How a 1st Amendment Cause Could Become a Tax Dodge
Do 1st Amendment rights apply to therapists and masseurs? Does the Los Angeles city bureaucracy have the power--and will--to jackboot its way into the homes of working scribes and confiscate their scribblings? Why should anyone who works at home pay city business tax, anyway?
This unlikely assortment of questions has emerged in what may be the oddest tax mutiny yet--even in California, where tax revolution began. It’s the war against the Los Angeles home-business tax. And it seems to be taking an odd turn.
Founded on the assumption that your home isn’t just your castle but your workshop, this revolt wasn’t begun by property owners per se, as Proposition 13’s insurrection was. Rather, it has erupted, recently and loudly, in the city’s intellectual and creative communities. The movement’s progress has bureaucrats fretting: Not only might it eliminate tens of millions of dollars in scarce city revenues but, they fear, it could turn some residential neighborhoods into semi-commercial zones.
The no home-business-tax jacquerie followed Los Angeles’ well-meant attempt last year to legalize the increasing number of “non-intrusive” home businesses. Problem was, the newly legal home businesses had to pay city business tax. This excise involved a $25 registration. Home proprietors also paid an earnings-based minimum of around $100, plus about a half-percent of revenues greater than $18,000. Unfortunately for the city, the previously untaxed homebodies included working writers, because in this telecommuting age, many of them work at home.
If officials imagined this community would applaud a chance to enhance city revenues, they guessed wrong. City tax computes as an infinitesimal percentage of the state and federal taxes any earning writer pays. To various writers’ groups, however, this “license” to work at home sounded too much like requiring a license to write. By extension, at least, city officials could then control what you wrote, particularly if your writing displeased them--on the pretense of irregularities, the authorities could smash your down door and confiscate notebooks, manuscripts and software. Bureaucrats protested that the opponents had it completely wrong, that they’d only be billing individuals who had previously dodged their business tax while filing for state (and federal) home-business exemptions in a standard Schedule C.
But if, as philosopher Martin Heidegger suggests, we all live in the world of language, the writers own the maps. Articles and op-eds in local and national papers ridiculed the plan, even though much of the writerly propaganda sounded more like recycled screen treatments than fact. With such propaganda, the Writers’ Guild of America had little trouble drawing other writers’ unions, film employees’ groups, musicians and songwriters’ associations into the fold. While the writers and their allies were winning the war of words, two lawsuits, one on the basis of tax law, the other on freedom-of-speech grounds, were filed against the ordinance.
Exasperated members of the City Council were ready to exempt the creative community from both the registration and much taxation when the game moved abruptly out of town. Perhaps because Joel Fox of the Howard Jarvis Tax Assn. reportedly had termed the writers’ stance elitist, the anti-city-tax crusade became dramatically inclusive as it moved to Sacramento.
In Assemblyman Tony Cardenas’ (D-Sylmar) anti-business-tax legislation, the 1st Amendment angle has disappeared as the scope of the undertaking has widened enormously. AB 2065, which the Assembly could vote on this week, would forbid any California city to tax any home business that doesn’t advertise, has no more than one employee, handles no more than one client an hour and gets no more than two deliveries daily. The legislation’s wording doesn’t state what such businesses might be.
The bill sailed through the Assembly Local Government Committee, even though officials of Los Angeles and other cities warned of dire “unplanned” effects. Tax revenues might be lost as small businesses fled rented offices to private homes. The bill’s open-ended language, which Cardenas is now fine-tuning with an amendment intended to make his law respect local zoning, prohibits any “legislative body of a city” from imposing “work permit requirements . . . a regulatory license or . . . a regulatory license fee on any person working in his or her own home.” Not just writers, but accountants, stenographers, lawyers, lobbyists, consultants, psycho- and other therapists and many other kinds of “low-impact” one-employee businesses could, henceforth, work out of dens and living rooms--and off the city tax rolls.
L.A.’s pen-pushers are struggling to estimate how much revenue would be lost. The guesses range from a yearly $50 million to $100 million. But that’s not all the damage possible. City Councilman Mike Feuer fears that a legal-equity issue might arise between, say, a “lawyer who works out of his house” and another with an otherwise similar office practice. The second attorney might contest that his enterprise also ought to be exempt from the business tax: If a court agreed, it could void the impost for many professionals not working at home.
The City Council is now defensively pushing its own home-business registration-exception ordinance. Unlike the Cardenas bill, however, it forbids the home-business designation to many high-impact occupations. But Feuer and Asst. City Atty. Gwendolyn R. Poindexter speculate that Cardenas’ more liberal law could preempt the local regulation. This might result in the residential siting of any business that fell within the state bill’s broad strictures, which could include businesses that, under city law, would otherwise require special permits, like body-piercing and tattoo parlors, masseurs and “yoga-spa retreat centers.”
As city officials read it, by diminishing Los Angeles’--or any California city’s--ability to tax and regulate, the Cardenas legislation might also erase certain local controls that isolate intrusive enterprises. In any case, in some ineluctable fashion, the hot-button legal issue at hand has miraculously mutated from the right of free speech for writers to the right of many scantily regulated small businesses to dodge taxes--and the permit process--by staying home.
