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Sunday, December 19, 2010

Pay Up

Got a blog that's set up to make (even very little) money? The city considers you a business, and would like you to pay $300.

by Valerie Rubinsky

Philadelphia Citypaper (August 18 2010)

[On August 31 2010, this story was altered from its originally published version to reflect new information and clarifications that had been published separately.]

For the past three years, Marilyn Bess has operated MS Philly Organic {1}, a small, low-traffic blog that features occasional posts about green living, out of her Manayunk home. Between her blog and infrequent contributions to {2}, over the last few years she says she's made about $50. To Bess, her website is a hobby. To the city of Philadelphia, it's a potential moneymaker, and the city wants its cut.

In May, the city sent Bess a letter demanding that she pay for a business privilege license - which cost $50 per year or $300 per lifetime.

Check out The Clog {3} for some answers to the many questions this article has raised.

"The real kick in the pants is that I don't even have a full-time job, so for the city to tell me to pony up $300 for a business privilege license, pay wage tax, business privilege tax, net profits tax on a handful of money is outrageous", Bess says.

It would be one thing if Bess' website were, well, an actual business, or if the amount of money the city wanted didn't outpace her earnings six-fold. Sure, the city has its rules; and yes, cash-strapped cities can't very well ignore potential sources of income. But at the same time, there must be some room for discretion and common sense.

When Bess pressed her case to officials with the city's now-closed tax amnesty program, she says, "I was told to hire an accountant".

She might not be alone. After dutifully reporting even the smallest profits on their tax filings this year, some - though the city doesn't keep track of how many - Philadelphia bloggers were dispatched letters informing them that they may owe the city for a privilege license, plus taxes on any profits they made.

Even though small-time bloggers aren't exactly raking in the dough, the city requires privilege licenses for any business engaged in any "activity for profit", says tax attorney Michael Mandale of Center City law firm Mandale Kaufmann. This applies "whether or not they earned a profit during the preceding year", he adds.

So even if your blog collects a handful of hits a day, as long as you've made the decision to make it a commercial enterprise, the city thinks you should cut it a check. According to Andrea Mannino of the Philadelphia Department of Revenue, in fact, simply choosing the option to make money from ads - regardless of how much or little money is actually generated - qualifies a blog as a business. The same rules apply to freelance writers. As former City Paper news editor Doron Taussig once lamented {4}, the city considers freelancers "businesses", and requires them to pay for a license and pay taxes on their profits, on top of their state and federal taxes.

The city says that it is not targeting bloggers; rather, anyone who reported business income to the IRS, from a blog or freelance writing or anything else, should have received the same form letter as Bess.

The notion that even the smallest of businesses is supposed to fork over money - potentially more than they earned - for a privilege license has generated some controversy. In June, City Council members Bill Green and Maria Quiñones-Sánchez unveiled a proposal to reform the city's business privilege tax in an effort to make Philly a more attractive place for small businesses. If their bill passes, bloggers will still have to get a privilege license if their sites are designed to make money, but they would no longer have to pay taxes on their first $100,000 in profit. (If bloggers don't want to fork over $300 for a lifetime license, Green suggests they take the city's $50-a-year plan.)

Their bill will be officially introduced in September. "There's a lot of support and interest in this idea", Green says.

Perhaps, but it doesn't change the fact that the city thinks Marilyn Bess should pay the same for a privilege license as, say, City Paper. "I definitely don't want to see people paying more in taxes and fees than what [we] earn", says Bess. "But I do think the city needs to establish a minimal amount of money that they won't tax, whether you're a bike messenger, microblogger or a freelance typist".





{4} Slant, "Taxed Out" (April 28 2005)

Copyright (c) Philadelphia City Paper

Bill Totten


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