The Writers Guild of America has blasted the city of Los Angeles for foot-dragging in providing guidelines to writers as to whether they have to pay business taxes for working out of home offices.
“The inability of city staff to finalize the guidelines and live up to commitments made to the guild by two administrations has produced confusion and frustration for individuals and their professional tax consultants,” the WGA West said in a statement authored by assistant exec director Cheryl Rhoden and general counsel Doreen Braverman.
Though it contends that many scribes should not have to pay any tax at all, the guild issued the statement to coincide with Monday’s expiration of an amnesty period for penalties from failure to pay those taxes. And the WGA — which has been battling on this front for six years — said the city has botched the situation so badly that tax pros have been informing their clients to simply ignore the notices.
Fuming over inaction
“The guild does not endorse or advocate that advice yet it is the unfortunate result of bureaucratic inaction,” Rhoden and Braverman said.
The WGAW has also issued its extensive guidelines from outside attorneys Alan J. Epstein and Myreon Hodur, who have asserted their advice does not constitute a legal opinion.
“You are not subject to the city of Los Angeles business tax just because you receive a demand notice, visit or phone call from a city employee or bounty hunter,” they wrote. “You are subject to the tax only if you are engaged in business activities within the geographic limits of Los Angeles during the year in which the taxpayer is filing. If you are simply an employee of a business, you are not yourself engaged in its business.”
The issue arose last November after hundreds of film and TV writers received a letter from the city advising them of possible business taxes owed back to 1999 for conducting business without a city tax registration certificate. That missive — sent to a total of 151,000 recipients — said failure to comply could result in criminal or civil charges, generating thousands of calls by confused residents and small-business owners.
The Nov. 18 letter was sent out under a new state law giving cities increased access to state tax data in order to beef up compliance with municipal tax laws. But a month later, the Los Angeles City Council waived penalty and interest charges for those owing less than $500 for one year until June 30; it also told the Office of Finance to clarify the confusion.
In response to the WGA’s complaint, assistant director of finance Pamela Mooney told Daily Variety that the city staff hasn’t been able to clarify the rules for writers partly because the Council decided to conduct a wider revamp through its ad hoc committee on business tax reform. “The city is now taking a broader perspective and approach to these rules,” she added.
That ad hoc committee, headed by Council member and former DreamWorks exec Wendy Greuel, is expected to issue a report on overhauling the business tax in late July. Leslie Pollner, Greuel’s legislative director, asserted the revamp is designed to clarify the language affecting showbizzers such as writers, thesps and musicians.
“The current business tax system was adopted after World War II, and as a result, it’s really archaic and complicated,” she added. “It’s been tinkered with ever since, so it now has 45 categories and 75 fund classifications.”
The WGA singled out Greuel and Council member Tom LaBonge for their support and noted that SAG, the DGA, IATSE and the Recording Musicians Assn. have testified on the need for revamping the tax code.
The dispute first arose in 1997, when the city announced it would tax writers and other talent and craft workers in showbiz. The WGA has contended that the business tax should apply only to the few members who have established companies with employees and offices rather than the great majority of members who are employees.
“Guild representatives have met with numerous city officials in an effort to clarify when writers would and would not be subject to the tax,” Rhoden and Braverman wrote. “The guild also sought a common understanding with city officials as to which exemptions and exclusions in the city’s Byzantine L.A. Tax Code should apply to a writers’ earnings.”
The WGAW also noted that it had even supplied stats to the city earlier this year that adopting the guidelines would not significantly impact Los Angeles tax revenues. “Still, the city’s commitments to a more reasonable and simplified interpretation of the code started to melt away,” the Guild noted. “That effort is now stalled within the city bureaucracy.”
Last year’s demand for back business taxes was sent to Los Angeles residents, partnerships and corporations who included in their state income tax filing a Schedule C for reporting business income as a sole proprietor, which includes many home-based businesses such as freelancers. That letter did 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.