bear to the total amount of the taxpayerrs recelpts, eonputed, arlslng durlng such perlod fron all sales of lts and all royaltles servlces, rentals, tanglble personal property, whether withln or wlthout the other busLness transactlons, state;'r . C. That sectlon 210.3(a) of the Tax Law was amended by Laws of 1981 to read as follows:

(ch 103, $ tllt2ltBl)

servlces perforned lrlthln the state, provlded, however, "(B) that ln the case of a taxpayer engaged ln the buslness of publlshlng recelpts arlslng from the sales of advertisenewspapers or perlodlcals, shall be attrlbutable ments contalned ln such newspapers and perlodlcals perlodlcals are dellvered only to the extent that such newspapers and polnts wlthln the state.tr to Thls amendmentto sectLon 210.3(a)(2)(B) beglnnlng D. on or after was made appllcable co taxable years to Prior years. other

January 1, L982, and ls not retroactlve fron the advertlstng sectlon eontracts

That the receipts

constltuted

buslness recelpts Petltloner

ln accordance wlth no evldence

210.3(a)(2)(D)

of the Tax Law. were negotlated

has provided

to show that

the contracts

-5-

or handled anywhere other durlng Inc. v.

than in New York.

Accordlngly,

said recelPts

earned

the years at issue were allocabl-e

to New York.

(Conde Nast Publlcatlonq

State Tax Cornmlsslon, 51 AD2d 17, lv denled 39 NY2d 842', Ylattex of

FairchlLd Publicatlons Divislon, July 15, 1983.) E. That petitionerrs

Capital Cltles Medla, Inc.,

State Tax Comlseion,

4-4.3(d) le of 20 NYCRR reliance upon the amendment

addresses ltself to ttIt]he

mlsplaced since sald amendmenttn 1979 speclficall-y broadcasting radio of radio and tel-evision antennaert.

programs and comnercial

messages by way of the

and televislon

Further,

said amendment does not vitlate and Finance clearLy

holding

in Conde Nast slnce the Department of Taxatlon the regulation to affect only the radlo

i-ntended for

and televlslon

broadcast

nedia.(SeeTSB-M-79[5]C,where1nthea11ocationof@rece1ptswith respect to the bustness allocatl-on F. That the constitutlonality in particuLar percentage is discussed.) of the laws of the State of New York and instances is presuned at the admlnistratl.ve

theLr appllcation level. G. notlces

That the petitlon of deficiency interest

of McGraw-Illll,

Inc.

is hereby denied and the four together with such

dated January 30, 1984 are sustalnedl as may be lawful-l-y owl-ng.

additlonal

DATED: Albany,

New York

STATE TAX COMMISSION

JUL 201987
PRESIDENT