A History of the Guild's Sales Tax Effort

In 1995 our Chapter realized that the existing laws governing sales tax for graphic artists of all types in California were not only inconsistent with the laws of other states, they were inconsistent with the general philosophy held by Californians (and most other Americans); that only material goods shall be subject to sales tax, not ideas, intellectual property, or services. We realized that our industry had been singled out for taxation. This not only placed an extra burden on all of us, but it made our businesses less competitive than our out-of-state colleagues, by requiring us to add (on average) an extra 8.5% tax to our fees. In addition, we found that due to the complexity, irregularity, and confusing nature of the regulations, some of our members were being audited and billed for tens of thousands of dollars by the Board of Equalization (BOE). To underscore the confusing nature of the regulations, we found that even the BOE auditors often had conflicting opinions about how to interpret the regulations.

In reaction to this, we began a campaign to eliminate this unfair and inconsistent tax. Our first steps involved approaching the California legislature. For several years we tried this approach, and found many legislators on both sides of the aisle who were willing to sponsor bills on our behalf. Unfortunately, none of these bills ever got very far.

However, in 2000, we were able to convince the BOE directly that a large part of the work of graphic designers is a service, which should be exempt from tax. This resulted in a modification of the regulations that allowed graphic designers to count only 25% of their work as taxable, the logic being that the other 75% was preliminary work, and would never be delivered to the client as final, tangible work.

During all of this effort through the legislative branch, a California illustrator by the name of Heather Preston had been quietly battling, with some assistance from the Guild, her own case with the BOE. She had been audited by the BOE, and had been found to owe a significant amount of back sales tax. Arguing that her fees were based on the licensing of her intellectual property (copyright) to her clients, she and her lawyer, Nicholas Blonder, took her case all the way to the State Supreme Court in the year 2001. The Guild provided as much support to Heather as we could. This included most significantly an “amicus curia” (friend of the court) brief. We were gratified to see that the Court returned a ruling in favor of Heather, basing a major part of its ruling on the Guild brief. This ruling had far-reaching implications, especially for graphic designers and artists. But the fight was far from over.

The next steps meant convincing the BOE that this ruling required the elimination of sales tax for graphic designers and graphic artists in California. In order to do this, we hired the law firm of Nielsen, Merksamer, Parrinello, Mueller & Naylor, with whom we had been working for several years, including the drafting of the Supreme Court “amicus” brief. Our task was to rewrite the regulations, and then get the BOE to agree to them. No easy task. This involved many hours drafting the new regulations, and many meetings with the BOE. If you have ever worked within a bureaucracy, you might have an idea of the nature of this particular project. In the end, we finally got the BOE to agree to our proposed regulations. The net result: we have managed to virtually eliminate all sales tax for graphic designers and graphic artists in California. The official regulations should be published by the BOE in August or September of this year.

It is important to note that the Motion Picture Association of America (MPAA), the Association of American Advertising Agencies (AAAA), Editorial Photographers (EP), and the American Society of Media Photographers (ASMP) joined the Guild in this effort.

Current Situation

After seven years of working on this, countless volunteer hours, many trips all over California to meet with legislators, events, elections, bills, court hearings... well, you name it, we still have work to do. As you can imagine, all of this legal work does not come cheap. Our Chapter has spent approximately $85,000 in this effort over the last seven years. This last push of rewriting the BOE regulations has been particularly expensive, and we still owe our law firm a good deal of money.