Comics Journal on VREEDEEZ CASE

Comics Journal on VREEDEEZ CASE

© 1995 The Comics Journal, #181

The California State Board of Equalization recently performed an audit of the Los Angeles-based Creators Syndicate prefacing a likely assessment against the syndicate for the sales tax on its peddling of editorial cartoons and comic strips to California newspapers. This latest move by the BOE comes over four and a half years after their first attempt to tax cartoon art; an attempt that ultimately lead to their still ongoing legal battle with the comic book artist Paul Mavrides over whether or not his original artwork is subject to sales tax [See TCJ "Newswatch" #s 172, 173 & 178]. Observers speculate that the BOE, desperate to fill the state's coffers, has now decided to go after Creators without the established precedence of the Mavrides case, which, if litigated, could go on for several more years.

Creators Syndicate is an agency that represents a wide variety of columnists - including Ann Landers and Hillary Rodham Clinton - and cartoonists to the newspaper industry. Herblock, Mike Luckovich and Johnny Hart are counted among the cartoonists whose work is sold by Creators to newspapers around the world.

According to Creators President Richard Newcombe, on Oct. 3, 1995, BOE auditor Willie Aka arrived at Creators' offices and requested copies of the company's invoices and financial records. This most recent audit - another was conducted by the BOE in December 1994 - came several months after Creators was told by the BOE's Culver City office that it should be charging sales tax on all comic strips and editorial cartoons it sells to newspapers in the state of California. Although no assessment has yet been made as to how much the syndicate owes in back taxes, Newcombe does anticipate one to be handed down in the next month. He further predicts that the assessment will provoke an enormous backlash against the Board.

The BOE's justification for the possible imposition of the sales tax on the syndicate centers on what they perceive to be the true object of editorial cartoons and comic strips. In their view, a cartoon, despite its capacity to convey a multitude of ideas, is nothing more than camera-ready artwork. As such, a sales tax must be charged whenever it is sold to a newspaper or publication. Even when a comic strip is only leased to newspapers - as is most often the case - a use tax equal to the prevailing rate of sales tax is still applicable to the transaction. The California Sales and Use Tax - which was enacted in 1939 - can also be levied against syndicates located outside of California who sell editorial cartoons and comic strips to publications located within the state.

One person who is adamant that, in principle, there should be no assessment of Creators Syndicate is the company's lawyer, Brian Oxman of the firm Oxman, Jaroscak. "We literally have millions, if not hundreds of millions of transactions which [took] place in the state of California never having been taxed," he told the Journal. "Now, there's been no new law that's been adopted, there's been no new case which has come down from the courts." As for why he believes the BOE has singled out Creators, Oxman stated: "What we have is a state board of equalization which is absolutely malnourished for funds. They are looking for funds at whatever source [they can find], to the detriment of whoever they target."

The Journal asked Newcombe what his company's options were if and when Aka handed down an assessment. "We would object and meet with his supervisor," Newcombe responded. "Assuming we lost there, we would meet with the head of the Culver City office of the BOE. Assuming we lost there, we'd meet with the attorneys from the BOE. Assuming we lost there, then we would have an oral presentation to the Board members. And if we lost there, then we would have to write a check and then file suit." Newcombe also insisted that "if the Board persists and tries to collect from all the syndicates, they're really asking for trouble."

To display their dedication to the cause, Universal Press Syndicate - representatives of such cartooning luminaries as Bill Watterson, Garry Trudeau and Cathy Guisewite - sent a letter of complaint to California Governor Pete Wilson in late August to register their "opposition to the collection of a sales or use tax on cartoon features." In the letter, Universal Press Vice President Thomas Gill wrote: "As the largest independent newspaper syndicate in the world, Universal Press Syndicate (UPS) has partnered with creators and newspapers for a quarter-century. Certainly, we offer syndicated features by Californians (and others) to Californians, and no doubt our business in your state would be affected if comics and cartoons are considered taxable under current California law." Gill went on to cite the First Amendment, the BOE's "inconsistent and obsolete definition of a taxable good," the possible damage to California's economy, and the implication of double taxation as reasons why the enforcement of the tax was not in the state's best interests. "Universal Press Syndicate's publishing relationships in California are treasured and long-standing," he concluded. "We would hate to see those relationships jeopardized by an overzealous tax collector." Sidney Goldberg, senior vice president of United Media - which consists of United Feature Syndicate and Newspaper Enterprise Association - sent Governor Wilson a similar letter.

