HOW GOVERNMENT HURTS SMALL BUSINESS

HOW GOVERNMENT HURTS SMALL BUSINESS (and Tyranny by Zoning!); also Residential Zoning

An African-American woman is told by the State of California that she must have a cosmetology license (probably costing over $5000 and months of time) to run a simple business braiding hair with an invention.

A housewife in North Carolina is told she must have a full-sized "commercial kitchen" before she can sell her original-recipe cookies to the public.

In New York City, a private van service for school children is put out of business, essentially because it threatens unionized transit workers with competition.

Generally, people who work at home on computers have been left alone by the zoning craze, as their businesses are generally constrained reasonably, by rules regarding outdoor advertising, parking, visitors, storage of hazardous materials, and the like. These rules seem sensible to protect neighborhood life and property values and security. But many zoning laws were evolved early in the 20^th Century when most businesses were related to factories and manufacturing, with the generation of noise and pollution. Zoning laws don’t always, in come communities, keep up with the opportunities offered by technology. What is going on here?

The City of Minneapolis (in 1998) considersedlicensing regulations that might prevent home-based businesses from owning laser printers or working during evening hours. (As far as I know it never passed, as of 2004.) Some towns in New Jersey (according to media reports in the late 1990s) have ordinances to make it illegal for paid journalists and authors to write “at home.” I checked into this and found that New Jersey had passed a financial disclosure law in 1992 that seems to have prevented most small business owners from holding elected office or participating in civic affairs because of fear of being “caught” (a “don’t ask don’t tell” mentality). A reference by Christopher Hansen is www.medusaonline.com/hbbc/qualities_and_performance.doc (this is a Word document—you can find the html on Google cache). Another report dated 1996 by James Bovard of the Future of Freedom Foundation (“Zoning: The New Tyranny”) refers to a law in Los Angeles that apparently prohibits freelance writers from working at their homes in residential neighborhoods, and claims that a couple in Chicago was issued cease-and-desist letters against using two home computers for magazine or software articles. The URL for this report is http://www.fff.org/freedom/0896d.asp Another source, the Libertarian Party, reported the LA zoning law in a 2000 article, URL http://www.lp.org/lpnews/0003/libsolutions.html Doug Florzak weighs in about another typical example of zoning problems for freelancers in Burbank, CA in Technical Communication Online, May 2002, at http://www.techcomm-online.org/issues/v49n2/full/0510.html

These laws sound like they would be impossible to enforce, but a rabbi in one town was actually fined for owning and using a typewriter (let alone a computer) in his home for commercial or work-related purposes. (As ABC’s John Stossel says, “Give me a break!”) I would think, in the LA case, that if push comes to shove, a writer would just go to FedEx Kinko’s (the “temporary office”) and print or copy the final draft of his or her submission to make it technically legal.

When one considers that telecommuting and working from home saves energy, reduces pollution and helps families, it seems like nonsense to try to prohibit it (maybe employers should be required to offer it!) Of course, zoning laws could make a distinction between work done from a “real” employer (such as computer support when on 24-hour nightcall) and work done by a home-based proprietorship. Why? One obvious motive could come from overbuilding and the pressure to rent more commercial real estate in many cities. Home-based businesses (with very low overheads) do not “pay their dues.” This sounds very cynical, but the LA law may be motivated by turf protection of established writers. Technology can affect old fashioned writing and scriptreading jobs in Hollywood just like technology affects all businesses; but with the enrichment of the film business, especially in independent areas, from technology, in the long run it should create more jobs than it destroys. The issue for Tinseltown may be muddied further by all the legal scuttlebutt around piracy. Hollywood, in any case, will survive.

At this point, it’s useful to provide a functional decomposition of just what zoning means with respect to “work at home.” In many cases, a person will get a business license from his or her locality, and may very well pay some local taxes based on income from the business, or may have to pay tax on physical property (computers, vehicles, equipment) used in the business. The taxes may be very low for small businesses, or may not kick in until a certain income stream is reached. The license will normally be associated with an assumed name (or assumed business name) legally registered with the local and/or state government. The assume name is recognized by financial institutions, vendors, creditors, and other stakeholders. Registering a business license and an assumed name must take place, for example, if one wants to self-publish or self-distribute a book that one has authored, or even a small independent film that one has made. (The ISBN system for books is keyed to these names.) Registering an assumed name (even if that name is used only as a domain name on the World Wide Web and is properly registered with an ICANN-recognized registrant) will help protect the business owner from possible trademark infringement claims (although the name might have to be registered separately in every state if the product is shipped to every state (even electronically by the Internet), usually not a practical option for a small business.) The business, wherever it is operated, normally must comply with zoning laws, and if it is operated from the home or apartment as a home based business, the business owner usually needs a home occupation permit (and often a sales tax permit from the state). However, the converse is not true. A home occupation does not necessary imply the existence of a business entity (proprietorship, partnership, or corporation). A free-lance writer who submits articles for publication to third parties and gets paid at least once for such a submission and who created and submitted the work from home technically has a home occupation. (So would the writer who at any time in the past got his or her own ISBN under a business name or even his or her own name—which is allowed—to publish a book.) A locality like LA, Chicago or some New Jersey communities known to have pursued writers in the past, would likely follow a “don’t ask don’t tell” rule on home occupations that don’t have separate business names—they would be likely to act or even find out only if another party complained (and such a party could be a competitor, a person who lost a “real” job to the freelancer, a heckler who did not like the person or what the person says or exposed, or even in some cases a family member who feels insulted). Therefore, zoning laws could be invoked for reasons that have little to do with the actual residential values of the property where the person works. Of course, a home occupation that actually does affect the neighborhood (with traffic, hazardous materials, appearance, and the like) would easily attract attention of zoning regulators even without the need for a business license.

