Scotsmen Press, Inc. v. State Tax Appeals Tribunal

• Decision Date: 02 May 1991
• Citation: 165 A.D.2d 630,569 N.Y.S.2d 991
• Parties: In the Matter of SCOTSMEN PRESS, INC., Petitioner, v. STATE of New York TAX APPEALS TRIBUNAL et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 991

569 N.Y.S.2d 991

165 A.D.2d 630

In the Matter of SCOTSMEN PRESS, INC., Petitioner, v. STATE of New York TAX APPEALS TRIBUNAL et al., Respondents.

Supreme Court, Appellate Division,

Third Department.

May 2, 1991.

Lombardi, Devorsetz, Stinziano & Smith (Bruce E. Wood, of counsel), Syracuse, for petitioner.

Robert Abrams, Atty. Gen. (Julie S. Mereson, of counsel), Albany, for respondents.

Before MAHONEY, P.J., and MIKOLL, LEVINE, CREW and HARVEY, JJ.

HARVEY, Justice.

Proceeding pursuant to CPLR article 78 (initiated in this court pursuant to Tax Law § 2016) to review a determination of respondent Tax Appeals Tribunal which sustained sales and use tax assessments imposed under Tax Law articles 28 and 29.

The facts are relatively undisputed. Petitioner is a commercial printer and publisher of weekly pennysavers which are distributed free of charge to consumers within a particular geographic area. Along with advertisements, the pennysavers also contain community service notices and some articles of general community interest. After an audit of petitioner for the period from June 1, 1978 through August 31, 1983, the Audit Division of respondent Department of Taxation and Finance determined that petitioner failed to pay sales and use taxes on its purchases of the paper and ink used to print the pennysavers, and issued an assessment of $79,698.92 plus interest. Petitioner challenged the tax assessment, alleging principally that its purchases of ink and paper were exempt from sales and use taxes under Tax Law § 1115(a)(20) because petitioner allegedly published a "shopping paper" within the meaning of Tax Law § 1115(i). In order to be considered a tax-exempt shopping paper, however, a publication must meet several criteria including the requirement that advertisements in the publication "shall not exceed [90%] of the printed area of each issue" (Tax Law § 1115[i][C]. The Department determined that petitioner did not qualify for the exemption because its pennysavers contained too much advertising to qualify as shopping papers.

At the hearing, the Department explained that it used an approach called the "subtractive method" in determining how much of petitioner's publication was devoted to advertising. The parties agreed that there were 168 square inches of printable area per page. From that total amount the Department subtracted the nonadvertising items (which included public service announcements, editorials, community announcements, first page banner headings and a portion of the blank space) ¹ and concluded that petitioner did not meet the statutory 90% limitation. In contrast, petitioner advocated utilization of an "additive method", which involved calculating the total square inches of advertising area and comparing it to the total printed area per page. Unlike the Department, petitioner counted nonpaying banners and headings, petitioner's own advertisements (house ads) and all blank space on the page as nonadvertising space. The Department's auditor pointed out, however, that because petitioner's analysis did not include blank space in its calculations, the sum of the advertising space and nonadvertising printed space did not equal the agreed-upon total printed area of 168 square inches. Thereafter, the Administrative Law Judge issued a determination upholding the tax assessment. Petitioner filed an exception with respondent Tax Appeals Tribunal, which ultimately affirmed the Administrative Law Judge's determination and sustained the tax assessment. Petitioner paid the tax assessment but then commenced this proceeding in this court seeking annulment of the Tribunal's determination, cancellation of the tax assessments and a refund of petitioner's payment of the tax due. Initially, we disagree with petitioner that the Department utilized an irrational methodology in arriving at its conclusion that petitioner's pennysavers contained too much advertising to qualify as a tax-exempt shopping paper. Contrary to petitioner's arguments, the Department's use of the subtractive method is rational and consistent with the legislative intent that 10% of a qualifying pennysaver contain news of community interest rather than just simply intending a maximum of 90% advertisements (see, Governor's Mem, 1977 NY Legis Ann, at 2532-2533). Since acceptance of petitioner's argument that the Legislature only intended to limit advertisements to 90% without concern for the content of the remaining 10% could result in less than 10% of the paper being devoted to community purposes, we cannot agree that petitioner's approach is the more logical of the two. It is well settled that statutes creating tax exemptions are to be strictly construed and it is the taxpayer's burden to demonstrate that its interpretation of the law is the only reasonable one (see, Matter of Blue Spruce Farms v. New York...