Two local novelists are suing Charlottesville and Albemarle County for charging them business license taxes, which they claim is unconstitutional.
Authors John Hart and Corban Addison Klug claim that the city and county are unconstitutionally discriminating between different types of speech by taxing freelance writers and not traditional media.
“Instead of protecting and supporting its creative community, Charlottesville and Albemarle County have decided to treat it like an ATM,” said Renée Flaherty, an attorney with the Institute for Justice, which is representing the writers.
Virginia code says that no locality can impose a license fee or levy any license tax “upon the privilege or right of printing or publishing any newspaper, magazine, newsletter or other publication issued daily or regularly at average intervals not exceeding three months, provided the publication’s subscription sales are exempt from state sales tax, or for the privilege or right of operating or conducting any radio or television broadcasting station or service.”
Klug, who has authored four novels under the name “Corban Addison,” said he has “a real problem” with the way the city has composed its business license tax on authors.
“If the First Amendment means anything, it means that all authors regardless of who we write for and what we write should be taxed and subject to the same sort of laws,” he said. “We should be treated equally, but the city and the county are not treating us equally, they’ve given an exemption, a free pass, to the traditional media, and yet they’ve come after us.”
Hart, who has authored six novels, said he feels like this is a “targeted attempt to raise revenue on the back of freelance writers such as ourselves.”
“What troubles me is this idea that to do what I do, to write novels, I need to apply for permission from the county to do that, and then be given the opportunity to pay them for the privilege,” he said. “That makes very little sense to me.”
In 2016, Albemarle began its “Schedule C initiative,” in which the county contacted people who filed Schedule C business tax forms to the IRS, telling them that they are required to acquire a business license.
Between July 1, 2016 and Dec. 6, 2016, the county collected nearly $500,000 with the initiative.
In a November 2016 C-VILLE Weekly story about the levy, Charlottesville Commissioner of Revenue Todd Divers said, “the juice has got to be worth the squeeze. I don’t know how much it’s worth with our workload. We do check Schedule Cs occasionally.”
In Albemarle, businesses with gross receipts less than $100,000 pay a flat fee of $50. For businesses with gross receipts of $100,000 or more, the tax is based on type of business.
Charlottesville charges a $35 fee for a business license for businesses with $0 to $50,000 in gross receipts, a $50 fee for businesses with $50,000 to $100,000 in gross receipts and businesses with $100,000 or more in gross receipts are taxed based on type of business.
Both court filings for Klug and Hart state they were assessed the license tax of $0.36 per $100.00 of gross receipts, under the categories of “misc. business/personal service” and “repair, personal, business, and other services,” respectively.
According to Klug’s court filing, Klug’s holding company, Regulus Books LLC received an assessment from Charlottesville in 2018 for unpaid business license taxes dating back to 2015.
The filing said he received a letter in July 2018 that he might be subject to the business license tax because “he included income from Regulus on Schedule C of his 2017 federal tax return under the category ‘Independent Artists, Writers and Performers.’”
Eventually, after responding to the commissioners request, Klug received an assessment for $2,177.22 for 2015-2018. Klug said he was going to challenge the assessment in court, did not pay on time and was charged about $284 in penalties and interest.
The filing states he was then assessed another $529 based on an estimate of 2019 gross receipts.
“On March 1, 2019, Klug sent the commissioner a letter stating that he chose not to pay the 2019 assessment,” the filing says.
According to Hart’s filing, the county sent him a letter in 2016 that he might be subject to the business license tax because he included income from on Schedule C of his federal tax return, and that the county asked him to provide information about his business.
Hart said he sent a letter to the county saying that he “did not feel the tax should apply to him,” but that he never received a response.
The filing says he then received another letter from the county in November 2018 and a second notice in December. He then received another letter, and ultimately provided his gross receipts and was assessed a total of $10,995.50, which included $2,178.94 in penalties and interest.
Both Klug and Hart are asking for refunds of their business license tax, penalties and fees; entries of judgement declaring that the application of the business license ordinance violates the First Amendment and that it’s unconstitutionally vague under the Fourteenth Amendment; costs and expenses; and further relief.
Divers is out of the office this week and city spokesman Brian Wheeler said the city does not have a comment on the lawsuit.
The county attorney’s office in a statement stat that local business license ordinances, including the county’s, are enabled under the Virginia Code sections beginning at § 58.1-3700.
“In implementing the local license tax, the county follows both this state enabling authority and the state-issued BPOL Guidelines, which are part of the Virginia Administrative Code,” the office said.