Is your start-up news website legal?

Is your start-up news website legal?

That might seem like an absurd question, especially for readers in the United States, where the First Amendment protects the freedom of the press. How can a news website be illegal?

Well, while the First Amendment protects freedom of the press, plenty of other federal, state and local legislation regulates the conduct of business. And the First Amendment doesn’t give news publishers a free pass to ignore that. So you’d better be paying taxes on your business income. And abiding by legal hiring and employment practices if you’re bringing on help.

“No sweat,” I can hear some of you saying to yourselves. “I pay my state and federal income taxes and work by myself at home. I don’t need to worry about employment law or all that other stuff.”

Ah, you work at home, you say? Then you might not be running a legal business after all.

Have you checked your local zoning code to see what it says about running a business out of your home? You might surprised by what you learn. Even if all you do in running your business is to type on your home computer, the fact that you’re earning income that’s not coming from an employer is enough in some jurisdictions to cover you under local home-business zoning and tax rules.

Every few years, the City of Pasadena (California) sends me a letter asking me to pay up for a city business license and tax. The same letter goes to everyone with a Pasadena mailing address who reported Schedule C income on his or her federal tax return who hasn’t obtained a license yet. (Schedule C is the form through which you report all 1099 or miscellaneous income. It’s the form that home business owners who do not incorporate use to report their business income.)

Pasadena’s hardly alone. New York City, for example, levies a unincorporated business tax that hits many freelance writers and website publishers. The City of Los Angeles also hits freelancers and writers (among others) with a city business tax, but exempts the first $100,000 in income. Fail to pay these local taxes and license fees, and you’re running an illegal business.

Now, even through the U.S. postal service assigns me a Pasadena mailing address, I actually live in unincorporated Los Angeles County. So whenever I get that letter, I just reply with a written note that I live outside the city limits, and they leave me alone. But I always wonder how many less-informed LA County residents don’t realize that, and send in the money anyway. It must be enough to make it worth the city’s postage costs in sending out those extra letters.

But even in unincorporated LA County, I’m subject to residential zoning code addressing home-based businesses. (Writing and publishing don’t fall on the long list of home businesses required to obtain an LA County business license, so that’s not an issue for me.) Now, before I go any further, let me acknowledge that busting writers making money on work they’re creating at home is pretty far down the priority list for most communities. Getting money from unpaid taxes is one thing, but zoning enforcement’s rarely an issue for home businesses that don’t generate excess noise, garbage or foot or vehicle traffic.

That said, if you’re writing stuff that might, uh, tick off the powers-that-be in your community, it’s just smart business to make sure that you’re not breaking any rules a vindictive local official might use against you.

So take a look at your local residential zoning code. Here are a few interesting things I discovered about unincorporated Los Angeles County:

  • “Retail sales” are prohibited for a home business. So if you print up website T-shirts, you can’t legally sell them to a reader who comes to your home. (Storing retail stock in your home for mail-order delivery is illegal in some jurisdictions, so be on the lookout for that, too. LA County’s rules say “No stock in trade, inventory or display of goods or materials shall be kept or maintained on the premises, except for incidental storage kept entirely within the dwelling unit.”)
  • “The home-based occupation shall not be conducted in any attached or unattached structure intended for the parking of automobiles.” So no working out of the garage. Sorry, would-be Hewlitts and Packards.
  • Prohibited uses in a home business include: “Recording/motion picture/video production studio, except for editing or pre-recorded material”. So much for video blogging for your site from your home-office desk. Or Skyping into a conference or classroom. Perhaps this one made sense in the era of bulky, power-hogging cameras and lighting, but now, here’s a classic example of a law written for pre-Internet technology. But it’s still on the books here.
  • “There shall be only one home-based occupation per dwelling unit.” Now this is one that got my attention. IANAL, but I’d be interested to learn the prevailing local definition of “occupation.” Is publishing an eBook a different “occupation” that writing for a website, or selling ads for that site? (If so, I am so busted.)
  • The safest thing to do as a publisher is to rent yourself some office space in a legally-zoned commercial office building. That also can help make your emerging business look more legitimate in the eyes of potential customers and clients. But if the numbers don’t work for you paying that extra rent each month, don’t forget to give your local residential zoning code a look before you get too far down the road with your publishing business.

