On Sunday night, I got a text from a friend. It said simply, “Did you hear about the Philly blogger tax?” I hadn’t heard of such a thing and made a mental note to check the news later to see what she was talking about.
Less than an hour later, I got the following message on Twitter: @taxgirl care to comment on this article about business licenses for Philly bloggers?
Over the next 48 hours, I received a steady stream of texts, calls, Twitter DMs, and emails about what has come to be known as “Blogger-gate.” The commentary has been overwhelmingly negative, with many taking the tone of an email that I received on Monday, which linked to the same article as above and read:

“It may be time to move out of the city Kelly.”

When I finally had a moment to sit down and sift through the City Paper article (linked above) – as well as a ton of additional commentary – I was pretty dispirited. It was a pretty black eye, as press goes, for the City of Philadelphia – but the worst part is that bits of it are true.
If you read the blog regularly, you know that I love this City. I live here (yes, in the City proper) and I made the decision to locate my business here. I’ve chosen to raise my family here. Maybe some folks don’t understand (Mom, I’m talking about you) my crazy love for this town but I am proud to call it home.
Philadelphia does, however, have its share of problems. And right there at the top of all of it is its tax structure. It’s insanely complicated and not at all business-friendly. Business taxpayers alternate between fear and loathing in reaction to the different taxes imposed by the City and generally with good reason. A business, at any given time, could be subject to a boatload of separate taxes: wage tax, business privilege tax, net profits tax, use, and occupancy tax, real estate tax, sales and use tax… need I go on? The idea that there was now a “blogger tax” was totally believable – only it wasn’t really true. There is, as it turns out, no new “blogger tax” – all of the online drama was really a blow up about the business privilege license and the business privilege tax. Those have been on the books for years.
So why was it making news now? And why were bloggers being targeted?
I called up the folks at Revenue to find out how all this happened. And here’s what I found out. This year, the City of Philadelphia offered a tax amnesty program. It wasn’t, as you can imagine, out of the kindness of the Council’s hearts (I’ve heard they actually have them) that they offered amnesty but rather an attempt to collect revenue. You see, Philly, like many cities in these economic times, is hurting. Revenues are down. And since it’s madness political suicide impossible to suggest with the folks who sit on Council unlikely that we’ll see any real pullback in spending, the City has little choice but to ramp up efforts to collect more money. Thus, the tax amnesty program.
As a part of the amnesty program, the City sent out tens of thousands of notices to delinquent (or potentially delinquent) taxpayers. Among those who received a letter were those who had filed a Schedule C together with a federal form 1040 but had not registered with the City and had not filed a separate tax return with the City. In other words, a lot of freelancers and independent contractors.
These mailings specifically drew attention to the business privilege license requirement. Philadelphia requires that people or businesses who have the “privilege” of doing business in the City register and get a license. This is as true for a long-time incorporated law firm as it is for a one-time vendor selling hot dogs at the Mummers Parade. It’s called a Business Privilege License. The official statute is here:

“Every person desiring to engage in or to continue to engage in any business within the City of Philadelphia shall, whether or not such person maintains a place of business in the City, prior to engaging in such business, procure a business privilege license from the Department of Licenses and Inspections.”
-Philadelphia Code § 19-2602.

Under the rules, you have two options for a license: a lifetime license ($300) or a one time/annual license ($50). To get a license, you’ll first have to get a tax account number with the City. And yes, you can apply for the tax account number and apply for the license online. ** Don’t get me started, however, about the ridiculously tech-unfriendly requirements that you only use Internet Explorer for PCs (Mac-only businesses like mine need not attempt it, you’ll file the old rock and chisel paper and ink way). If you’ve been wondering who still uses Explorer anymore, there’s your answer. **
If you’re having problems figuring it all out, you can call (311 inside the City or 215-686-8686) or email L&I for information about a license. You can’t figure out if you’ve actually registered online, though, so you’ll have to call them and ask – I did it today (just to be safe) and it was relatively painless (don’t worry, I’m covered). On the tax side, you can call Revenue (215-686-6600) or email revenue to find out more about your tax obligations.
The license only applies to folks who are making money (even if it’s a little bit of money). It does not apply to folks who aren’t running a business or trying to make money. That means that bloggers who maintain a blog for the sake of sharing information but aren’t getting paid (or running ads, etc.) are off the hook.
So, no vast conspiracy. No targeting bloggers. And no plan to try and silence free speech. No one was sitting around the Revenue Department searching online for Philadelphia bloggers. The City was acting on information that it got from the feds, something it does all of the time. It’s part of the normal information sharing that goes on (oh yeah, and states share information as between each other and the feds, too). A key difference this time was the scale of the notices and the speed at which information – even bad information – travels these days.
Of course, the City’s official position on all of this is that they’re merely trying to collect from taxpayers – each of whom should pay their fair share. That last bit is, I think, what’s really getting people going: What’s fair?
I’m with many folks who see a number of these requirements for small businesses as burdensome. If you’ve ever filled out a BPT/NPT tax return, I think you’ll agree that, as tax returns go, Philly returns can make the federal returns look like child’s play. I think it’s clear that needs to change. But it’s not that easy. You see, the convoluted system of taxes in Philly is partly the result of a mixed up bureaucracy that needs to be scaled back. But it’s also the result of the City being hamstrung by the state’s constitution. The Commonwealth has a “uniformity clause” when it comes to tax. That might sound great. But what it really means is that the tax structure has to more or less be the same across the board. You can’t tax (or fee) Cole Hamels any differently than you tax Joe Blogger. It’s a bargain for those at the top, a hardship for those at the bottom.
Ironically, this idea of everyone paying the same – no matter how big or small your income – is exactly the same argument that we’re having on a number of levels on the national stage. People say that they want flat fees and flat taxes for all taxpayers. But maybe Philadelphia is a prime example of some of the shortcomings of this kind of thinking: what’s “fair” may be very different from one person to the next.
In the end, the fall-out from Blogger-gate may actually be the wrong message. While I understand and support the right to grumble and complain about the business privilege license, let’s not make this thing any bigger than it is. What’s really wrong with the City isn’t a $300 license for businesses – it’s just become a convenient scapegoat for a much more serious problem. We have a tax system that’s confusing and a bureaucracy that is out of control. And I dare say, that’s not restricted to Philly.

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. Considering most bloggers are not making much with click-based ads (it takes quite a bit of traffic to get to the $1000/yr level) the tax is pretty high. If they are selling a product, presumably they pay income tax. For that matter, I provided my SSN to Google Adsense and expect a 1099 disclosing the $200 I’ll have made this year and will pay tax on that.

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