ALBANY - New York's highest court ruled Tuesday that the state's corporate franchise tax applies to Disney Enterprises' video business, including a $1.35 million tax bill for 1990-95 that followed an audit.

The entertainment conglomerate claimed that its Buena Vista Home Video subsidiary, which had $2.46 billion in gross receipts in 1995, had a federal exemption shielding interstate commerce from the state tax when its only New York activity was soliciting orders - specifically, selling cassettes to big retailers.

The Court of Appeals concluded that New York's franchise-tax formula requires combined reporting for related businesses like Disney's theme-park, film-entertainment and product-licensing segments. The state uses an apportionment formula based on the New York portion of the taxpayer's combined worldwide business income.

"It is well settled that, when apportioning a group's in-state taxable income, a state may look beyond its borders and take into account income of companies not subject to its jurisdiction," Chief Judge Hon. Judith Kaye wrote. "In doing so, the state is not deemed to have taxed that income but instead to have used it to determine the tax base fairly attributable to the group as a whole."

Disney attorney Paul Frankel said he was disappointed but hadn't had time to review the ruling yet. It's up to the company whether to appeal the case to the Supreme Court, he said. Calls to Disney were not immediately returned.

"We're pleased, because the decision allows the taxing authority to more accurately reflect the gains made by these companies in the New York market," said Tom Bergin, spokesman for the state Department of Taxation and Finance. He said for privacy reasons he couldn't talk about possible Disney tax liability for 1996 through 2007.