MoFo New York Tax Insights - Volume 5, Issue 4 - April 2014

In This Issue:

City ALJ Holds First Amendment Requires Exercise of Discretionary Authority for Sourcing Receipts from Providing Credit Ratings; Tribunal Affirms Partial Day Count for Statutory Residency Purposes; ALJ Finds Taxpayers Participated in an “Abusive Tax Avoidance Transaction”; Tax Department Clarifies Availability of Resale Exclusion to Cable and Satellite TV Providers in Light of EchoStar Decision; Judge Rejects Connecticut Couple’s Constitutional Challenge to New York Taxation of Stock Option Income; and Insights in Brief.

City ALJ Holds First Amendment Requires Exercise of Discretionary Authority for Sourcing Receipts from Providing Credit Ratings -

Although state local tax cases are often decided on constitutional grounds, very few are decided under the First Amendment of the U.S. Constitution, which involves freedom of the press. A recent decision by the Chief Administrative Law Judge of the New York City Tax Appeals Tribunal holds that First Amendment principles required that the City exercise its discretionary authority to adjust a corporation’s receipts factor under the general corporation tax. As a result, a New York Citybased credit rating agency was permitted to source its receipts from furnishing credit ratings using an “audience-based” methodology on the grounds it should be entitled to use the same sourcing method as other “publishers.” Matter of The McGraw-Hill Companies, Inc., TAT(H) 10-19 (GC) et al., (N.Y.C. Tax App. Trib., Admin. Law Judge Div., Feb. 24, 2014). The decision is noteworthy for being one of the few cases where a taxpayer successfully invoked the Commissioner’s discretionary authority, and particularly for its consideration of First Amendment protections in determining how that discretionary authority should be invoked.

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