Court Opinion

ID: 9782524
Source: CourtListenerOpinion
Date Created: 2023-08-30 18:55:08.551415+00
Date Added: 2024-06-11T07:35:04.864372
License: Public Domain

KENNARD, J., Dissenting.
California imposes a tax on the sale of tangible personal property but not on the sale of intangible personal property. Here, plaintiff Heather Preston temporarily transferred her original artwork to a publisher for reproduction in children’s books. Is such a transfer a sale of intangible property and thus not taxable, or is it a sale of tangible property and therefore taxable? The majority holds the latter. (Maj. opn., ante, at pp. 208-212.) The majority also concludes that the technology transfer agreement tax statutes (Rev. & Tax. Code, §§ 6011, subd. (c)(10), 6012, subd. (c)(10))1 are retroactive and that plaintiff’s transfer of her artwork is taxable under those statutes. (Maj. opn., ante, at pp. 213-215, 221-225.)
I disagree on both points.
I
Unlike the majority, I agree with plaintiff that the transfer of her original artwork to a publisher for reproduction in children’s books was a transfer of intangible property and therefore not taxable. As plaintiff points out, this transfer, for tax purposes, is indistinguishable from an author’s transfer of an original manuscript to a publisher. A Board of Equalization regulation expressly recognizes the latter transaction as a transfer of intangible property and thus not taxable. (Cal. Code Regs., tit. 18, § 1501 (regulation 1501).)
Regulation 1501 provides in relevant part: “[A]n idea may be expressed in the form of tangible personal property and that property may be transferred for a consideration from one person to another; however, the person transferring the property may still be regarded as the consumer of the property. Thus, the transfer to a publisher of an original manuscript by the author thereof for the purpose of publication is not subject to taxation. The author is the consumer of the paper on which he has recorded the text of his creation. However, the tax would apply to the sale of mere copies of an author’s works or the sale of manuscripts written by other authors where the manuscript itself is of particular value as an item of tangible personal property and the purchaser’s primary interest is in the physical property. Tax would also apply to the sale of artistic expressions in the form of paintings and *227sculptures even though the work of art may express an original idea since the purchaser desires the tangible object itself; that is, since the true object of the contract is the work of art in its physical form.” (Italics added.) The majority too recognizes that, under this example, the author of the manuscript is exempt from taxation. (Maj. opn., ante, at p. 211.)
Like the author in regulation 1501’s example, plaintiff artist expressed on paper her creative efforts, which she transferred to a publisher for reproduction in children’s books. The paper was merely the medium of transfer. Just as the “author is the consumer of the paper on which he has recorded the text of his creation” (reg. 1501), plaintiff artist is the consumer of the paper (tangible property) on which she has recorded her artistic expression (intangible property).
The distinction between an author’s creative expression in the form of words and, as here, an artist’s creative expression in the form of illustrations for a book should make no difference for purposes of taxation. In both, the creative expression represents intangible property. In both, the vehicle for the artist’s expression is the paper, which is tangible property. I therefore agree with plaintiff that the transfer of her artistic renderings to a publisher for reproduction in children’s books should, for tax purposes, be treated the same as the transfer of an author’s manuscript to a publisher.
The majority’s holding to the contrary would lead to anomalous results. Consistent with the manuscript example mentioned in regulation 1501, an author’s transfer of a manuscript to a publisher would be exempt from taxation. Yet an artist’s transfer of original drawings to the publisher for reproduction as illustrations in the same book would be taxable. Because the transfer of property determined to be tangible even though valued in part for its intangible content is taxed on the full value of the transaction (Simplicity Pattern Co. v. State Bd. of Equalization (1980) 27 Cal.3d 900, 912 [167 Cal.Rptr. 366, 615 P.2d 555]), an author of a manuscript who also happened to draw the illustrations for the book would, under the majority’s holding, have to pay taxes on both the transfer of the manuscript and the artwork if the transfer to the publisher occurred at the same time; but if the illustrations were transferred at a different time, only the transfer to the publisher of the illustrations for the book would be taxable.
