Scripting a Tax Break

Like generations of screenwriters before him, Shone Kirkpatrick’s work reality runs counter to his profession’s poolside-lounging, cell phone-abusing image.

He labors mostly alone, in the comfortable but utilitarian study within his West Toluca Lake home. His work brings no visitors to his quiet neighborhood, creates no parking nuisance or fire hazard, and Kirkpatrick frankly sees no reason to start paying city business taxes.

“If you’re a CPA running a business out of your house, then yes, you should pay a tax, because you’re creating a steady stream of clients coming and going,” he said. “But to impose a business tax on someone sitting at home writing doesn’t really make sense to me.”

Given Los Angeles’ sizable population of artists, imagine the collective angst when the city started notifying residents this spring of its home-based business tax, until recently an obscure obligation that dates to the 1920s. Essentially, the city reminded them that a new ordinance making it legal to work from home in a residential area also means that tens of thousands of home workers owe city taxes.

Now, the people comprising what city officials call “the creative community”--mainly fiction writers, journalists and artists--are lobbying for an exemption from the tax.

They maintain their work is sporadic and doesn’t create the same drain on city services as that of a home-based accountant or consultant, whose clients add to traffic, air pollution, parking problems, and wear and tear on infrastructure.

As West Los Angeles screenwriter Art Eisenson put it: “When I sit at home and work, there’s less of a chance of me creating a pothole.”

Besides, artists argue, they define the city’s image and drive its economy more than other home workers do. Plus, they note, the state does not tax them, out of regard for the 1st Amendment.

The dissenters have drawn the attention of City Council members Laura Chick and Mike Feuer, who recently asked several city officials to examine the issue. The city clerk, chief administrative officer, city attorney and chief legislative analyst will spend the next few weeks reviewing the policies of other California cities and determining if Los Angeles should offer an exemption to keep its edge in the competition for entertainment industry revenues and prestige.

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The exemption debate comes as the city prepares an overall tax equity study, which was prompted in part by a delinquency rate in some business brackets that officials privately admit exceeds 30%. Home workers contribute a relatively small portion of the city’s business tax revenues; the city collects $300 million annually in business taxes, according to the city clerk’s office, but next year’s budget projects just $1 million of that will come from home workers.

Results of the study, which officials hope will guide efforts to even out the system’s disparities, are expected this summer. Ultimately, City Council approval would be required to grant an exemption.

Chick says that when she started the drive to legalize home businesses years ago, she saw it as a simple zoning problem that would clarify which activities should be allowed in residential neighborhoods. Neither she nor her City Hall colleagues foresaw the tax ramifications.

“I don’t want to hurt that community. I want it to continue to flourish,” said Chick, who represents the west San Fernando Valley. “There’s a lot of, understandably, emotion involved here. Because here’s a group of people who have assumed that they’re operating in a totally legitimate and law-abiding fashion. And now they’re being told, ‘No, you’re not--and it’s going to cost you.’ ”

The actual cost of the tax varies according to the type of business. As an example, however, a writer earning $30,000 annually would pay $202.35.

More is at stake than money, tax opponents insist.

“It seems like they’re biting the hand that feeds them,” said Jay Vigon, a Studio City graphic designer. “They want this identity as an entertainment capital and then they make it really hard on people, especially those starting out.”

Eisenson said it’s unfair and ineffective for the city to aggressively tax individual artists while offering generous tax breaks and other incentives to movie companies.

“It’s ludicrous for the city to want to tax me,” he said. “They can tax me when they stop giving the studios a break.”

There is no official estimate of how many residents might qualify for the exemption, but the Writers Guild of America has 6,500 members in Los Angeles County, the vast majority of whom live in the city. There are countless others in less organized fields such as music composition, photography and painting.

Cheryl Rhoden, a spokeswoman for the guild’s West Coast division, said her phone has hardly stopped ringing since members discovered their responsibility for paying the tax.

“There was a time in Shakespeare’s day when writers were taxed. It was an attempt to control them,” she said. “I don’t think that was the City Council’s intent. . . . But a lot of writers who recognize hardship will feel this.”

The guild has hired an attorney and a Venice-based lobbying group, Delphi Associates, to present its views. Should the tax stand, Rhoden said, a lawsuit would not be out of the question.

Several years ago, the guild mobilized hundreds of irate writers to fight a move by West Hollywood to tax its artists and writers. Today, West Hollywood--which recently adopted the official slogan “Where Creativity Gets Down to Business”--remains one of the few cities in the state to exempt that population.

San Francisco, for example, does not exempt residents in creative professions from its home-based business tax. In New York City, the home-based business tax emphasizes location and commercial property value rather than income.

“New York would never do something like this,” said Hancock Park screenwriter Allan Leicht, a former New York resident.

In considering an exemption, the city must also determine who exactly would qualify for it, a question made increasingly complex by the overlapping arenas in which today’s artists and writers can earn money.

Is a technical writer creative? What about a freelancer writing advertising copy? Should everyone involved in multimedia production, from graphic artists to computer programmers, be given tax breaks?

“If we’re going to treat this group differently, we can absolutely assume that there will be others who will say, ‘Why not me?’ ” Chick said. “Where do you draw the line?”

With precisely that concern in mind, the Irvine-based Home Office and Business Opportunities Assn. opposes the proposed exemption. The group has helped home-based workers gain recognition from government and big business, largely by urging its dispersed members to stick together.

“If L.A. takes this step with the nation watching, it’s going to create total havoc,” said Debra Schacher, the group’s chairman and chief executive officer.

One scenario on the table would employ a “threshold tax,” applied only to those who earn more than a set amount. That approach would ease the burden on part-timers or less productive freelancers.

The evolution of studios from factory-like hives of activity to multinational conglomerates trying to cut costs has often hurt writers, said Alan Jay Glueckman, an Encino writer for film, television and the Internet.

“These days, most studios require writers to work out of their homes. They don’t offer office space,” he said. “So shouldn’t the employer be the one taxed?”

As someone not likely to qualify for the exemption, public relations specialist Ray Rosenbaum of Tarzana empathizes with those resisting the tax--to a point.

“They’re putting in a lot of time that’s not compensated,” he said. “Then again, if they sell a screenplay for $50,000, why shouldn’t they pay?”

City Clerk Michael Carey said an exemption would not unduly hamper tax collection, but he conceded the collection process must be reviewed. Until the home-based business ordinance went through several months ago, decades of what Carey called “innocent people simply unaware of the tax” had passed.

The city now faces the difficult task of identifying who is working from home, whether they are properly registered and aware of the tax and, finally, whether they bother to pay it.

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Ken Bernstein, an aide to Chick who has specialized in the home business issue, added: “I don’t think the clerk’s office has auditors on every street corner. The city doesn’t catch all those people, just as people roll through stop signs.”

Carey is hoping for the passage of a state Assembly bill that would enable the city to search California tax rolls for Los Angeles residents who have ignored or underpaid city taxes. The bill, sponsored by Assemblyman Louis Caldera (D-Los Angeles), is scheduled for a vote today in the Assembly Appropriations Committee. It would then have to clear the full Assembly and Senate.

Eisenson has another solution: “Maybe the city ought to just figure it’s a dumb idea. They’ll probably lose as much as they’ll gain.”

Adds Aaron Shershow, a story analyst in the Fairfax district: “Most artists I know can’t balance their checkbook, let alone understand tax law.”