Philadelphia Tax Code: Controversial for Bloggers

24 days ago

If you live in the city of Philadelphia, you might want to rethink your decision to make money with your blog and website. Last week's article in the Philadelphia City Paper discussing the impact of the city's Business Privilege Tax on residents who engage in "activity for profit" has sparked a big controversy with bloggers across the web.

The Philadelphia Business Privilege Tax requires residents pay a privilege license for a one-time fee of $300 or $50 annually in addition to percentage of gross receipts and/or taxable net income. While this tax applies to all businesses within Philadelphia it has recently become a hot topic among bloggers for a reason. The city sees all blogs as businesses and most bloggers do not see themselves that way.

As Mashable explains in their take on the Philadephia Blogger Business Tax:

The problem is that this license technically applies to any person conducting business activity in Philadelphia, regardless of that activity’s profit or loss margins. That means that Joe Blogger who makes $12 per year from AdSense ads on his blog is theoretically required to pay 6.45% in taxes on that income, in addition to the cost of the license.

The Washington Examiner takes a stab at cash-hungry local governments in "Philly requiring bloggers to pay $300 for a business license":

After dutifully reporting even the smallest profits on their tax filings this year, a number — though no one knows exactly what that number is — of Philadelphia bloggers were dispatched letters informing them that they owe $300 for a privilege license, plus taxes on any profits they made.

You can look at this two ways. Either the bloggers made the error in being truthful with their tiny profits on their tax returns and opened Pandora's box, or the City of Philadelphia's system is broken. Since affiliate programs report your earnings to the government and it's, well, illegal to file fraudulent tax returns, that leads us to the conclusion that it's a broken system.

Bloggers are understandably upset. For many, their blog is a hobby, a way to have their voice heard. The fact that they put a few Adsense ads or affiliate links on their site is really incidental. After a few years of running ads, maybe they will earn a few dollars, not even enough to cover the license fee.

Mutineer sums up this "Blogger Tax Sparks Turmoil in Philadelphia" quite well:

Instead of going after illegitimate black market companies who are stealing American tax dollars, Philly has decided to target bloggers. Yes, folks. I said bloggers.

According to the Philadelphia Department of Revenue, blogs qualify as legitimate businesses and are subject to the same licensing laws required for any business located within city limits. And no matter how great or little the profit, Philly wants its cut from the blogging community.

New York Magazine makes an important distinction:

The city treats self-employed writers as "businesses" as long as their blog has the potential to make a profit.

I can certainly understand that self-employed (whether writer or widget-maker) equals business. Here's the thing, though, I have to believe that most bloggers don't consider themselves self-employed unless they are either 1) blogging as a part of their business' marketing strategy or 2) blogging specifically to make a profit. Most bloggers are hobbyists and doing so to let their voices be heard and create community.

I happen to love this take by P'unk Avenue Window:

Philly does not have a special tax on bloggers. All the outrage about this is silly and overblown. So why am I still ticked off at the city? Because Philly has a tax code that punishes new businesses, period.

The argument here is that the business privilege tax applies to any moneymaking (or hoping to make money) enterprise. Philadelphia Mayor Michael Nutter's spokesperson is quoted in as saying:

A spokesman for Mayor Michael Nutter says the license is nothing new and is required for any moneymaking enterprise, from large corporations to neighborhood pizza joints and all other kinds of mom-and-pop businesses.

Once again, though, while some bloggers are professionals, many others are hobbyists, and this tax applies to both camps equally -- which somehow seems very unfair. Because you want to have a voice online you are suddenly a business?

That is the bigger story here: Philadelphia's not the friendliest place for entrepreneurs and small businesses. The Philadelphia Inquirer quoted this commenter from BuzzFeed:

"Unbelievably stupid," wrote a commenter on BuzzFeed. "Even if you look past the issues of free speech and excessive regulation, no city progresses economically by making its young, tech-savvy residents move away."

Philadelphia and Pennsylvania are at the bottom of the charts when it comes to new businesses.

The Kauffman Index of Entrepreneurial Activity, which has measured the rates and trends of business creation each year since 1996, found recently that Pennsylvania had the lowest amount of entrepreneurial activity of all the states in 2008. The study showed that .14 percent of Pennsylvania’s population, or 140 out of 100,000 adults, opened businesses each month.

Philadelphia was similarly underwhelming when it came to entrepreneurial growth, with .16 percent, or 160 out of 100,000 adults, opening a new business each month.

Until Philadelphia makes a distinction between bona fide businesses and hobbyists, though, Philadelphia bloggers' options are limited. Either pay the business privilege tax or de-monetize your blog in all ways, so you don't have even the most minuscule income to report.

What are your thoughts on this situation and the uproar in the blogosphere? Love to hear from you in the comments...

Paula Gregorowicz, owner of The Paula G. Company, offers life and career coaching for women to help you figure out what you want to do with your life and career and cultivate the confidence to be the person you most want to be so you succeed on your own terms. Learn more about The Life Alchemy Success Formula™ and Get the free eCourse "5 Steps to Move from Fear to Freedom & Experience Greater Confidence" at her website.

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