Understanding the Philly Blogger Tax

My friend, Justin Kownacki, wrote a great piece about Philadelphia’s recent ruling about making Bloggers living in the City apply for a business license, like any other business.  Justin pointed out that people in new media have longed to be taken seriously, and certainly, this ruling along with the FTC guidelines about disclosures of endorsements on blogs, that went into effect in December, 2009, shows that blogging is becoming a profession.  Not everyone may be making money from it, and certainly many who do make some money don’t make very much, but none the less- it is (or can be) a legitimate business.  Taken in any other context, just because you do or don’t make money is not the threshold of whether you have a business- tons of people are simply bad at business and lose money, but we don’t tell them they aren’t a business as a result.

The real issue with the yearly or lifetime business license requirements for those with virtual businesses is a legal one.  Traditionally, municipalities required businesses to have a license to do business within their borders because the individual businesses gained a benefit from doing business within the City- they had access to customers, parking, public transport- things you might not find if you had the same business way out in the rural areas around the City.  The City helped your business through police patrols, parking enforcement, and all sorts of ways, and besides a tax on sales or wage taxes, you helped pay for these services through your business license.  When you do business within an area, you also become subject to their laws and regulations, including those that protect you, and those requiring you to  collect and pay sales tax on sales.  There’s an impact of every business on the City, pro and con, and the Business License is part of that, at least traditionally.

Bloggers and other people who work primarily on the web may be different than traditional business people.  They can work as digital nomads, and don;t have any one particular workplace.   They can work at a coffee shop, in a co-working space, from their bedroom, from the library- it’s all academic to them.  Physical space is an afterthought after wifi, as are boundaries of municipalities and political districts.  This lack of physical home base makes it much more difficult to identify both what portion of a blogger’s work and income is attributable to any particular political entity, as well as what costs and benefits they confer to the local economy as well.  Certainly, telecommuters spend money at local shops and restaurants and help boost the local economy when they work all over the place, but what burden do they place on the local economy?  What benefit do they reap by being in Philly, say, versus the outlying suburbs, where the business license is not applicable?

From a legal perspective, much of the first year of Civil Procedure involves studying cases that involve the Choice of Law- with 50 states, if you don’t have a case that comes under the  Federal Court’s jurisdiction, which State’s law should govern a business transaction between residents of different States?  If you live in California and you’re doing business with someone in Maine and a deal goes south, should you have to litigate the matter in Maine, or in California?  There’s a whole line of cases people study that involves such chestnuts as “International Shoe v. Washington” and “Burger King v. Rudzewicz” and “Carnival Cruise v. Shute” that involve when it’s fair and when it’s not to be held to the law of another State, and whether your actions allow you to have “sufficient contacts” there, making it fair game to be sued in that State.  (This is why you will often see Forum Selection clauses in contracts.)

Courts, so far, have held that forum selection clauses are enough to confer jurisdiction (CoStar Realty v. Field), but unlike terms of service agreements, or even Ebay Auctions, does a blogger, who writes and posts to a blog from within a City, from outside the City, in multiple States and locales- when does the level of activity become “enough” to require a business license?  Is it a question of income?  Is it a question or apportionment?  Could bloggers that live within a City avoid having to pay for a business license if they submit posts from outside the City limits?  Why should people surfing through coffee shops and wifi hot spots have different licensing requirements than people who take up an office share with other digital nomads in a coworking space within a municipality?  Should the coworking space need a license and all participants are more like gym members rather than business owners renting a stall at a flea market?

The internet poses new challenges to municipalities who need to collect revenue.  Bloggers don’t always see how the business license benefits them, since their work  is often low impact and location is not crucial or even relevant in their work.  The bottom line is it’s going to take some time to sort out these matters, and it’s going to take people willing to litigate these matters.  This in and of itself will be challenging, since most Bloggers are in the  beer money income bracket, and don’t have the time, money or patience to pursue this matter far enough to get a meaningful ruling.  It’s easier to shut a blog than litigate whether a $300 license fee is fair and equitable.

I can’t say that any answer is likely soon.

I’ve been through this myself as well.  I started working in a coworking space in Wilmington, DE, but compliance with City business licenses, let alone determining which license would apply to my work, is onerous.  No one in City Government seems prepared to tell me exactly what I’m supposed to do, and all will readily admit the difference between my working within City Limits and working in a coffee shop outside of City Limits is largely geographic only, and that it’s clearly cheaper for me to stay out of the City.

While it seems to me that everyone loses in this scenario, including the parking fees  the City might collect otherwise, or the businesses I would frequent if I were downtown, it’s immediately clear it’s just easier if I write from the comfort of my own home or local coffee shops that are no where near the City limits.  Besides this, it’s not always clear to the digital nomad when they have entered the “taxation/license zone” and when they are outside the long reach of the law.  This makes the business license requirement for municipalities seem arbitrary and capricious to those bloggers and telecommuters being asked to pay, because what’s inside and outside the zone is not clear.  And let’s face it- no one likes taxes and license fees, but we’ll generally comply when it seems fair, and we generally balk when it seems silly or administrative or simply onerous and unfair.

This means all Cities and municipalities are going to have to start to consider the underlying reason and purpose of the business license or tax is, and how it should apply to digital nomads.  When is this fair?  What can you do to make it easy to comply?  Do we need “wifi” meters like we have parking meters, and Cities can collect fees based on data transfer instead?

There’s no easy answer for any of this, but at least I hope this helps explain why the issue at hand is thorny both for the bloggers and the Cities.  Hopefully this will not lead to mid-day raids of local Starbucks looking for telecommuters just trying to get out of the house for a bit, searching for business licenses and unpaid taxes, but in an era of budget deficits, I wouldn’t be surprised if it comes to that.

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