WASHINGTON (CN) – The National Education Association cannot claim a loss on its circulation expenses for two magazines it distributes to members as an offset to income from paid advertising in those magazines, a U.S. Tax Court judge in Washington D.C. has ruled.
The case revolved around whether or not members of the nation’s largest labor union were entitled to receive the NEA Today and This Active Life as a legal right of their membership.
Under the tax code if receiving a publication is a legal right of membership a portion of the member’s dues must be allocated to cover the circulation costs of the publication. NEA members pay $123 a year to join the union.
The NEA admitted that receipt of the magazine was benefit of membership but not a legal right because the organization was under no obligation to continue to produce the magazines and that the content of the magazines was also made available to the general public, for free, on-line.
U.S. District Judge David Gustafson disagreed, quoting NEA bylaws which state that “members are eligible to receive publications of the Association in accordance with the policies and procedures of the Association.”
“This bylaw would,” Gustafson said, “appear to resolve the issue and grant NEA’s dues-paying members ‘the right to receive’ the magazines” because “at any given moment when a member pays his dues, NEA has a year’s worth of periodical issues in the pipeline – and under the bylaws the member is ‘eligible’ to receive them when they are published.”
Gustafson said that the NEA can’t just stop publishing the magazines on a whim because it has obligations to its members to communicate official union business which it has always done through its magazines, contracts with advertisers and postal regulations which require the publisher of a magazine to certify the frequency of publication.
But even if the NEA could halt publication on a whim Gustafson said this was irrelevant to the right of members to receive them if they had in fact been published.
“The question is simply whether dues-paying members have ‘the right to receive an exempt organization periodical.’ The fact is that during the periods at issue NEA did publish the periodicals. Given that the periodicals were published, NEA’s bylaws establish that the members were entitled to receive them.”
In addition Gustafson noted that the NEA’s state affiliates list on their enrollment forms that $4.50 of the members dues are for a subscription to the magazines thus creating right to receive the publications just as if they has subscribed to any other periodical.
As for the argument that the online version of the magazines was free to everyone Gustafson found that the availability of a free version did not nullify a member’s right to receive a hard copy.
NEA’s arrangement with its members required them to pay for the paper editions of the periodicals when they paid their dues, and the additional availability of an on-line edition did not change the fact that the members obtained the paper editions by paying their dues,” Gustafson said.
As a result of the ruling the NEA agreed that it owes taxes on $1.1 million in advertising revenue for the tax years 2002 to 2003.