Multistate Business Tax Ruling Will Help New York's Bottom Line

By DAVID POMERANTZ, Special to the Sun
March 26, 2008

New York's highest court has upheld a recently enacted state tax law that requires multistate businesses to report their national revenues to state tax authorities.

The Court of Appeals yesterday ruled in favor of New York in its case against Disney Enterprises, a subsidiary of the Walt Disney Corp.

At issue was a law passed last year by the Spitzer administration requiring large, multistate enterprises such as Disney to report their national revenues to the state tax collecting agency so they would not skirt taxes on revenues accrued in New York State.

Disney Enterprises claimed its home video subsidiary, which earned $2.46 billion in gross receipts in 1995 alone, should have been exempted from the law because it was covered by a federal exemption protecting interstate commerce from the state tax. Disney said its only New York business activity was selling cassette tapes to big retailers.

"It is well-settled that, when apportioning a group's in-state taxable income, a state may look beyond its borders and take into account income of companies not subject to its jurisdiction," Chief Judge Judith Kaye wrote in the 27-page decision.

More than 20 other states have "combined reporting" tax laws such as the one passed in 2007 by New York that was deemed legal yesterday, according to James Parrott of the Fiscal Policy Institute.

"It's a way of making sure a company is not playing games with its books to disguise locally generated revenues," Mr. Parrott said.

"It wouldn't be surprising to me that a lot of companies with multistate operations are in the same boat as Disney. The attempt of the law was to level the playing field among companies so that one with multistate operations has no advantage over one wholly based in New York," Mr. Parrott said.

The ruling will cost Disney Enterprises $1.35 million, a sum that an audit found Disney Enterprises did not pay between 1990 and 1995.

Representatives of the Walt Disney Corp. and the State Department of Taxation and Finance did not return calls for comment last night.