Taxing the Tax-Exempt

For years, taxpaying publications have protested the tax-free status of competitors published by educational and other nonprofit organizations. The National Geographic, for example. Or Nation's Business, put out by the U.S. Chamber of Commerce. These magazines, operating with what was in effect a subsidy, could offer lower advertising rates. The Geographic argued that its rates were in line with other magazines, but last week the Internal Revenue Service ruled that equity, not rates, was the heart of the matter. After years of pondering, it decided that the tax exemptions should be ended.

Most of the 700 tax-free U.S. periodicals will not feel the bite, for they carry little or no advertising and operate in the red. But a minority, including Nation's Business, the Geographic, the Journal of the American Medical Association, and Analytical Chemistry (published by the American Chemical Society), will be hard hit. Total advertising revenues of the tax-exempts amount to more than $100 million per year. Taxes will take quite a bite out of this.

Except for pressure brought to bear on the Treasury Department and Congress by lobbyists for the tax-free publications, the IRS would probably have issued its ruling years ago. Even now, the Revenue Service plans to hold additional public hearings in order to enable opponents to repeat their arguments before the new rules go into effect. This might take another six months or more. The head of the A.M.A.'s legal department, for one, has already announced that it will argue against the regulation. The closemouthed National Geographic Society has declined to comment, but society officials said earlier that loss of its tax-exempt status might force a cutback in its scientific and educational activities. For the other side, cheers were led last week by former IRS Commissioner Mortimer Caplin, who has long fought to tax the taxexempt. "The business community is elated," he said. "This is a sound decision."

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