Philadelphia: 'Proclaim LIBERTY throughout the land,' by Tony the Misfit/flickr. Used gratefully via a Creative Commons license
The city of Philadelphia has been under fire on the web for what’s been called a “blogging tax,” a new business tax under which several local bloggers have been billed on business revenue earned on their sites. As a blogger who lives in Philadelphia — and the newest member of the Wired.com team — I feel I have to dispel some myths guiding the “WTF?” reaction many writers had to this story.
But I also want to point to some larger problems beneath the surface. This problem is much bigger than blogs in my city.
A roundup of blog coverage at The Atlantic Wire nicely condenses and distills many of these myths:
The city of Philadelphia is now requiring bloggers who sell ad space to register for a $300 “business privilege license” to continue working in the city. The move to bolster the city’s finances — first reported by the Philadelphia City Paper – was greeted with deep skepticism.
Let’s take these one at a time.
Myth #1: Philadelphia has a new blogging tax.
Truth: The tax isn’t new, and it isn’t for bloggers. It covers any business in the city of Philadelphia, whether you’re a multinational oil company or (in principle) a kid running a lemonade stand. In particular, it falls hard on freelancers, or anyone working for anything that doesn’t fall under a traditional payroll wage.
Like many people who do freelance work, I claimed federal income last year on a 1099. In my case, it wasn’t for writing, but for tutoring SAT students in the Philadelphia suburbs. I worked for a company, but I was technically a freelancer.
Then I got a letter from the city of Philadelphia, where I live, announcing that I qualified for its tax amnesty program. The federal government had shared some or all of my tax return with the city’s revenue department, and the city wanted to tax that income. I had to register my “business,” pay either a $300 lifetime fee or $50 just for that particular year, and calculate both my gross receipts and net profits, both of which fell under the city’s business privilege tax. (And before you ask, oh yes, we make fun of that name here in Philadelphia.) If I came forward to voluntarily pay up before June, I wouldn’t be assessed penalties. If I didn’t, the city would report me to credit agencies, hire collectors, and/or sue me to get their wanted revenue.
My position had been that since all my tutoring had been in the suburbs, I didn’t have a business presence in the city of Philadelphia and didn’t fall under the tax. But on my return, I’d claimed my travel expenses as a business expense against my tutoring income. That meant (according to them) that since I lived here, I did in fact do business in the city. I imagine even bloggers aware of the possibility that they might have to pay the BPT had the same confusion. Online retailers have resisted states’ efforts to collect sales tax. Where is a blog located? Where are the revenues paid?
But it’s not just bloggers who’ve been surprised by this tax, or the city’s ramped-up efforts to collect it. It’s anyone whose contract employer files a 1099 or who voluntarily claims non-wage income on their federal return. (If you claim wage income, the city has a tax for that too.) That’s a lot of people.
Myth #2: The tax is for bloggers who sell ads on their sites.
Truth: The tax would cover any kind of income. Do you use Google AdSense? Are you an affiliate of Amazon or other retail sites? Do you sell shirts, mugs, prints, or posters? Sell anything on eBay or Etsy? Collect donations via PayPal?
PayPal/eBay doesn’t provide 1099s at all, except for interest on PayPal’s money market account. Amazon Associates and Google AdSense accounts with revenues greater than $600 get a 1099, which is the minimum amount required by federal law.
None of these sites provide any guidance on payment of state and local taxes. All of them have resisted efforts from local governments to collect sales tax, claiming that their websites don’t constitute a business/retail presence.
So if your neighbor buys something from Amazon through your site, they don’t pay sales tax on it. Neither does Amazon. But you could be billed for helping to sell it.
Myth #3: The blogging tax is unique to Philadelphia.
Many cities have local taxes on wages, income, business revenue, and gross receipts. New York City charges a commercial rent tax, a general corporation tax, and an unincorporated business tax, which would probably fall on any income-generating blog or other website. New York, however, exempts the first $3400 of tax liability. (Technically, they provide a credit.) Philadelphia doesn’t, which is why we have the specter of bloggers being billed upwards of $300 for earnings less than $20. New York also has a website that’s easy to understand. Do you know what your city’s tax policy is?