These two shows of support, as well as the feedback they've received, have lead Newcombe and Oxman to believe that they will receive a lot of backing from the other syndicates should this taxation issue escalate into a long-term battle. "Our competitors are actually our allies in this case," commented Newcombe. He said he planned on bringing up his company's problems with the BOE at the meeting of the major syndicates held in Atlanta the week of Oct. 9.

Newcombe, for his part, wrote to Governor Wilson on July 21, asking him to issue a statement critical of the BOE's taxation of cartoons. "This new interpretation of a 1939 law is as preposterous as any that I have seen," Newcombe stated in his letter. "No other state in the country has even considered trying to impose a sales or use tax on newspaper cartoons. If California insists on trying to collect a use tax from every newspaper for every syndicated cartoon it has ever run, or to impose a sales tax on every sale of a syndicated cartoon since 1939, the state will be welcoming with open arms a huge class action law suit from California newspapers and the syndicates that supply them with cartoons."

Mark D. Gursky, the Governor's Constituent Affairs Representative for tax issues responded to Newcombe. In a letter dated Sept. 16, 1995, Gursky said that he was "aware that there may be instances where the California Sales and Use Tax Law imposes tax on many types of transactions that may not be taxed in other states," and then proceeded to clarify the BOE's position with respect to cartoons. He also pointed out that exceptions to the tax do exist when the illustration accompanying text is merely incidental to the text or when the cartoon is electronically transmitted - by modem, for instance - to a publication. The Constituent Affairs Representative refused to comment any further, however, saying that it would be inappropriate since he knew little about the specifics of Creators' case. Needless to say, no statement about the BOE - critical or otherwise - was issued by the Office of Governor Wilson.

When the Journal brought up the Gursky-mentioned "modem loophole" to the California Sales and Use Tax with Mavrides, the cartoonist responded: "I think it doesn't address the issue and it's discriminatory against people that can't afford expensive electronic equipment. It's no solution at all... Why force cartoonists into a technology they have no interest in just [so they can] avoid a small tax?"

BOE Deputy Director of Sales and Use Tax Glenn Bystrom, who was unable to discuss Creators' case because of taxpayer confidentiality, nonetheless commented on why he thought the California Sales and Use Tax has been so controversial of late. "... My suspicion of why it's become an issue is probably two-fold," he said. "The first is that up until about three or four years ago, sales of newspapers in California were not subject to tax. As a result, we didn't have that much significant audit activity on newspapers. And now they are subject to tax so it's possible that this has been going on all this time and because we didn't really audit newspapers that much, we didn't know about it. "And then the other thing," continued Bystrom, "is that we found in many industries in California, [and] throughout the United States, that there's been a lot of downsizing and flattening of the organization, and outsourcing... To the extent that ten years ago, artists worked directly for their newspaper, and as an employee that wouldn't have been a sale because employees don't sell to their employers; they're working for the employer. [And now] the newspaper industry has changed the way it operates, and [it now] outsources; that is, they no longer employ them [cartoonists] as employees but rather have independent contractors producing [cartoons]. That could have caused a difference in how we would apply the tax. And I don't know if either or both of those is what happened." When the Journal pointed out that cartoonists have been independent contractors for a lot longer than ten years, Bystrom responded: "... I can't say that we have explicitly found exactly these transactions in the past; we don't keep records in a way that I could get back to it." Bystrom also took issue with allegations that California is the only state that regards cartoons as subject to sales tax. "... I had my staff survey, just at random, ten other states," he said. "We found that two other states do have the same position that we do, and [as for] the other states that don't, the reason they don't is they have... specific statutory exemptions." When asked if those two states were actually levying the tax, Bystrom responded that he wasn't sure. When asked what he felt about Bystrom's assertion that two out of ten randomly selected states had the same stance as California with regard to taxing cartoon art, ACLU lawyer Paul Hoffman stated: "First of all, it's only two, which means that a lot of states don't... The fact that a couple of other states also do this doesn't mean that it's right. The bottom line, though, is that either it's constitutional or it's not and the fact that other states do it doesn't make it constitutional." Clearly, the outcome of the Creators Syndicate/BOE battle will have implications for all 50 states. No doubt this is why Newcombe stated that he and the other syndicates will "have to fight this all the way to the U.S. Supreme Court if necessary."

