Washington Governor OKs Tax Cut for Newspapers

Gov. Chris Gregoire has approved a tax break for the state's troubled newspaper industry.

The new law gives newspaper printers and publishers a 40 percent cut in the state's main business tax. The discounted rate mirrors breaks given in years past to the Boeing Co. and the timber industry.

Newspapers across the country have resorted to layoffs and other cost-cutting moves to deal with a wounded business model and a recession-fueled drop in advertising.

The Seattle Post-Intelligencer printed its final edition earlier this year and was converted to an Internet-only publication with a much-reduced staff.

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Tribune Bankruptcy May Trigger Tax Complications

Of the many issues that surfaced after Tribune Co. filed for Chapter 11 protection yesterday, tax consequences were among the least discussed. But tax effects may be extremely cumbersome to deal with as the company works its way through bankruptcy, especially if Tribune loses its tax status as a so-called S corporation, says a new client advisory from Robert Willens LLC.

An S corporation — named so because it is subject to the tax code's subchapter S provision — meets the Internal Revenue definition of a small business, has fewer than 100 shareholders, and is structured as a corporation but taxed like a partnership. As a result, income and the attendant taxes pass through the corporation directly to the shareholders, who pay taxes on the profits. So, with the exception of "built-in gains," an S corporation is not subject to tax on its income.

Currently, all of Tribune's outstanding stock is owned by an Employee Stock Ownership Plan (ESOP), established when owner Sam Zell orchestrated the LBO. However, the number of shareholders may grow precipitously if the company is forced through a bankruptcy restructuring to pay-off its creditors in stock. That's a problem, notes tax expert Willens in his company's advisory. [Click for MORE]

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