City Tax Bills Catching Writers, Others by Surprise

By HOWARD FINE
Staff Reporter

Tens of thousands of sole proprietors and other businesspeople have received an unwelcome letter from Los Angeles threatening prosecution if they don't pay business taxes.

It's the result of a new state law giving cities the ability to go after tax scofflaws by combing state income tax records, and it has prompted a deluge of calls to city hall and the Writers Guild of America, whose members were promised they would not be singled out by the data.

City officials pushed for five years to get the law passed, saying that tens of millions of dollars each year in tax revenues go uncollected.

In mid-November, the city's Office of Finance sent out 151,000 notices to people who reported business income on their state tax returns usually on Schedule C forms but who are not on the city's business tax rolls.

The city is trying to collect unpaid taxes back to 1999. Recipients of the letter are asked to list their gross business receipts for each of the past three years and return the letter with a check or they can wait for the city to bill them. Failure to return the letter or pay the taxes could result in civil or criminal penalties, the letter states. L.A. Director of Finance Antoinette Christovale said the city wants to reap $3 million in revenues.

The notices have caused lots of confusion. Many of the sole proprietors receiving them are independent writers, who have long held they are exempt from paying business taxes.

"Many of the folks are not now in business but are receiving residual payments from work they did years ago," said Cheryl Rhoden, a spokeswoman for the Writers Guild.

For years, the Writers Guild has been in on-again, off-again negotiations with city officials over whether independent writers should be taxed. It was the Writers Guild that three years ago blocked consideration of the legislation allowing cities to tap state income tax files, fearing that it would give cities ammunition to go after their members. They withdrew their opposition after officials promised not to single writers out with the new data.

Rhoden and city officials say the two sides are close to an agreement that could come as early as next week. "The issue is when does the business tax apply to writers, in what category they should be classified," said deputy L.A. City Attorney Cecilia Estolano.

Meantime, any individual writer who receives the notice must pay up. "If an agreement is subsequently hammered out and an individual is determined to be exempt, that person may receive a refund," Christovale said.

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