As for Paul Mavrides, he's still awaiting his final oral hearing before the BOE. He and his new lawyer, William Thompson of Kaye, Sholer, Fierman, Hays & Handler - who, incidentally, are handling all legal work for the oral hearing pro bono - have been told that the hearing is tentatively set for late November.

When asked about his client's chances at the oral hearing, Thompson responded: "I think the chances of winning, absent a public wake-up call by the elected members of the BOE, are not very good. If [however] they realize the business and political impact of this decision, we may well get their attention and have a better opportunity to be successful." Mavrides has stated that, should the BOE rule against him at the hearing, he is prepared to take them to court. The ACLU, who feel that the imposition of the sales tax is a flagrant trampling of Mavrides' First Amendment rights, has pledged to litigate on his behalf should this matter come before the courts. At the San Diego Comic Con in July, the Board of Directors of the CBLDF voted to let the ACLU take over as far as First Amendment matters are concerned, in the event Mavrides' case does indeed lead to litigation. The CBLDF will still, however, provide funds for the lawyers handling state matters, as well as the ACLU's out-of-pocket expenses, such as photocopying and research.

The Journal asked Newcombe how closely he perceived Creators' case to coincide with that of Mavrides. "There's obvious similarities," answered Newcombe, "but we see our allies principally as King Features, Universal Press Syndicate, United Features Syndicate, [and] Chicago-Tribune Syndicate." He did mention, however, that it was likely he would be appearing at Mavrides' oral hearing before the BOE. Whether or not Newcombe would be appearing on behalf of all the major syndicates will be discussed at the syndicates' meeting in Atlanta.

In his conversation with the Journal, Mavrides made it clear that what is untrue is the misperception most people have that his case is content-based. He is certain the BOE did not go after him because his comics were offensive in some way. Rather, commented Mavrides, "I think they might have decided to initiate this with me because of my income level, thinking that the amount of the bill was so low, and [that] my income level precluded me from staging a good fight against it. They probably didn't even think I would fight it."

Mavrides did fight it, of course. And aided by nearly $67,500 from the CBLDF to date, he has kept up the battle with the BOE for the past four and a half years. "If you're a masochist, go fight with the government," joked Mavrides. "Even if you win, they won't apologize."

OTHER CBLDF NOTES On Aug. 24, 1995, a few days after store owner Erik Piper sold a copy of Penthouse Comix to a 17-year-old girl working for the authorities, Amazing Tales Comics in Ashland, Oregon was issued a search warrant for "evidence leading to the crime of Furnishing Obscene Materials to Minors" including but not limited to "any picture, photograph, drawing, sculpture, motion picture, film or other visual representation or image of a person or portion of the human body that depicts nudity, sadomasochistic abuse, sexual conduct or sexual excitement." During the search, the authorities confiscated comic books, cards and Olivia lithographs totalling over $10,000. Included among the comics seized were copies of Heavy Metal, Penthouse Comix, Verotik Satanika #2, Butterscotch, Click, Faust and Ramba. The CBLDF is currently working in conjunction with the local ACLU to defend the case.

Another store, this time Oklahoma City's Planet Comics, was raided on Sept. 6, 1995. An anonymous complaint about Verotika #4 lead the District Court of Oklahoma County to issue the Vice Squad a search warrant stipulating "probable cause" and specifically instructing them to confiscate "the comic book Verotika and any other comic books, magazines, video tapes or other materials which contain acts of sexual intercourse, normal or perverted, fellatio or anal sodomy, with one or more of the same sex or opposite sex." Reportedly, television and newspaper reporters accompanied the Vice Squad when they entered the store and asked customers to leave while they conducted their search. The Squad is estimated to have confiscated thousands of dollars worth of merchandise from the store. Although the search warrant gave officers the power to do so, none of the store's workers were arrested. The CBLDF has pledged to support the store's owners - who were out of town at the time of the raid - should a warrant be issued for their arrests.

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