A Break for Home Businesses

Common sense, it seems, will prevail at City Hall. After the City Council passed a flawed tax program for home-based businesses, council member Laura Chick quickly offered a remedy, one that now appears headed for approval.

Home-based businesses were illegal and subject to immediate shutdown until last November, when the City Council legalized, effective in March, certain categories of such businesses. Seventy-seven other cities in Los Angeles County already had legalized home-based businesses, a fast-growing segment of the local economy.

Last week city officials were deluged with complaints from home business owners rightly incensed that if they complied with the new permit requirement they could be liable for up to three years of back taxes plus interest. The City Council had decreed that home businesses applying for city permits would be liable for those back taxes--though it waived statutory penalties of up to 40% if permits were filed for by June 5. The council, which modeled the law on past tax amnesty programs, figured that lifting the penalties would encourage home businesses to comply with the permit law.

However, what the small business operators were upset over was the retroactive taxation--which came as a big surprise to all who had lobbied for the new law. They properly denounced the provision as unfair, accusatory and punitive. Left unchanged, the amnesty program could push these businesses deeper underground.

Chick, who spearheaded legalization of home businesses, introduced a motion last Friday to waive completely any prior tax liability for those who obtained a business permit during the amnesty period, which would be extended to Sept. 5. All home-based businesses that applied for permits during the amnesty period would be treated as new businesses. The motion would provide for refunds to all who had already paid the back taxes when they obtained their first permit for a home business.

This makes sense. Some home business operators go so far as to argue that they should pay no city business taxes. Not so, for once a home-based business gets a permit it is part of the greater business community and should be treated as such. But the original tax amnesty plan--which was supposed to encourage home businesses--actually punished people for obeying the law. That’s why it needs revision now.