    Because even if all you’re doing is writing, you don’t want a local commissioner you’ve just busted in an exclusive expose using that zoning code to bust you in retaliation.

    Cover yourselves.

    P.S. And LA County? Please, let’s revisit that whole no “video production” thing soon, please?

    10 things the US government can do to help digital news entrepreneurs

    The US Federal Communications Commission last week released its long-awaited report on the future of local news in the Internet era, “The Information Needs of Communities,” to a collective “meh” from the digital news commentariat. At best, the report seems to have met or at least exceeded the low expectations that many critics had for it. There’s no ill-advised proposal for getting government into the news business, thank goodness, and the report shows a commission that tried to do its homework in analyzing what’s been happening in the local news marketplace over the past decade.

    But let’s not dismiss too quickly the federal government’s potential role in promoting good news coverage. Here are 10 steps that the US government *could* take that would significantly help entrepreneurs trying expand the news coverage of their local communities. And none of them involve direct subsidies or payments to the news industry.

    1. Protect Net Neutrality

    The Internet has nearly eliminated the barriers to entry for start-up publishers, enabling the explosion of new information sources across the Internet. If we need better sources of local information, the solution is not to allow telecom companies to extract tolls and demand payments from publishers to allow access from readers. That will merely reduce the number of voices available to consumers while further enriching telcos. Corporate media was cutting local news coverage before the Internet. Silencing websites won’t bring back that coverage. It will only reduce the possibility of finding replacements.

    2. Expand broadband coverage

    The smaller the market, the harder it becomes for a local publication to earn the income it needs to operate as a viable business. The digital divide makes small communities even smaller. Universal access to broadband would make every household part of its local digital marketplace, expanding opportunities for publishers and helping increase the possibility that a professional, responsible news publication in that community could be a financial success. The government can help expand broadband coverage not by caving to the demands of telecos (who are holding broadband expansion hostage to kill net neutrality, for example), but by laying its own fiber lines, establishing public WiFi networks, and by demanding more from companies bidding for broadcast spectrum.

    3. Digitize public records and put them online in open formats

    You might have noticed that we have millions of un- and underemployed workers in America today, many with digital skills. We also have decades of public records that remain available only in printed form, or in archaic electronic formats. Why not create a WPA-style computer workforce to digitize the nation’s public records and to publish them online, in open formats? Not only would this effort put many thousands of Americans to work, it would create a repository of more easily retrievable public information, allowing citizens (and reporters) easier access to our government.

    4. Pass a national shield law, with explicit protection for online publishers

    The First Amendment belongs to everyone, not just to print and broadcast reporters. Unfortunately, the shield laws that provide legislative support to the First Amendment vary from state to state, and some courts are unwilling to apply their protections to anyone other than old-school print and broadcast reporters. A federal shield law, with an explicit protection for online publishers, could help create a more hospitable legal environment for start-up news publishers.

    5. Regulate transaction fees

    Like many retailers, I lose a chunk of every payment made by my customers who use debit and credit cards. While it’s reasonable to expect to pay a bit for the convenience of these forms of payment, given the small number of megabanks that now control the credit card industry, we need government oversight to keep fees reasonable. Congress is taking steps to help this happen, which will reduce operating costs for all small businesses, including start-up news publishers.

    6. Revisit COPPA

    The Children’s Online Privacy Protection Act sounds like a worthy piece of legislation – no online service can collect personal information from someone under age 13 without that the explicit consent of that child’s parent or guardian (and an email or Web form consent doesn’t count). In practice today, however this act is violated so often as to make the drinking age look like a widely respected law. And it’s not the publishers undermining the law. It’s the kids. Many online community publishers spend way too much time finding and deleting user accounts from kids who lied about their age to register on a website. Creating digital media has become a normal part of life for kids under 13. It’s time to revisit this law and create a new solution that protects kids, parents and publishers. The law should mean something. When this many people violate it, the law is reduced to charade and farce.

    7. Ditch the FTC’s “blogger endorsement” rule

    This attempt to force truth in advertising is a confusing mess and its inconsistent enforcement has become a joke. If payola disclosure’s important, let Congress pass a law mandating it for everyone – bloggers, newspaper reporters, celebrities and anyone else who publishes. But good online publishers shouldn’t have to worry themselves with jumping through legal hoops that less considerate people get away with ignoring.

