Taxman's Ax

An IRS ruling may prompt publishers to destroy stocks

Some pens are mightier than other pens. Last year the Supreme Court handed down an opinion that spelled harder times for thousands of publishers and their authors. In Thor Power Tool Co. vs. Commissioner of Internal Revenue, the court ruled that the company could not claim a reduced value on warehoused stock in order to lower its taxes. The accounting procedure, known as a writedown, was a standard legal loophole. Its plugging has allowed the IRS to move with its customary even heavyhandedness. "All the IRS is doing is carrying out regulations, that have been in force for many years," counters Jerome Kurtz, commissioner of Internal Revenue.

All this came as one more piece of bad news to U.S. publishers, already whipsawed by inflation and recession. The IRS edict made it more costly to maintain backlists, the reserve of older and usually high-quality books that sell slowly but steadily year after year. To such houses as Knopf, Random House, Houghton Mifflin, Scribner's, and Little, Brown, backlists confer a sense of tradition and continuity whose value cannot be entirely tallied in dollars. Says Knopf Editor in Chief Robert Gottlieb: "Our intent is to keep our backlist in print as long as possible and to make those books available to, bookstores and libraries. We'd cease being Knopf if that were to change."

Less feisty bookmen admit that they are already moving unsold books out of their warehouses at an accelerated pace. Says Viking Treasurer Theodore Flam: "We're talking about a reverse effect on cash flow. We are losing money on our inventory, and we can't afford to. We might not be publishing the marginal, slower-selling books any longer. It's costing publishers tax money up front now. Publishing, in the end, will lose out." Hard-pressed houses are being forced to remainder their stock (sell it at a large discount and turn the loss into a tax deduction). Few publishers are known to have sent books to the pulpers. When and if they do, the unwanted volumes would be dumped into vats. There, acids would bleach the words from pages before they are processed into such products as toweling and tissues.

The vision of scholarly and scientific books being reduced to toilet paper was instant grist for Russell Baker's saturnine mill. Observed the humorist in his New York Times column: "Thus is the produce of the most fertile brain placed at the disposal of the masses. The most advanced mind is able to serve the humblest illiterate by being applied to contain a sneeze, to comfort some tender portion of the flesh, to absorb perhaps a dollop of fish grease which has landed on the kitchen floor."

The recent tax regulation will be even harder on first novelists, and is certain to curtail lesser-known writers' advances against royalties. The Hollywoodizing of publishing and the boom-or-bust psychology that pervades the industry have made it more difficult to place first novels and nonfiction without mass appeal. The Thor decision can only quicken this trend. Few publishers are likely to take risks on little-known authors without at least a guarantee of a tax break on his unsold books. First printings will be smaller, and second printings may become a rarity for trade books that are not bestsellers. In addition, declining backlists are sure to harm the small, independent bookstore that attracts readers looking for hard-to-find literary works. The result: an economy of scarcity in which prices can only rise. Auto-parts dealers, who must operate under the same tax law, may not suffer at all. A new alternator is a necessity; a new author may be a luxury that can be deferred.

Fortunately, there is one author in a position to do something about this situation. Senator Daniel P. Moynihan (Maximum Feasible Misunderstanding) plans to introduce special legislation that would exempt publishers from the Thor ruling. The bill would join one sponsored by Senator Gaylord Nelson, who favors a moratorium on implementing Thor. In the meantime, publishers searching for loopholes might consider the tax credits available for energy conservation. Books stacked against the walls of warehouses might be considered insulation. For the more literary, who prefer a Swiftian modest proposal, there is always the book-burning stove. sb

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