Outcry Spurs L.A. to Weigh Dumping Home-Based Business Tax Rule

Besieged by calls from angry business owners, Los Angeles city officials Wednesday said they were considering dumping a requirement that newly licensed home-based businesses pay up to three years’ back taxes.

Councilwoman Laura Chick, who spearheaded the effort to legalize home-based businesses in November, has drafted a motion that would exempt home-office owners from part of the city’s business licensing rules through Sept. 5. The ordinance, supported by Mayor Richard Riordan, will be introduced at Friday’s council meeting and voted upon Tuesday, said Ken Bernstein, a Chick aide.

“Going backward doesn’t make good common sense,” Bernstein said of the back-payment requirement. “The retroactive nature of the tax code is not what anybody intended.”

Chick and Riordan planned to announce the proposal today at a news conference in a North Hollywood home-based business.

Chick and business activists worked for two years to legalize home-based businesses, one of the fastest-growing segments of business in the country.

When home-office owners recently began applying for a city business permit, they fell under existing business tax laws. Those city laws require that any business that had been operating without a license pay up to three years’ back taxes. That provision took many small-business owners by surprise, including those who had lobbied for legalization.

The rule came to their attention when the City Clerk’s office announced a three-month tax amnesty plan March 5 that waived penalties but not the past-due taxes and interest.

After The Times reported details of the amnesty Wednesday, dozens of outraged home-office owners called the city to complain that it was unfair to require them to pay back taxes for a time when they could not legally be in business.

The home-based business occupation permit also has come under fire from writers who argue that they are exempt from the business license requirement under constitutional guarantees of free speech.

But city officials have said writers, too, must obtain a permit. Bernstein said that issue could be addressed later.