    8. Model zoning reform

    Continuing on the topic of widely ignored laws, zoning laws in many communities make running a business from your home (even a remotely hosted website) illegal. With telecommunity becoming more popular, the lines dividing home from work are becoming more blurred. While zoning remains a local issue, the federal government could encourage local communities to revisit their zoning regulations to encourage the development of online businesses. The first step would be to eliminate restrictions against running from one’s home office a business that employs no one from outside the family on site.

    9. Remove payroll tax cap and reduce rate

    My last two recommendations would help create a more viable environment for all job creation, not just in online news. Too many digital entrepreneurs are caught by surprise their first year, when they’re hit with the bill for the “self employment tax” – the share of Medicare and Social Security taxes typically paid by employers. When you’re self-employed, you’re on the hook for that share, as well as your regular share as an “employee.”

    These so-called payroll taxes are regressive, as they are charged only on the first $106,800 of income. Eliminating the cap would raise additional money to fund these programs, potentially allowing an overall reduction in the payroll tax rate. That would reduce the self-employment tax, making digital entrepreneurship more attraction to journalists thinking about starting up, just trying to make a middle-class income for themselves and their family.

    10. National health care

    Even more than payroll taxes, the biggest non-income expense for many start-up businesses is health care. I personally know many journalists who’ve stuck with unsatisfying newsroom jobs rather than starting out on their own because of the health benefits. Ever-increasing health insurance premiums effectively serve as a private industry “tax” on job creation in the United States. A national health care plan that divorces health insurance from employment would encourage people and businesses to create jobs by eliminating health insurance as a direct expense of creating (or maintaining) a job. At the very least, opening Medicare to all who wanted to enroll and pay the premiums would create some much needed competition for companies such as Wellpoint, which enjoy near-monopolies in many communities on health policies for the self-employed.

    What should the government do to help journalism?

    Last week’s Federal Trade Commission hearings on the journalism industry beg raise the question: Just what should the U.S. federal government be doing, if anything, to help the journalism industry?


    Now, before the libertarians within online news community fire up their torches for my march to the stake, hear me out.

    OJR’s David Westphal last week detailed the many ways that government has, uh, helped the news business in the past. Perhaps subsidies of that sort can continue in the future. But I see two, much larger, steps that the government can take that would help ensure a more stable and diverse journalism industry, one that would have the financial ability to fund more in-depth reporting over a longer period of time that today’s newspapers and emerging website can support.

    Ready? Here goes.

    #1: Raise taxes on the rich. A lot

    I’ve insisted for some time now that the problem facing the news industry isn’t the Internet, and the competition that this new medium has unleashed upon newspapers and broadcasters. Plenty of businesses have found ways to profit online, even ones that provide news and community information.

    Nor did the Internet catch newsrooms by surprise. News organizations a decade ago saw a more competitive future approaching, and they have employed over the years many visionaries who tried to show them the way to build websites and services that would have allowed them to retain both their audience [the people who read or watch] and their customers [the people who pay, e.g. advertisers].

    So why didn’t they? That tragic phrase: “We have a fiduciary responsibility to our shareholders.” In English: “We can’t spend any money on anything that might pay off tomorrow. We have to maximize our income today. Even if that means putting the company’s future at risk.”

    Why are investors so myopic? Take a look at this table, which lists the highest marginal federal income tax rates over the years, and the income level at which they applied. There’s a nice graphical representation of this data at, as well.

    (Don’t forget the effect of inflation on those threshold numbers. That $400,000 in 1960 is the same as an income of $2,921,311 in 2009, according to the U.S. Bureau of Labor Statistics. The $200,000 threshold from 1976 would be the same as one of $759,849 today.)

    Punitive tax rates change the calculus of investing and income management. Why maximize short-term gains if the government’s just gonna take it all in taxes?

    So people don’t. Instead, they start looking for investments that will provide stable (though lower) income over a longer term. Throw in a transaction tax on every stock trade, as well as restoring a punitive tax bracket for earners netting more than a million a year, and the government could sharply reduce the pump-‘n-dump speculation that cripples managers’ attempts to build anything for the long haul.

    Take another look at those tax rates. The so-called glory days of U.S. journalism, with Watergate and full-funded newsrooms, correlates with the higher tax rates of the 60s and 70s. When the government did away with top tax rates in the 1980s, that’s when we began to see short-term attitudes reach a tipping point in the industry, leading to frequent layoffs and cutbacks (which predated the Web, by the way, for those of us with longer memories.)

