Friday, September 10, 2010

Philadelphia's Blogger Tax

After a blogger that generated minimal advertising income from his blog was dunned for Philadelphia’s business privilege license fee, the blogosphere lit up with complaints. The license fee is $300 for a life time and $50 for a year for anyone that generates any revenue in the city. It did not matter if you were General Motors or a lemonade stand; you had to pay this license fee. This fee just lets you open an account at the city’s Department of Revenue so that you can pay the Business Privilege Tax. The City began finding out about this income when the IRS started cross referencing with the Department of Revenue about 1099 income. It came to a boiling point this year because of the city's tax amnesty program.
To quell the furor over bloggergate, the Department of Revenue and the Mayor’s Office of Arts Culture and the Creative Economy walked into the lion’s den and sponsored a Q&A about the city’s business privilege tax on September 8, 2010 at the Old City bar/restaurant National Mechanics. Bloggers, freelancers, and small business owners were in the audience. The crowd was small. They probably scared off by the presence of the Department of Revenue. The fact that it was held at the start of the Jewish New Year did not help.
Moira Baylson, the city’s deputy chief cultural officer, kicked off the evening with a brief introduction and then opened up the floor to questions. David Dorman, the revenue compliance program director, along with 10-15 officials from the departments of commerce, the managing director’s office, the division of finance, and the mayor’s office of the arts, culture and the creative economy, was available to answer questions.
Dorman announced, “The city is reconsidering the tax.” When the crowd got excited about the prospect of not paying the tax, Dorman quickly clarified, “Everyone still has to pay the tax until it is actually repealed. The abolition of the tax is a long time way. It will take a vote of City Council to change the tax. “ Lauren Vidas, assistant to the Finance Director, explained, “The Pa state constitution would have to be changed to institute a sliding scale fee because of the uniformity de minimus provisions.”
For those that think the city is considering revision of the tax out of the goodness of their heart, I have a bridge in Brooklyn for you. The powers to be think that abolition of the fee will generate even more revenue for the city’s business privilege tax. Citizens will be more inclined to start a new business sans the license fee.
Andrew Baer, a lawyer whose clients are smaller hi tech companies, asked, “How much revenue has the fee generated for the city? The fee maybe generates $1 million in revenue. The city has received many times that in bad publicity.” Baer was not that far off.
Frank Breslin, deputy revenue commissioner, later confirmed that the fee was an insignificant part of the city’s revenues (.1%) “The business privilege license fee generated a little more than $3 million in revenue for fiscal year 2010 ending June 30. The total tax and fee receipts for the city for fiscal year 2010 were just under $3 billion.” The $3 million figure was a little higher than normal due to the city’s tax amnesty program, reminded Andrea Mannino, special assistant to the revenue commissioner.
I, a freelancer, complained that the tax also hits “the grunts of the editorial world.” I continued. “I do not own my own blog. I am not a freelancer by choice but because of the dire economics of the media industry right now. No one can afford to hire me full time. I am already levied a higher tax rate (6.45% vs. 3.9%) on my income because I pay the business privilege tax not the wage tax. I receive no healthcare benefits and also pay double social security tax. (Self employed freelancers pay both the employees and employer's portion of social security). Dorman conceded, “Freelancers were in a tough position but they still receive 1099 income so they have to pay the business privilege license fee.”
Gloria Bell of Red Stapler Consulting asked, “I take in $10 in ads on my blog that pay for my hosting. It is a wash income tax wise. Do I have to pay the business privilege tax?” Dorman said, “Unfortunately, according to the city, you are generating revenue so you have to pay the tax.” The crowd was surprised that the city is insisting that $10 in income would generate $300 bill.
Not all the crowd was hostile. Geoff DiMasi, proprietor of the website design firm P’unk Ave and the community workspace Independents Hall , proudly paid the business privilege tax three different times. He wanted to know “when the city was going to streamline the process of opening a business in Philadelphia.” He estimated, “it cost me $5000 in accounting fees just to set up each of my businesses.” Dorman said, “There will be soon explanatory videos on the website that should help."
A former tie dyed T shirt maker turned web designer shrugged his shoulders and said the tax made sense. "You open a business. You pay a fee. It seems pretty simple to me. I used the same license from my T shirt business for my web design business."
Ian Cross, founder and CEO of interactive design firm I-site, came because he is sympathetic to anyone starting a business. “I was disappointed that more of the people that were so critical of the tax did not come to the meeting, he commented.
While no one wants to pay taxes, the crowd agreed that a $50 lifetime tax would be more reasonable. Vidas sounded promising, “One of Nutter’s main issues is tax reform so he is thinking about this tax.” Gary Steuer, the city’s chief cultural officer, reminded, “The abolition of the tax still has to be revenue neutral. It is hard times for the city.” Due to those hard times, the city did not pick up the tab for the cocktail hour, it was BYOB (Buy your own Booze)

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