Home-Based Business Ordinance Faces Another Suit

A state taxpayers group and a musician have filed the second lawsuit challenging Los Angeles’ home-based business ordinance, arguing that city officials violated Proposition 218 by illegally extending the city’s business tax to home businesses.

“Proposition 218 requires a vote when any tax is extended or raised,” said Joel Fox, president of the Howard Jarvis Taxpayers Assn. “The city should put it [the Home Occupation Ordinance] on the ballot and get approval of the voters.”

The lawsuit was filed Friday in Los Angeles Superior Court by the association and Lyle Murphy, a composer and director of Professional Musicians Union No. 47.

Fox said the lawsuit will be one of the first tests of Proposition 218, which was passed by state voters in November and requires a majority vote when taxes are raised or extended to a new group.

The city legalized home-based businesses in March and required business owners to pay a $25 annual registration fee and city business taxes. The measure generated confusion and outrage from owners of home-based businesses, which were previously prohibited from operating in residential neighborhoods. Consequently, few had paid city business taxes before.

City Atty. James K. Hahn tried to clear up the confusion by explaining in a memo that businesses that have no impact on their neighborhoods would not be required to get the $25 permit but would still have to pay taxes. The Los Angeles City Council then asked Hahn to redraft the ordinance to include his legal opinion. That change is still pending.

Meanwhile, in September, the Writers Guild of America West filed a federal lawsuit arguing that writers and artists should be exempted. The lawsuit contends that the ordinance violates 1st Amendment rights of free speech by requiring government registration of writers.

City officials have argued that all businesses, including previously banned home-based businesses, always were required to pay city taxes. But the taxpayers group contends that the city’s stance is contradictory and that, in reality, city officials have created a new class of taxpayers without the required public vote.