Taxes: Mitchell v. State Board of Equalization

The Second Circuit U.S. Court of Appeals has held that folk singer Joni Mitchell and two members of the pop group America were each due from the state of California approximately a half million dollars in back taxes plus interest. In an unpublished opinion released to the parties on May 11, the court held that the artists' early 1970s recording deals actually were contracts for personal services rather than for the sale of master recordings, and therefore not subject to state sales tax laws (Mitchell v. State Board of Equalization, 2nd Cir., No. B036082).

The decision means a refund of over $ 566,000 for Mitchell and $ 495,000 for the two members of America. The case turned on the nature of the contract language between the artists and their recording studios.

Mitchell and the two band members were represented by Paul Hall of Manatt, Phelps, Rothenberg & Phillips in Los Angeles, CA, with Ronald B. Turovsky of the same firm of counsel.

Mitchell said that the case boiled down to whether the three recording artists performed personal services when they went into recording studios to record their music, or whether they were in the business of selling tapes to record companies. He said he had always felt that they were performing unique personal services, while the State Board of Equalization evidently felt the opposite.

According to the three-judge Second Circuit panel, it refused to certify the opinion for publication because the statutory ambiguity creating the conflict was resolved in 1975 by subsequent state legislation. Turovsky said that the ruling helps clarify pre-1975 law and could affect similar challenges to state taxes now pending in Los Angeles Superior Court brought by folk singer Neil Young and members of the pop group Fleetwood Mac.

The State Board of Equalization's case was argued by State Deputy Attorney General Richard Neilsen.