(FORTUNE Magazine) – Being cute and cuddly, or even intangible, may no longer be enough to spare your company mascot and other trademarks from a state tax bite. That's the message from revenue departments around the U.S. in the wake of a South Carolina case involving Toys ''R'' Us and its lovable representative, Geoffrey the Giraffe. Like Hershey Foods, PepsiCo, and many other large firms, Toys ''R'' Us has a separate holding company for its trademarks. This subsidiary, which is based in Delaware and named after Geoffrey, licenses the use of the giraffe's name and image back to Toys ''R'' Us stores across the country in exchange for a percentage of sales. Why go to all that trouble? Well, for one thing, it makes for a nice tax break. The money diverted to Geoffrey reduces the Toys ''R'' Us income subject to state tax. Geoffrey too is off the hook, since Delaware doesn't tax companies whose only business is managing intangible assets. But last year the Supreme Court of South Carolina decided Geoffrey's jig was up: From now on, the holding company would be taxed on the income collected from South Carolina's Toys ''R'' Us stores. The U.S. Supreme Court declined to hear an appeal. Now at least a half dozen more states are looking to shake down Geoffrey and his ilk. Florida and Texas, for example, are each considering new tax rules based on the South Carolina model. Georgia is battling to tax the money flowing to Merck's trademark subsidiary. Some observers wonder just where states will draw the line. The principle upheld in the Geoffrey case -- that a business with no physical presence in a state by way of offices or employees can be taxed on the royalty income it earns there -- seems to open up a vast new world for state treasurers. Michael H. Lippman, the national director for state and local taxes at KPMG Peat Marwick, says that any company earning money through licensing fees, copyrights, or other intangible assets such as loans needs to be put on guard.