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Stahlbrodt v. Commissioner of Taxation and Finance of State of N.Y., 92 N.Y.2d 646, 707 N.E.2d 421, 684 N.Y.S.2d 466, 1998 N.Y. Slip Op. 11282

Facts

Plaintiff-appellant Stahlbrodt published 'The Shopping Bag,' a weekly advertising paper in Monroe County, claiming it qualified for a sales tax exemption under Tax Law § 1115(i). After an audit, the State Department of Taxation and Finance assessed sales taxes on Stahlbrodt's printing services, concluding that the publication did not meet the requirement that advertising not exceed 90% of the printed area. Stahlbrodt, along with his successor, challenged the validity of the 90 percent rule under the First Amendment and the Equal Protection Clause.

Plaintiff Stahlbrodt, during the pertinent tax assessment period, published and distributed free of charge in Monroe County “The Shopping Bag,” a weekly advertising paper which he claimed qualified for a sales tax exemption on purchases of printing services as a “shopping paper” under Tax Law § 1115(i). After auditing The Shopping Bag, the State Department of Taxation and Finance disagreed, and assessed sales taxes on the printing services that plaintiff had purchased in publishing the paper.

Issue

Did the 90 percent rule in Tax Law § 1115(i)(C) violate the First Amendment rights of the taxpayer by discriminating based on content?

On this appeal, plaintiff has restricted his attack on the constitutionality of Tax Law § 1115(i)(C) to one ground: that, in making entitlement to the shopping paper sales tax exemption turn on whether advertising comprises not more than 90 percent of the printed area, the provision discriminates among shopping papers based on their content and thus violates the First Amendment.

Rule

The court applied the principle that tax exemptions can be granted or denied based on legislative decisions to subsidize certain forms of expression without violating the First Amendment, provided there is no invidious discrimination.

The 90 percent rule was incorporated into the shopping paper sales tax exemption to ensure that at least 10 percent of the publication would be devoted to news of general or community interest, or community notices, thus restricting the exemption to those advertising papers that serve at least in part the same informational social purposes served by general newspapers and news periodicals.

Analysis

The court found that the 90 percent rule was a general application tax law and did not single out the press or a specific class of publications. It determined that the rule was designed to ensure that a portion of the publication was devoted to community interest, thus serving a social purpose similar to that of traditional newspapers. The court concluded that the law did not impose a penalty on the expression of particular ideas or viewpoints.

The 90 percent rule of the shopping paper sales tax exemption passes constitutional muster under Regan and Leathers. As in those cases, the tax imposed on plaintiff here is one of general application, levied against virtually all final sales of products and services.

Conclusion

The court affirmed the lower court's ruling, declaring Tax Law § 1115(i)(C) constitutional and modifying the previous dismissal of the complaint to an adverse declaration.

Accordingly, we agree with the lower courts that Tax Law § 1115(i)(C) is constitutional. However, the proper disposition of this declaratory action is an adverse declaration to the plaintiffs, rather than a dismissal of the complaint.

Who won?

The Commissioner of Taxation and Finance prevailed in the case because the court upheld the constitutionality of the tax law and found no violation of the taxpayer's First Amendment rights.

The court held that: (1) statute did not violate First Amendment rights of taxpayer, and (2) decision adverse to taxpayer was appropriate disposition of suit, rather than dismissal of complaint.

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