State agency backs off on taxing cartoons.

It moves to exempt illustrations that have text

The state Board of Equalization has voted not to assess sales taxes against a Northern California comic book artist, a decision that probably signals the end of the state's attempt to extract tax revenues from the creators, distributors and buyers of comic strips, comic books and editorial cartoons.

After a two-day heating in Sacramento, three members of the five-member board voted Jan. 11 to dismiss a $1,500 tax assessment against San Francisco artist Paul Mavrides. Although the decision applied only to Mavrides, the board also gave preliminary approval to a change in tax regulations that will exempt illustrations accompanied by text in the publishing industry from sales tax.

Mavrides' appeal of a tax bill assessed in 1991 because he failed to charge sales tax to publishers attracted intense interest in the publishing industry, because broad application of the tax might have cost millions of dollars a year to comics distributors and publishers. His $60,000 in legal costs were paid by the Comic Book Legal Defense Fund, and attorneys from the American Civil Liberties Union and the California Newspaper Publishers Association also became involved with the case.

No other state but California charges a tax for sales of printed cartoons to publishers, according to attorneys. Mavrides, co-author of "The Fabulous Furry Freak Brothers" comic book, was reportedly the first person ever ordered to pay the tax, although a small newspaper based in Yreka called the Siskiyou Daily News was later assessed.

Visuals defined

Meanwhile, several other authors and distributors of comic art have been audited by state officials searching for evidence of a failure to charge sales tax to publishers. Last spring, the Los Angeles-based Creators Syndicate Inc., which represents a wide range of artists including editorial cartoonists Mike Luckovich and Herblock, underwent a complete audit and was told that it was liable for back taxes reaching to 1987, but it was never charged.

At issue is the somewhat hazy definition of comic art in state tax regulations. Starting in 1991, after the state Legislature applied sales taxes to newspapers and magazines, tax auditors began to consider cartoons taxable because they were considered art rather than editorial matter; written words, such as freelance articles or syndicated columns, are exempt because words are intangible, but cartoons were considered "personal tangible property" and therefore taxable.

Muddying the issue further is the fact that the tax can only be applied to printed materials. If a cartoon is transmitted to a publisher electronically, the publisher does not have to pay a sales tax under current law. Most large newspapers receive their comics electronically, but smaller publications - such as the Siskiyou Daily News - get printed "camera-ready" cartoons through the mail.

Attorneys argued that this constituted a form of discrimination against small publishers.

"You are literally saying to the overwhelming majority, maybe 80 or 90 percent of the newspapers in America, that you get taxed and the big boys don't," said Brian Oxman, a partner with Santa Fe Springs-based Oxman & Jaroscak who represents Creators Syndicate.

Speech violation seen

But the issue of discrimination was only one of several arguments against the tax from attorneys and publishers, who also said the assessment was a violation of the First Amendment. Attorneys argued that editorial cartoons and comics represent a legitimate expression of ideas, and it is unconstitutional to discriminate against that form of speech while exempting words not accompanied by illustrations.

During the hearing Jan. 10, Johan Klehs, chairman of the Board of Equalization, introduced a proposal to change state regulations to exempt comics. Four of the five board members voted in support of the amendment, although the formal language must be approved at the board's next meeting Feb. 20.

Klehs' changes state that the transfer of original manuscripts, including cartoons and comic strips, to a publisher or syndicator is not subject to taxation, whether the transfer is done electronically or on paper. The exemption will not apply to photographs and drawings unless they are used to illustrate written material.

Still somewhat unclear is whether illustrated stories with no text, such as children's books, will be taxable. Klehs insisted they will not be, but attorney Sanford Presant, who represented Mavrides, said such publications will be subject to tax even under Klehs' amendment. He predicted a court challenge if the board tries to enforce the tax against illustrators.

"You can't discriminate between words and illustrations when it comes to storytelling," said Presant, managing partner of the L.A. office of Battle, Fowler LLP. "I suspect whoever next gets hit with this will be able to mount a serious constitutional challenge."