Just in time for the holidays, hundreds of Hollywood scribes have received a Scrooge-like surprise from the city of Los Angeles.
The writers are among 151,000 recipients of a letter sent by the city advising them they may owe business taxes going back to 1999 for conducting business without a city tax registration certificate. And the missive, which also warns of possible prosecution, has pushed the Writers Guild of America to ask the city to reassure nervous Guild members.
“The City of Los Angeles has received information that indicates you may be engaged in business within the city,” warned the missive, written by director of finance Antoinette Christovale. “Failure to respond to this notice may result in further enforcement action, which may include the filing of a criminal or civil complaint by the City Attorney’s office.”
Christovale told Daily Variety that sending out all the letters at once may have been been heavy-handed. “I’ve been very surprised by the heavy volume of calls,” she added. “It’s a lesson learned that we should have have done this gradually instead of all at once.”
The missive did not say how the city obtained its information, but it was sent to Los Angeles residents, partnerships and corporations who included a Schedule C as part of their state income tax filing. Schedule C is used to report business income as a sole proprietor, which includes many home-based businesses, such as freelancers.
The letter has generated numerous cries for help in recent days from members of the WGA West.
“We have been deluged with calls and our members are angry and upset,” said WGAW exec Cheryl Rhoden. “Many of them have come from people who are no longer working but have been receiving residuals for work performed years ago.”
The issue of taxing home-based writers had been the subject of occasional negotiations in recent years between the guild and the city, but Christovale’s letter led to talks with the City Attorney’s office to push for the city to issue more specific guidelines that could exempt many of the writers who received the letters.
“Our position has always been that writers are not businesses,” Rhoden added. “There are some writers who have businesses such as production offices with employees, so those writers are properly taxed.”
The guild has set up a hotline number, (323) 782-4560, but stresses it cannot give personal tax advice to members. Rhoden and Christovale said they were hopeful the city can issue more explicit guidelines in the next few weeks.
The letter does not specify rates, but the current minimum business tax for independent contractors is $106.43 per year plus $5.91 per $1,000 for annual revenue above $18,000. Anyone who earns less than $5,000 a year is exempt.
A writer who earned $68,000 in a year would owe the city the minimum tax plus $295, or about $400. Total earnings in 2001 for WGAW members were $782.1 million with employment at 4,525 or 52% of members.
Triggered by new law
The move by the city of Los Angeles was triggered by the enactment of a state law, Assembly Bill 63, which went into effect in January and gave cities the ability to seek unpaid taxes by going through state income tax records. Another new law, AB 205, specifies limits on the imposition of city taxes on individuals.
Christovale noted that the city had no alternative but to seek the revenue information directly from residents since the Schedule C info provided to the city by the state did not include any financial information. She added that a rough city estimate forecasted that the move to seek payment of business taxes would generate $3 million in additional tax revenues annually.
Although the letter took many by surprise, Christovale said the action was discussed by the City Council and the 19-member business tax advisory council. “It’s not as if this was done behind closed doors,” she added.
The letter, which does not give a deadline, contains a business tax application form asking recipients to list their gross business receipts for each of the past three years. But in a confusing note, the application also says liability may be reduced if part of the revenues were derived from outside the city of Los Angeles through “applicable apportionment formulas.”