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In its latest foray into the dilemma over taxable catalogs versus tax-exempt periodicals, the New York State Tax Appeals Tribunal has rejected claims by a Chicago company that New York’s imposition of a use tax constitutes impermissible, content-based discrimination in violation of the First Amendment. The tribunal’s ruling in the case of Hammacher Schlemmer Co. Inc., which publishes its reviews of innovative products 14 times a year, is consistent with a decision one year ago, when the commissioners found that the Sharper Image catalog does not meet the definition of periodical as adopted by the Division of Taxation. With those two decisions — Matter of the Petitions of Hammacher Schlemmer Co. Inc., 816215 and 816216, and Matter of the Petition of Sharper Image Corporation, 81543 — the tribunal has seemingly concluded that publications featuring “articles” aimed at selling products as opposed to informing the public are not, for tax purposes, periodicals. Hammacher Schlemmer’s appeal arose from an administrative law judge’s ruling last December, when the company challenged on federal constitutional grounds the imposition of sales and use taxes. ALJ Arthur S. Bray decided the Hammacher Schlemmer matter just before the Tax Appeal Tribunal issued its opinion in the Sharper Image case. Bray’s initial findings of law paralleled those that the Tribunal later articulated in the Sharper Image dispute, and have now been upheld on appeal. The pivotal issue was whether New York State violated the First Amendment or the Commerce Clause when it assessed a use tax on the cost of printing Hammacher Schlemmer’s catalogs. In a unanimous decision signed by Tax Appeals Tribunal President Donald C. DeWitt, and Commissioners Carroll R. Jenkins and Joseph W. Pinto Jr., the panel found no violation of the U.S. Constitution. Hammacher Schlemmer Co. (HSC) is an Illinois-based firm that distributes its Tennessee-printed catalog nationwide. The catalog features articles about new and innovative products and offers those products for sale. HSC, which has a research component and has compared its catalog to Consumer Reports magazine, takes credit for introducing products to the public. For instance, the company contends that through its publication it first introduced the pop-up toaster (1930), electric razor (1934), steam iron (1948), microwave oven (1968), telephone answering machine (1968) and cordless telephone (1975). HSC contends that many of its subscribers say they get the catalogue solely for its informational value. Each year, the company distributes some 30 million catalogs nationally. It is only through its catalog, which is mailed to addresses in New York, and a retail operation on East 57th Street, that HSC has a presence in New York State. None of its corporate decisions is made in New York, and the catalog is not designed, produced or printed in New York. Yet, the company has paid hundreds of thousands of dollars in use taxes for catalogs delivered into New York. TAX-EXEMPT PERIODICALS New York imposes a variety of sales and use taxes on tangible personal property, including a tax on property upon which the service of printing has been performed. However, Section 1115(a)(5) exempts from sales and use taxes all receipts from the sale of newspapers and periodicals, but does not define “periodical.” Lacking statutory guidance, the Division of Taxation has adopted five criteria that must be met for a publication to be declared a periodical: It must be published at regular intervals and at least four times a year; it must not be a book; it must be available for circulation to the public; it must evince continuity as to title and nature from issue to issue; and each issue must contain a “variety of articles by different authors devoted to literature, the sciences, or the arts, news, some special industry, profession, sport or other field of endeavor.” TWO-PRONGED APPEAL HSC argued a two-prong appeal. It contended that New York was making content-based distinctions in violation of the free speech protections of the First Amendment. It also maintained that the tax assessment violated the Commerce Clause because there was no substantive nexus between the State and the activity of mailing a catalog. On the periodical versus catalog issue, the Tribunal agreed with Bray’s determination that while HSC’s publication met the first four criteria, it did not meet the fifth because the articles are not devoted to “literature, the sciences, or the arts, news, some special industry, profession, sport or other field of endeavor,” as required. The Tribunal found no First Amendment infringement because there was no evidence that New York was discriminating on the basis of viewpoints or ideas. On the Commerce Clause issue, the Tribunal adopted the conclusions of Bray, who found sufficient connection between the distribution of the catalogs and New York State. He observed that HSC has a store in New York, that its catalog provides advertising for the New York store and that the retail operation in Manhattan assists in catalog sales. David J. Bradford, of Jenner & Block in Chicago, represented HSC. The Division of Taxation was represented by Patricia O. Kahn.

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