Surprise! L.A. Freelancers Get $4,363.81 Tax Bill

About 33,000 individuals, partnerships and corporations recently were billed $4,363.81 by the City of Los Angeles for missing a Feb. 28 deadline to register their businesses with the city's tax and permit division, it was reported Sunday.

People like freelance journalists, accountants, or others who work out of their homes may owe the payments to the city's Office of Finance, which collects a tax on home-based businesses, the Daily News reported.

Those with home-based income of less than $100,000 per year are exempt from taxes, but still must file the paperwork. About 33,000 home-based businesses failed to do that, and were assessed fees calculated as if they made $200,000 in gross income for each of the past three years, the annual average for city business taxes.

The city then added interest and late penalties and came up with the $4,363.81 demand.

And those bills have recipients in shock. Rodney Canter, a certified public accountant, told the Daily News some of the people getting the bills have freelance income less than the tax requested.

Recipients who got dunned can follow the instructions in the letters, contact Office of Finance representatives and calculate their actual -- and usually much lower -- tax debts.

City Finance Director Antoinette Christovale told the Daily News that the letters stem from a program begun in 2002 to identify unregistered businesses, using records disclosed to the city by the California Franchise Tax Board. The action added about 100,000 businesses to the city tax rolls, and $107 million in revenue has been collected.

"(People) have difficulty understanding that an individual is considered doing business in the city if they receive a 1099 (federal income-time form) or other independent contractor income," Christovale told the Daily News.

Because the tax board doesn't pass along residents' incomes, the city asks them to report those figures and uses the $200,000 estimate if they don't, she said.

Canter told the Daily News that clients at his Chatsworth accounting business have been getting the letters for the past eight years.

"The frequency is increasing," Canter told the Daily News. "Every governmental agency is trying to generate as much revenue as possible since the tax bas has shrunk (in the recession) ... and reporting requirements (between government agencies) are tighter."