"It shows David can beat Goliath," says California Illustrator After Winning Tax Victory in State's High Court.

April 3, 2001 | For Immediate Release | San Francisco, CA

Contact: Lloyd Dangle, Graphic Artists Guild
Tel: 510-985-0391 <lloyd@troubletown.com>

In a four to three decision on Monday, April 2, the California State Supreme Court ruled in favor of illustrator, Heather Preston, in her case, Preston v. State Board of Equalization (BOE).

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

The Graphic Artists Guild (the Guild) supported Preston throughout her ordeal and filed an amicus curae brief with the court.

While the seven justices unanimously agreed with Preston's position that the copyright licenses had been wrongly taxed under California law, the majority concluded that the transactions constitute "technology transfer agreements." The decision means that a fair rental value for the artwork or computer disks transferred for the purpose of accessing the copyright interest is subject to tax.

The Court remanded the matter of determining the value of the "rental" portion of Preston's transactions to the lower court. The case resulted from a random audit of Preston by the BOE in 1993.

"The BOE has been calling my case frivolous for seven and a half years," said Preston, " but we did our best to keep our dignity. It's to the Court's credit that they went back to the beginning and took a close look at the case. I thank them with all my heart."

In an unusual twist, the three dissenting justices opposed the majority only in that they wanted to go further — arguing that the transactions should be exempt entirely.

"If Heather Preston and her attorney, Nick Blonder hadn't fought this to the end, there would have been no vehicle for this victory," said Daniel Abraham, Guild attorney throughout the tax effort and primary author of the Guild amicus curiae brief. "This was our last shot."

"Although the justices disagreed on some issues," Preston's attorney, Nicholas Blonder, commented, "all seven concluded that payments received by an artist for the licensing of a copyright interest are not subject to sales or use tax. This effectively ends the Board’s long-standing practice of applying tax to all royalties received by an artist."

"The state got their head handed to them in a big way," said attorney Eric Miethke, California counsel for the Graphic Artists Guild and a coauthor of the amicus curiae brief filed in the case. "Guild members should feel vindicated by the Court's ruling. We've been saying all along that tax should not be applied to the copyright -- that at most only the rental value of the disk should be taxed -- which is an infinitesimal amount."

"This is a clear victory for us," said Lloyd Dangle, the Guild's National Vice President, and organizer of the Guild's California tax effort. "It finally provides the BOE with the impetus to treat the work of illustrators, photographers, and graphic designers properly. We've been waiting a long time for this."

The Graphic Artists Guild’s Northern California Chapter has been pursuing sales tax reform for artists through the California State Legislature and the California Board of Equalization since 1996. Miethke says that as a first step, all Guild members and other affected artists may choose to file protective claims for refunds for a 3-year period, for the full amount of sales tax remitted on their transactions.

The Graphic Artists Guild, UAW Local 3030, is a national union whose core purpose is to be a strong community of graphic artists that empowers and enriches its members through collective action.