NYC Tribunal Rejects Claim That First Amendment Requires Use of Audience Factor for Sourcing Receipts from Credit Ratings -

The New York City Tax Appeals Tribunal, reversing an Administrative Law Judge decision, has held that McGraw-Hill does not have a First Amendment right to source its credit ratings receipts for New York City general corporation tax purposes using an “audience-based” methodology similar to that available to publishers and broadcasters. The City Tribunal also rejected McGraw-Hill’s claim that the receipts in question were “other business receipts,” sourced to where the receipts are “earned,” rather than arising from the performance of services and sourced to where the services were performed. Matter of The McGraw-Hill Companies, Inc., TAT(E) 10-19 (GC) et al., (N.Y.C. Tax App. Trib., Oct. 28, 2015).

Facts. McGraw-Hill, through its Standard & Poor’s (“S&P”) division, operates a credit rating agency to provide ratings, risk evaluations, and investment research. Debt issuers hire S&P to prepare credit ratings for use by investors, intermediaries, and the issuers themselves. S&P employs approximately 1,200 analysts who prepare the ratings. Upon approval by an S&P ratings committee, the ratings are communicated to the issuer, and then usually made public on the S&P website to registered users free of charge. The issuers, rather than the website users or investors, pay S&P for providing the credit ratings, usually based on a percentage of the offering amount, and also pay for followup monitoring.