According to the majority, plaintiff’s original artwork is distinguishable from an author’s original manuscript because artwork, unlike a manuscript, is physically useful in the manufacturing process and essential to the ultimate production of books, whereas a manuscript furnishes only “verbal guidance.” The majority, however, provides no support for this broad assertion. The majority also asserts that plaintiff’s transfer agreements with the *228publisher would be “essentially ‘worthless’ ” without the “physical artwork.” (Maj. opn., ante, at p. 211.) But so would an author’s agreement with the publisher to transfer a manuscript without ever providing the manuscript.
To summarize, I see no meaningful difference between an author’s transfer of a manuscript to a publisher (nontaxable under the majority’s holding) and an artist’s transfer of drawings to a publisher for a book’s illustrations (taxable under the majority’s holding). If the author is not subject to taxation, then neither should the artist here be.
II
Even if I were to agree with the majority that the transfer here is distinguishable from a manuscript under regulation 1501, that artwork is “technology,” and that the transfer is governed by the technology transfer agreement statutes (maj. opn., ante, at p. 225), I would conclude, contrary to the majority, that these statutes are not retroactive.
At issue are plaintiff’s transfers of illustrations to the publisher for the period January 1, 1990, to December 31, 1993. Thereafter, the Legislature enacted the technology transfer agreement statutes at issue and directed that they become operative on April 1, 1994. (Stats. 1993, ch. 887, § 5, p. 4831.)
A statute is presumed to operate prospectively unless there is “an express declaration of retrospectivity or a clear indication” that the Legislature intended otherwise. (Tapia v. Superior Court (1991) 53 Cal.3d 282, 287 [279 Cal.Rptr. 592, 807 P.2d 434]; Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 153 [233 Cal.Rptr. 308, 729 P.2d 743].) Here we have neither.
The majority insists, however, there is a clear indication of the statutes’ retroactivity. In enacting the statutes, the Legislature expressed its intent to “clarify the application of the Sales and Use Tax Law ... to technology transfer agreements, as defined.” (Stats. 1993, ch. 887, § 3, p. 4831.) I do not share the majority’s view that because the Legislature used the word “clarify” when it enacted the technology transfer statutes, it must have intended their retroactive application. Nor does the statutes’ legislative history support such an intent by the Legislature.
From the Legislature’s decision to postpone the operative date of the statutes to April 1, 1994, 90 days after their effective date (Stats. 1993, ch. 887, § 5, p. 4831), one can reasonably infer, as I do, that the Legislature intended the technology transfer statutes to apply prospectively. As the *229majority notes, a statute’s operative date may be postponed to give people time to comply with the statute, to allow government agencies to formulate implementing procedures, or to allow for the passage of related legislation. (Maj. opn., ante, at pp. 223-224.) This enables individuals and entities to adjust to future applications of new law.
Here, the statutes in question established new law. The Legislature enacted those statutes in the wake of the Board of Equalization decision in Petition of Intel Corporation (June 4, 1992) [1993-1995 Transfer Binder] Cal.Tax Rptr. (CCH) paragraph 402-675, page 27,873. (Maj. opn., ante, at pp. 216, 222.) The Legislature, however, broadened the types of agreements qualifying for a tax exemption beyond those recognized in Intel. (Maj. opn., ante, at pp. 216-218.) Given this change in the law, the Legislature’s postponement of the statutes’ operative date to a date 90 days after the statutes’ effective date tends to support an intent to have the statutes apply prospectively rather than, as the majority concludes, retroactively.
Because there is no clear indication that the Legislature intended to give retroactive effect to the technology transfer agreement statutes enacted after the tax period at issue, I conclude that those statutes are inapplicable here.
Conclusion
For the reasons stated above, I would reverse the judgment of the Court of Appeal.
Mosk, J., and Werdegar, J., concurred.

All further statutory references are to the Revenue and Taxation Code.