    On the broadcast side, couple the change in income tax rates with FCC decisions not to hold stations’ feet to the fire on public service programming, and network newsrooms became profit centers, expected to add to the corporate bottom line, not detract from it.

    Even today, I’ve spoken privately with many would-be news entrepreneurs who fear soliciting outside investment in their projects, for fear that they would lose control to short-term investors who would gut their efforts for an immediate payday, instead of having the patience to grow a community over time. (I’ll fess up that I share this attitude toward my projects, as well.)

    Jack up the tax rates and watch attitudes change. (Bear in mind that I am not advocating a tax increase on lower- and middle-class incomes, anything under $250,000 a year for a married couple filing jointly. In fact, I’d prefer to see payroll taxes folded into the income tax, with a cap on payroll taxes permanently lifted, which could effectively reduce tax rates for many self-employed middle-income individuals.)

    Even with a more long-term focus, there will remain plenty of investors and managers who above the punitive tax rate threshold. They will be looking for places to take a loss, to ensure that their money goes where they want it to go, rather than to the U.S. Treasury.

    Let’s put it this way: In which environment would you rather be trying to enlist supporters who would fund a new local online newsroom, one that would employ a handful of potentially expensive investigative reporters, with tight local advertising margins making it difficult for the project to stay in the black?

    One where investors, enjoying no increase in marginal tax rates as their incomes reache seven figures, were looking for projects that returned immediate large profits off their investment? Or one where investors, trying to avoid crippling marginal tax rates on high income, were looking for places to dump profits from their other investments – the bigger the loss the better?

    I thought so.

    #2: End employer-provided health insurance

    Again, in speaking privately with the many potential news entrepreneurs I’ve met with over the past several years, I’ve heard one reason cited more than any other why they don’t make the jump into starting their own news business.

    They don’t want to lose their employer-provided health insurance. Trust me, I feel this pain. Buying health insurance as an individual, you have none of the protection that subscribers to group plans enjoy, including protection against being dropped for undisclosed or even undiscovered pre-existing conditions. I haven’t seen a doctor in two years, in part due to fear that if a physician finds something wrong with me, even if trifling, it might lead our insurer to drop my family’s plan, leaving my kids without coverage.

    Most companies selling individual policies also enjoy near monopolies in their local markets [PDF], allowing them to increase rates at will. My provider increased our premiums 36 percent this year, even before it had paid a penny in benefits to us.

    Health insurance are the “golden handcuffs” that bind journalists to corporate newsrooms, depriving the industry of a richer diversity of journalist-led publications. Worse, the need to hold on to those health benefits makes journalists risk-averse, afraid of doing anything innovative that might make them a target in the next, inevitable round of lay-offs, should their initiative fail.

    From a corporate perspective, paying for health benefits becomes an effective tax on each job created or maintained. Health insurance premiums tip the scales away from hiring (or retaining) full-time employees in the United States to do the work the business needs done. Not having to pay for health benefits makes it that much easier for a business to justify outsourcing or automating work, even if it doesn’t rise to the same level of quality as that done by local employees.

    Change the system and take employer benefits off the table, and, again, the calculus of employment changes. Someone would still need to pay for health care – whether it be the government, through a single-payer system paid for by general taxes, or individuals, through privately purchased insurance. But it wouldn’t be employers paying for each job they created or maintained, potentially encouraging them to create (or at least, maintain) additional positions. More reporters = more coverage of their communities.

    Benefits would be decoupled from employment, as well, allowing employees to leave or change jobs without having to think about health insurance. That would enable many more frustrated newsroom employees to make the jump into entrepreneurship, increasing the number of new, innovative approaches to the journalism business being tried in the field.

    By now, you’ve likely figured out that neither of my suggestions has anything to do, specifically, with journalism. They’re general suggestions to improve the quality of long-term business investment, and hiring, throughout the economy.

    That there lies my point. The government should quit worrying about saving specific industries and, especially, companies – whether they be Goldman Sachs, Bank of America, Gannett or News Corp.

    Instead, the government should devote its attention to saving the economy, creating a more healthy environment in which forward-thinking companies can grow and would-be entrepreneurs can have a chance to succeed without having to resort to pump-‘n-dump tactics.

    Do those things, and journalism will find its own way.