Defines and exempts electronic news sources and periodicals from sales and compensating use taxes

Summary of provisions

Section 5 of the bill exempts an "electronic news service" that meets a subscription price cap and an "electronic periodical." Section 1 of the bill defines "electronic news service" as a service that is delivered or accessed electronically, which meets specified criteria. The key to the definition of an electronic news service is that the service's predominant purpose must be the presentation of news content, which it must prominently feature. "News content" is defined as "the articles, photographs, video and audio material concerning general news or specialized news that are accessed through the service and does not include listings, advertisements, catalogs, compilations, databases, or the like," while "non-news content" is defined to mean "any information, other than news content." In line with the idea that delivery of news content is the key feature of an exempt electronic news service, the non-news content available through the service can only be updated within a twenty-four hour period if the news content is also newly-published or updated at least once in that period. If the service features a search function at no extra charge that allows access to content other than the service's past or present news content, the service will only qualify as an electronic news service if the provider, can prove that the search function is only incidental part of the service. To qualify as an electronic news service, the service must not in whole or in substantial part constitute a listing, catalog, database, or compilation. As defined in the bill, for a publication to be an electronic periodical, its predominant purpose must be the presentation of news content, which it must prominently feature. An electronic periodical may not be published more frequently than weekly and cannot be updated between issues, although the incidental addition of content between issues would not prevent a publication from being an electronic periodical. Because of the lesser flexibility of the exemption for electronic periodicals, those publications need not meet any subscription price cap to qualify for exemption. Many of the terms in the respective definitions of electronic news services and electronic periodicals derive from the definition of newspaper and periodical in the Tax Department's current sales tax regulations, in which case they are intended to have the same meaning.

Section 5 of the bill also provides a set of rules to deal with situations in which an electronic news service or an electronic periodical is sold for one price with other things. Under these rules, for example, if an electronic news service is sold

together with a subscription to a newspaper for one price, each is available separately for sale, and the separate price of the electronic news service is below the cap amount, the entire price would be exempt because the amount of the selling price attributable to the electronic news service would be exempt by reason of the exemption added by this bill and the remainder of the selling price would be exempt under the existing exemption for newspapers in Tax Law 1115(a)(5).

Justification

The Tax Law has long taxed information services while exempting newspapers and periodicals, probably on the theory that newspapers and magazines play an important role in our democracy by keeping the public informed and sharpening public debate about the issues of the day. In the digital age, the written news content that the public used to get exclusively from newspapers and periodicals is now available electronically, through internet websites, smart phone applications, or via downloads on portable readers. While these information sources sometimes differ from traditional newspapers and periodicals in respect to their interactivity, they serve the same important function of keeping the public informed. Yet the current exemption in the Tax Law for digital news services is limited to newspapers or periodicals delivered electronically that contain the exact same content of the paper edition of the newspaper or periodical (except for advertisements). This bill would update the Tax Law to meet this change in the marketplace by creating an exemption for electronic news services and electronic periodicals while distinguishing them from taxable information services. To limit the revenue impact of the exemption, the exemption for electronic news services, the more flexible of the two exemptions, is subject to a price cap. The definitions of electronic newspaper and electronic periodical contain a number of provisions designed to deter providers of taxable information services from attempting to qualify as exempt electronic news services, including that the service has to advertise itself as a news service or a similar term. Also, consistent with the revenue goal, the bill provides that if any provision of it is invalidated by a court, the exemption is removed, and the prior law is reinstated. Thus, this bill will foster the newspaper industry in New York, helping to keep the State at the forefront of that business, without jeopardizing the information service tax base.

Legislative history

New Bill.

Fiscal implications

Minimal.

Effective date

This act shall take effect on the first day of a sales tax quarterly period, as described in subdivision (b) of section 1136 of the tax law, next commencing at least 90 days after this act shall have become a law and shall apply in accordance with the applicable transitional provisions in sections 1106, and 1217 of the tax law provided, however, that the commissioner shall compute the cap amount under subparagraph (B) of paragraph 37 of subdivision (b) of section 1101 of the tax law, as added by section one of this act, based on

prices in effect during the first seven days of the first calendar month next commencing after this act shall have become a law, which cap amount shall be published at least one month prior to the date this act takes effect shall apply to sales made, services rendered, or occurring from the date this act takes effect through the next succeeding May 31.