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Tax Victory for Cartoonists

© Stu Rees

The federal government isn't the only one doling out tax relief these days. The California Supreme Court recently ruled in favor of illustrator Heather Preston in her case, Preston v. State Board of Equalization.

Preston challenged California's right to require that sales tax be collected on the licenses of reproduction rights to her artwork, which were used by clients to produce rubber stamps and children's books.

The victory by Preston was due in large part to the work of her attorney, Nicholas Blonder, who pursued the case through the courts on a pro bono basis since it began in 1993 after a random audit of Preston.

The National Cartoonists Society (NCS) supported an amicus (friend of the court) brief that the Northern California Chapter of the Graphic Artists Guild prepared supporting Preston. The NCS and the Graphic Artists Guild have also been pursuing administrative and legislative relief for years. As a part of that effort, the NCS has employed Sacramento lobbyist Clancey Leland on the issue since 1997 and former NCS president Daryl Cagle has publicized the case extensively.

The seven justices of the California Supreme Court unanimously agreed with Preston's position that copyright licenses by California artists to California buyers are not taxable under California law.

While the seven justices unanimously agreed with Preston's position that the copyright licenses had been wrongly taxed under California law, the majority concluded at least some tax is due because the transactions constitute "technology transfer agreements." The amount of tax is based on the fair rental value of the original artwork (or even of the computer disks containing the artwork file) transferred for the purpose of reproduction. So, for example, if an artist loans a floppy disk with a value of $1 to a new licensee for a month so that the licensee can reproduce the image contained in the data on the diskette, the tax would be based on the fair rental value of the $1 diskette for the one month. On the other hand, the value of the license to use the image contained in the data on the diskette would be tax free.

You are correct if this all seems a little silly since licensees of artwork care about the right to reprint a work rather than the temporary physical possession of the original artwork or the media containing an image. In fact, in the case of valuable original art, the liability and extra work required for preservation almost certainly means that there is a negative real value to possession of the art. Chalk up the entire issue to an overzealous California tax authority.

The copyright of the article Tax Victory for Cartoonists in Comic Strips is owned by Stu Rees. Permission to republish Tax Victory for Cartoonists in print or online must be granted by the author in writing.