City revises position on back taxes
Industry freelancers, who were shocked to learn Wednesday that they could owe thousands of dollars in city business back taxes, can breathe a sigh of relief — at least for now.
A day after the Los Angeles Times reported that owners of home-based businesses had until June 5 to register with the city and pay three years in back business taxes, the city has revised its position.
In response to calls to her office Wednesday, councilwoman Laura Chick will introduce a motion Friday to extend the amnesty deadline until Sept. 5 and to waive all back taxes.
Home business owners will still have to pay a $25 registration fee and a minimum tax of between $50 and $118. In subsequent years, businesses must pay an additional tax per $1,000 of gross receipts.
Mayor Riordan has expressed his support for the new measure, which will likely be voted on next week.
“The calls we got made a lot of good points,” said Kenneth Bernstein, planning deputy to councilmember Chick. “(The back taxes requirement) wasn’t consistent with our original intent, which was to encourage people to be legal.”
It was Chick who spearheaded the Home Occupations Ordinance, which allows home-based businesses to operate legally within the city. Previously, regulations under the Dept. of Building and Safety prohibited home-based business in Los Angeles.
That newfound legitimacy, however, focused attention on existing requirements for all businesses to obtain licenses and pay business taxes at a rate of up to about 0.6%.
Those affected by the requirements include writers, publicists and video editors who work at home and operate as independent contractors.
While city officials noted that these regulations have always existed, apparently few in the entertainment business had ever heard of the law.
“This is outrageous,” said screenwriter Mira Tweti upon learning of the requirements. “I’ve got to move out of L.A. Who wants to be in a situation where I sell a script for a million dollars and I have to pay the city an enormous amount of money just because I live a block away from Culver City?”
The Writers Guild of America had expressed its views on the Home Office Ordinance during preliminary hearings several years ago. According to a guild spokeswoman, “The guild advised the city that the vast majority of screen, broadcast, cable and interactive writers work as employees and would not be subject to a home business license.”
However, a number of screenwriters, including those selling spec scripts, are treated as independent contractors, noted “Playing God” scribe Mark Haskell Smith.
“The cost of doing business as a screenwriter is already exorbitant,” Smith added. “You give 10% to your agent, 5% to your attorney, another 10% if you have a manager, 1-1/2% to the guild, and then you’re taxed at 42%. You’re going to tell me I’m going to give another half percent?”
While it will not be included in Friday’s action, the council may in the future look into whether all writers should be required to obtain business licenses and pay business taxes.
“It’s councilwoman Chick’s personal view that writers, screenwriters and authors should not be required to pay a city business tax,” said Bernstein.
However, Bernstein said it was reasonable for other home-based businesses to have to obtain business licenses and pay business taxes.
“Why should a publicist be treated differently from a very large public relations agency just because they’re home-based,” he said. “We’re trying to create a level playing field. To be home-based, you shouldn’t be an outlaw. At the same time, that doesn’t relieve one of the responsibility to pay taxes like any other business.”
But one film editor, who often cuts portions of major pics from home, said he was perplexed by what he saw as a double message the city was sending to the entertainment business.
“Everything is being set up so we are trying to cut down the amount of commuting,” the editor said. “Technology is now allowing a lot of people to work from home. In the entertainment business, digital linkups will soon be cost-effective enough for a director to work simultaneously with an editor in another state.”
“The fact that we would be penalized or pay an extra tax is a little distressing,” the editor said.
According to Gary Mendoza, deputy mayor for economic development, the issue is reflective of a city tax code which hasn’t kept pace with an economy dominated by the entertainment industry. “There is a study underway to see what changes should be made. One of the findings is that having a tax on gross receipts is particularly burdensome.”