Myth #4: This is just about business revenue.
Cities can easily make exemptions not just for the amount of money earned, but for the kind of activity as well. Philadelphia has a sales tax exemption for clothing, to encourage commuters and residents to shop in-town. As NYU journalism professor Jay Rosen told wired.com: “In New York City, the law says if you’re a street vendor you have to get a license, which costs money, but there’s an exception if you’re selling books. No license needed. That would be a smart thing for Philly to do with bloggers who have small incomes. A First Amendment exception.”
Bloggers who pay business taxes have the same responsibilities to the government as newspapers or other established media outlets, without always receiving the same journalistic courtesies and protections under the law. Newspaper chains can also take advantage of a common tactic to large businesses, arranging their books so that none of their profits (but most of their overhead) falls under the jurisdiction of a municipal tax. Sole-proprietor resident-bloggers can’t do that.
The city’s largest paper, the Philadelphia Inquirer, was remarkably dismissive of the bloggers’ position, more concerned that the city had been made “the subject of head-scratching and ridicule”:
On BuzzFeed, a popular website for stories, photos, and video competing to go viral, “Philadelphia Blogger’s License: $300″ was in the running, in between videos of a bored cat having a birthday party and Lady Gaga dancing at a Kiss concert…
Well, some bloggers who make a few dollars from Web ads were informed recently that they had to obtain a license. Not because they were bloggers, the city says. But because they made money.
Something about small-time bloggers getting hit up for money by the government got a lot of blog writers and readers fired up.
Actually, most of us were fired up about the cat’s birthday party. Getting threatened with lawsuits and debt collectors raises a lot of emotions, but “fired up” isn’t one of them.
There’s another first amendment issue at work here. Because cities have tremendous latitude as to how far to go in pursuing a blogger’s taxes — offering amnesty for some, lawsuits for others — they can potentially use revenue collection as a means to punish dissenting, unfriendly, or unconnected voices. Philadelphia isn’t the only American city with a long history of selective taxation and enforcement, favors to friends, or pay-to-play.
Myth #5: Philadelphia is collecting this tax because they’re strapped for cash.
Now, let me be clear: the city, like many other local governments, is absolutely facing shortfalls, partly from the economic crisis, mostly from long-term problems in the city’s budget. They’re charging businesses for trash collection, which always fell under property tax before. The water department is charging property owners with a special fee for water collected in the city’s storm drains. The revenue department has been nothing if not innovative.
But the city isn’t pursuing this tax because of the money. They’re doing it because, like many other governments, their tax structures haven’t kept pace with a changing economy, and the political and bureaucratic structures have been unable to do anything about that apart from tinker around the edges.
Last year, the local City Paper (the same one who initially broadcast the blogging tax to the world) highlighted a new Philadelphia institution called Independents Hall. Just a few blocks from Independence Hall, it’s a co-working office for freelancers and folks who work outside the office: “designers, developers, writers, artists, entrepreneurs, scientists, educators, small business owners, telecommuters, marketers, videographers, game developers, and more.” For $275/month, you get 24/7 access, a dedicated desk, and a place to store your stuff. For less, you can get a day or a monthly part-time pass. Last year, memberships and reservations spiked:
It’s too early to know whether self-employment has been trending upward in Philly since the recession hit (between 2002 and 2005 — the last time data on entrepreneurship was collected — it rose from 13.5 percent to 15 percent). Meg Shope-Koppel, director of research at the Philadelphia Workforce Investment Board, says that “as recessions begin, some industries start using more contractual workers,” though “it’s not going to be a huge spike, because in some areas, businesses are failing.”
Most of the people at IndyHall knew about the BPT and had already paid their lifetime passes. They talk with each other about how to structure their finances so they don’t get walloped with a huge bill. They help each other set up LLCs and register their businesses as nonprofits (who are completely exempt from the tax).
They stick together. They have to. They’re the only ones who know. Nobody else knows anything.
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