A city’s tax ordinance does not apply to a freelance writer because he does not provide a service and his business is not covered by the ordinance’s catchall provision.
Corban Klug owns Regulus Books. Regulus is the holding company for rights, transactions and income derived from Klug’s various fiction and nonfiction literary efforts.
Klug’s 2018 Virginia tax return reported income from activities in the city of Charlottesville. Charlottesville checked its records to see if either Klug or Regulus obtained a business license.
The city did not find a license for either one. The city wrote to Klug and informed him that the city code “‘require[s] those engaging in a business, trade, profession, occupation or calling’ within the City to obtain a business license. Persons and entities possessing a business license are subject to City Code Section 14 (“Ordinance”), which outlines the City’s business, professional, and occupation license (“BPOL”) tax ordinance.
The ordinance provides for assessing tax on any business that is required to have a license. The city sought information about Regulus and Klug’s income for tax years 2015 through 2018.
Klug claimed that the ordinance did not apply to him “because he ‘offer[s] no goods or services to the public[,]’ has ‘no physical storefront or shingle[,]’ ‘do[es] not advertise[,]’ has no employees, has no inventory, and offers a ‘product’ that is intangible intellectual property.
“Alternatively, Klug asserted that if the City insisted that the Ordinance applies to him, then it should explain how it proposed to classify him for purpose of the business license tax. He stated that the Ordinance did not identify freelance authors in its coverage, and he explained that he cannot be classified as a professional because he does not offer knowledge-based services.
“Klug indicated that the classification ‘book publisher’ appeared to be the closest classification for his type of work – but he reiterated he is an author, not a publisher offering goods and services to the public.”
The city’s position, stated in a reply letter to Klug, was that “‘[i]n general, any sort of self-employed endeavor, which produces income, requires obtaining a business license. Further, the Tax Commissioner for the Commonwealth of Virginia opined in Public Document 04-137 that an author is subject to licensure and payment of the BPOL tax.’”
Citing the city code, the city explained that “business” is defined as “‘a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction. …
“‘The following activities shall create a rebuttable presumption that a person is engaged in a business: (i) advertising or otherwise holding oneself out to the public as engaged in a particular business or (ii) filing tax returns, schedules and documents that are required only of persons engaged in a trade or business.’
(emphasis supplied in the City’s letter reply)[.] …
“The City concluded that Klug’s writing activity is subject to the business license requirement and that ‘[e]ntities such as [Klug’s] would typically be classified as a “miscellaneous business/personal service” in [the City’s] tax system[.]’”
Regulus was assessed $2,177 for income derived from Klug’s writing activity for tax years 2015 through 2018. Regulus did not immediately pay. A penalty and interest were assessed. Regulus paid $2,461 under protest. Regulus did not pay the 2019 assessment and filed a complaint and application for relief in the circuit court.
Regulus argued that the tax ordinance “is unconstitutionally vague because it contains a catchall provision covering repair services, business services, and personal services, but it does not define those terms and its definition for the separate terms of ‘business’ and ‘service’ do not assist reasonable persons in determining whether they will be taxed. Regulus averred that the Ordinance gave the City ‘unconstrained discretion to decide who must pay.’”
Regulus asked for a refund of the tax, penalties and interest paid. Regulus asked the circuit court to declare the ordinance is unconstitutional.
The circuit court overruled the city’s demurrer. The parties filed cross-motions for summary judgment. Regulus argued the ordinance was vague. The city argued that Regulus fell within a catchall provision. The circuit court ruled in favor of Regulus. The city appealed.
“Regulus neither provides a service under the Ordinance, nor falls under the Ordinance’s catchall provision for ‘“repair, personal or business service[.]’ …
“Neither party contests that Regulus was conducting business under the Ordinance. However, while the Ordinance does not define ‘business service,’ Regulus’s commercial activity cannot constitute a ‘business service’ because it does not fall under the more general term of ‘service,’ as defined by the Ordinance or in accordance with the word’s ordinary meaning.
“Klug writes literary manuscripts and Regulus operates as the holding company for all the rights, transactions, and income related to his literary works. Klug, through Regulus, has entered into contracts with publishers, granting them the license to produce, publish, distribute, and sell his works.
“Regulus has even received advance payments on behalf of Klug for some incomplete projects. Writing a literary work then licensing that work to a publisher as Klug does through Regulus is not performing a service. …
“Accordingly, Regulus does not fit within the Ordinance’s definition of service because it does not provide a ‘service purchased by a customer.’”
The circuit court found “that the Ordinance was unconstitutionally vague as applied to Regulus.” We affirm on the basis that the ordinance does not apply to Regulus.
City of Charlottesville v. Regulus Books, LLC, Record No. 210414 (Millette) June 9, 2022. From the Circuit Court of the City of Charlottesville. John A. Rife (Lisa Robertson, City Attorney; Andrew M. Neville; Steven R. Minor; Taxing Authority Consulting Services; Elliott Lawson & Minor, on briefs), for appellant. Renee Flaherty (Keith Neely; Paul Sherman; Neal L. Walters; Institute for Justice; Scott Kroner, on brief), for appellee. Amicus Curiae: National Taxpayers Union Foundation (Joseph D. Henchman; Victor M. Glassberg; Victor M. Glassberg & Associates, on brief), in support of appellee. VLW 022-6-031, 9 pp.