When the California State Board of Equalization [BOE] made an error in April of 1991 while checking Paul Mavrides' 1990 sales tax returns, little did either party know that over three and a half years later the error would be the root of an unprecedented legal battle which could effectively wipe out comic book publishing in the State of California.
The BOE inadvertently replaced a '1' with a '9' in their computerized records and determined erroneously that Mavrides had made $80,000 more than his returns had declared in the royalty earnings category. Mavrides was instructed to send complete information regarding his royalty income, and in his response he described his original comic book pages as "sequential panel story-telling... involving... labor as both [an] artist and writer."
Although the BOE did correct their numerical error, the BOE determined that royalty payments made to Mavrides for work on comic book original pages fell under its definition of a direct sale to the publisher, and that Mavrides was obligated to bill and collect sales tax based on royalties paid to him by his publishers. Mavrides is currently fighting this determination in court with the aid of the Comic Book Legal Defense Fund [CBLDF] and the American Civil Liberties Union [ACLU]. A press conference was held Sept. 8 in Los Angeles where the ACLU anounced it had filed a brief with the BOE on behalf of Mavrides, contending the tax threatens the First Amendment rights of cartoonists by denying them the same sales tax exemption afforded to other authors under California law.
The Crux: Are Comics Pages Art or Commodity?
According to section 1543 of the California Code of Regulations, authors of "original mauscripts" are not required to charge sales tax when selling the rights to their work. The BOE has determined that comic book original pages are not original manuscripts, but rather camera-ready artwork that combine text and imagery. Mavrides, illustrator and co-writer of The Fabulous Furry Freak Brothers, was forced to pay $1,467.70 in retroactive taxes; this was the first time that California or any other state has asserted that sales tax applies to the delivery of original artwork to the comics publisher. If the determination stands, other cartoonists and publishers who work or live in California will face retroactive liability and be expected to collect sales tax on all royalties paid for the original pages.
The crux of the matter is whether comic book pages should be considered camera-ready commercial artwork (which is taxable), or an original author's manuscript (which is not taxable). The BOE's position, as stated in a letter from Supervising Tax Auditor William E. Hitchcock to Paul Mavrides, is that: The materials that you send to the publishers are considered to be camera ready artwork. You provide the publisher with a full page black and white outline that contains the page layout frame by frame, illustration outlines, and placement of the text that accompanies the illustrations. This item is photographed to develop an acetate overlay of the desired size for printing the final page...
Any gross receipts from these items furnished to publishers would be subject to tax under Regulation 1543(b)-(3)(A).
Mavrides is basically arguing that comic book original pages, although camera-ready, are distinguishable from commercial artwork in that they are literary works and should be deemed an author's manuscript (and therefore tax-exempt).
The California Revenue and Tax Code states that sales tax is applied to "the privilege of selling tangible personal property at retail." Under the California Code of Regulations, in commercial transactions tangible personal property changes hands in two ways, and depending on which way original comic pages fall determines their sales tax liability. If the transaction is merely a sale of tangible personal property than the artwork is subject to taxation. If it is a transaction which is incidental to the performance of a service, it is exempt. For example, an art collector buying an original comic page to hang on his wall would be taxable as the object sought by the collector is the original page itself. The transfer of an author's manuscript to his publisher, however, is an example of a service contract and is not subject to sales tax. The law further states that "The transfer of any paper... or other tangible personal property transferred as a means of expressing an idea is not taxable."
The question is whether original comic book pages are an author's manuscript in spite of the illustrations. The law states that all artwork sold for reproduction is subject to sales tax, while a manuscript of literary merit is exempt. Comics appear to fall under both categories, and no precedent has been set as of yet, though this case stands to determine precisely where comics fall. The Implications
If the BOE's decision is held up in court, the future of the comic book industry in California would be a precarious one. Mavrides, the CBLDF, and the ACLU are arguing this a First Amendment issue which would disproportionately impact small publishers. Any tax levied on original comic pages would be the same regardless of the amount of copies sold of the comic itself, so independent publishers with small print runs would be unfairly affected compared to a publisher with a larger print run. It is quite possible that California publishers like Rip Off Press and Last Gasp would be forced to move out of state to not only avoid taxes but to be able to competitively lure artists, who would likely prefer not to work for a California publisher due to the taxes.
A ruling in favor of the BOE could also stand to similarly affect the children's book industry, where the combination of illustration and text is akin to comic books. Beyond the private sector, the ruling could be counterproductive to the BOE's goal of generating revenue through taxation since publishers might leave altogether and eliminate revenue generated from other corporate and employment taxes. The Fight Continues
Mavrides and his lawyers suspect that the state picked Mavrides as their guinea pig to test this determination due to his relative lack of fame and wealth compared to other California residents like Rob Liefeld or Charles Schulz, thinking he wouldn't put up much of a fight. Mavrides also says that the BOE plans to audit each of his California publishers' royalty payment records as far back as California statutes of limitations allowed in order to gain lists of all resident California comics artists doing business with these same companies, for the purpose of making them register with the BOE as small businesses in order to make good on their retroactive liability.
Instead of bowing quietly, however, Mavrides enlisted the aid of the ACLU and CBLDF, who held a press conference at the Los Angeles ACLU office on Sept. 8 to draw mainstream attention to the case. They enlisted Marvel Comics' Stan Lee, Los Angeles Times editorial cartoonist Paul Conrad, and CBLDF board member and comic book artist Frank Miller to lend support. Mavrides' lawyer, Sanford C. Presant of Kaye, Scholer, Fierman, Hays & Handler, opened the conference by targeting bureaucrats. "Never before has California been so overzealous in search of tax revenues," he said. "The revenue gained is not worth the infringement on the California creative community."
Lee reasoned, "Nobody ever says, 'Did you look at the comic strip?' They say, 'Did you read the comic strip?'"
Conrad rhetorically demanded to know who appointed the BOE as judge and jury on the literary merits of artists, and targeted California Governor Pete Wilson. "It's a tax on the First Amendment, pure and simple," he said. "It's an attempt by the governor to balance the budget."
Miller said if the determation of the BOE's is held up in court and "If California doesn't regard me as an author, I'll be happy to take my business elsewhere." BOE Chairman Brad Sherman's only response was, "This particular taxpayer is forcing us to confront a tough issue."
Sherman holds the power to resolve the situation. He can redraw the regulation or suggest new legislation to clarify the tax code. He has not decided one way or the other as of presstime, and Presant said his client will have an expedited hearing at an undetermined date this fall to argue their case.
Alston said the press conference has resulted in the California Newspaper Association scheduling time in their Oct. 18 board of directors meeting to discuss the issues surrounding Mavrides' case. If the CNA is sympathetic to Mavrides, the meeting could result in a windfall of press coverage of the case, potentially putting pressure on the BOE [no information of the meeting's results was known at presstime].
In the meantime, the CBLDF has circulated petitions to California comic book retailers (you must be a registered voter in California to sign the petition) who are asking their customers to sign, demanding that the BOE recognize original comic book pages as a legitimate author's manuscript, and that the BOE dismiss its case against Mavrides. Several California cartoonists, including Dan Clowes, Bill Griffith, Nina Paley and several others, have expressed their solidarity to Mavrides' cause by drawing pictures to accompany their signed petition.
Mavrides' case has been the most expensive in the six-year history of the CBLDF. Alston said she was recently billed $7,747.42 for various leggal fees and costs incurred in preparing the press conference, bringing the total costs of the case thus far to over $50,000. -ER
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