Taxing Creativity Is a Mistake

Should government have the power to license, tax and regulate ideas? Is our creative community an asset that deserves protection? The Budget and Finance Committee of the Los Angeles City Council will take up these issues soon when it considers a proposal to exempt home-based artists and writers from city business taxes and licensing requirements.

The issue is raised now because the City Council recently passed an ordinance allowing home-based businesses to exist. Thousands of writers and artists who have long been working quietly and illegally at home are subject to new scrutiny. The City Clerk has announced an expanded enforcement program to identify and prosecute unlicensed home-based businesses after a short period of amnesty.

A host of problems arises when regulations that apply to home-based caterers, dog groomers or gardeners are applied to the trade in ideas. Politicians hate seeing their faces in ugly editorial cartoons. Giving government the power to grant or deny licenses to its critics creates a conflict of interest and threat of censorship that chills free speech.

City bureaucrats are given wide latitude in deciding whether or not to grant licenses to artists. Although the home-occupation ordinance does not, on its face, regulate on the basis of the content of an artist’s work, the ordinance contains no standards for determining when the application for a home occupation license may be denied. For example, “adult entertainment” is prohibited as a home occupation, and it is left to a clerk to decide what is obscene. A city zoning administrator could order unlicensed creators not to write or draw in their homes; he could demand an “inspection” of the home to see if unauthorized writing or drawing were occurring, then prosecute the unlicensed artists if they continued to create. The prospects are frightening.

Even if the city could find a way to clear this constitutional minefield, licensing and taxing creators is bad policy.

Local business taxes are different from the personal income taxes that artists, writers and everyone else must pay. These taxes are meant to recover the costs of city services that businesses use. City governments vary local taxes to encourage businesses to act in ways that benefit the community, for example, by lowering taxes to woo a movie studio that might move into town. City officials need to keep tax rates and regulations at competitive levels or businesses will flee.

The movie industry has made Los Angeles a natural magnet for artists and writers. Our community of creative artists is unique and thriving--but fragile. The same technology that allows writers and artists to work at home also gives us mobility and diminishes the importance of face-to-face meetings with clients and colleagues.

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As a cartoonist, I deliver my sketches by fax and my final artwork by modem or Federal Express. My clients have no interest in meeting with me in person. By working in my house, I don’t impose the costs on the city that business taxes are meant to recover. Art buyers select illustrators by flipping through directory books with samples from hundreds of remote artists. Web sites for portfolios and stock art agencies are gaining in popularity. I don’t even need to be in town to sell to potential clients. It doesn’t matter where I live--in fact, state taxes encourage me to move.

California imposes an extra tax on the transfer of rights to artwork (in addition to income taxes and local business taxes). A California advertising agency art buyer, flipping through a directory, knows that she doesn’t have to pay California’s taxes on reproduction rights if she hires artists who live out of state. With so many artists to choose from, it would be foolish to incur the extra expense of hiring a local artist. Almost all of my work comes from out-of-state clients because of California’s art taxes. If I were to move out of state, I could boost my business by getting work from California clients.

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When Los Angeles artists and writers go to parties, the conversation is always the same--how everyone is rearranging their affairs to move to some more attractive place. Oregon and Washington seem to be the favorite destinations. Artists are on their way out.

There is hope for artists at the state level. State Sen. Cathie Wright (R-Simi Valley) has introduced legislation (SB 664) that would exempt the transfer of reproduction rights to artwork from tax. The legislative analyst’s office is doing a report on the costs and benefits of the bill, which will be heard in the state Senate Revenue and Taxation Committee in January. Writers are already exempt from this state tax.

There are scores of constitutional arguments for the City Council to exempt home-based artists and writers from local regulations, but the bottom line is self-interest. Artists are unique. Caterers, dog groomers and gardeners will stay in town as long as there are people to feed, dogs to groom and gardens to tend. Artists and writers can move to Oregon. Our creative community is a valuable asset that defines Los Angeles and is deserving of protection; we will be poorer if it is lost.