Proposed tax law would allow list amortization

Folio: The Magazine for Magazine Management, Dec 1, 1991 by Zakia Hyder

The White House has endorsed legislation, introduced recently by U.S. Representative Dan Rostenkowski (D-Ill.), allow amortization of goodwill or acquired intangibles such as subscriber lists.

"This bill is a great idea for publishers," says magazine consultant James Kobak. In recent years, there have been several judicial disputes between the internal Revenue Service and magazine publishers over the write-off of lists that publishers purchase as part of an acquisition.

The bill already has the backing of the U.S. Treasury DepartMent. Previously unwilling to recognize goodwill or acquired intangibles as amortizable, the department has had a change of heart. Kenneth Gideon, assistant treasury secretary for tax policY, SaYs the bill will keep U.S. firms competitive with foreign companies.

Some see a problem with the bill, however. The 14-year amortization period recommended by Rostenkowski is impractical in the case of a three- to four-year magazine subscription, says Kobak, who is arguing for a shorter amortization period.

At the same time, Rostenkowski's bill is largely favorable to publishers. It not only allows the write-off of subscriber and readership lists, but leaves the current tax status of advertising- a fully deductible business expense-untouched.

The American Business Press and The Magazine Publishers of America both support the bill. However, Kobak says, the ABP is pushing for a shorter amortization period for the magazine industry. The MPA, on the other hand, doesn't want to fight what it sees as a good bill. "There has to be a compromise somewhere," says jim Davidson, counsel for the MPA. "In a bill this complex, instead of seeing how the 14-year period may create problems, we should just be happy that finally we have something. We should look at the whole bill-no tax on ads, amortization of goodwill. Overall, it's a good trade-off."

Meanwhile, advertising's deductible status is being criticized by Representative Richard Schulze (R-Pa.) who believes that advertising is no different from other intangibles. He's suggesting an amortization schedule that allows 80 percent of any advertising expense to be immediately deductible, while the rest is amortized over several years.