Zoning, then, may seem like a device to protect insular life-styles or gated communities, or perhaps as a kind of economic turf protection, especially for commercial real estate interests or sometimes for unions. It could also raise murky philosophical questions about non-transaction-oriented “businesses” that people set up as vehicles for future self-promotion. Some would argue that these invite spam, piracy, and other ills’ but if so, they have nothing to do with residential livability or property values; they may affect some people’s ideas about morality and fair competition.

ABC reporter John Stossel reports in his Cato’s Letter (Spring, 2004) “Give Me a Break” that he was cited by OSHA for numerous violations in his home office in New York City (he invited them for a test-drive inspection) including failure to post a notice, “do not eat the toner” on his copy machine.

Minnesota has a law requiring gas stations to make a profit on every gallon they sell—to prevent the large stations from driving the small independents out of business. Imagine this in the grocery business (Wal-Mart). Or what if you made a law like this for writers—stop me from giving away free web content on the theory that I lowball or undercut writers who have to feed a family on their offerings.

There is one other new wrinkle to small “shell” businesses and assumed names: they could be set up as a vehicle for identity theft (as well as spam, virus-writing, and piracy). Robert O’Harrow Jr. provides The Washington Post, March 5, 2005 with the story, “ChoicePoint Data Cache Became a Powder Keg: Identity Thief’s Ability To Get Information Puts Heat on Firm,” in which he describes how thieves set up shell businesses with no commercial addresses (but legally registered with local governments) and used copy centers to fax fake-ids. This could lead local or state governments to get tighter with zoning, but the real problem here is the ease with which people can make fake-ids (like the 9/11 terrorists who got fake ids past the DMV in Arlington, VA) and the lack of security in data collection companies.

Another related zoning issue for small dance clubs, especially, is violence taking place near or at the clubs, such as Club U in the Cardoza area of Washington, DC. Is a club responsible for a crime that takes place outside or near its premises? Gay clubs are well known by police to have much less violence than many straight clubs; however, in some warehouse-type neighborhoods (such as SE Washington DC, to be renovated for the new stadium for the Nationals) the traffic of young single men may provide an unintentional cover (though “panhandling”) for other activities (weapons, drugs, terror cells) in the neighborhood. We could get into the use of eminent domain to buy the property of “less desirable” businesses for new economic development with other private businesses that will bring in more tax revenue (and that is the case with the stadium).

I wonder who will find my little publication operation a threat to establishment interests!

It is sometimes said that the best antidote to capitalism is a true free market!

Author Mary Ruwart, in Chapter 4, “Eliminating Small Businesses,” of Healing Our World (SunStar, 1992), shows that anti-small business regulation (minimum wage, licensing and zoning laws, however they may pretend to be motivated by consumer protection, livability or worker protection) harms lower-income people and minorities. In her public speaking engagements, she advocates a concept of voluntary certification (by trade organizations) instead of government licensing laws, as a way to maintain a balance between professionalism and innovation. Licensing and certification may become issues for small business owners in the future, such as small ISP’s

It’s also worth mentioning that communities can try to using zoning regulations (as have condominium and coop boards with their covenants) to prevent legally unrelated adults from living together. This usually comes up in conjunction with overcrowding of persons into apartment units or houses with inadequate square footage (in high cost areas) and has also come up in conjunction with illegal immigration.

Immigration regulation has affected labor intensive businesses (picking fruits) but also finding eldercare or custodial care, which is often provided by female immigrants who work as live-in home health aides. In turn, that can force other relatives to move or give up their own employment to provide care.

As for residential zoning, there has been concern that some communities allow parceling of land for homes for blood relatives but not for sale to the general public. This idea was originally popular as a way to preserve family farms. Nikita Stewart and Nancy Trejos, “Zoning Laws are Looser for Some Family Ties: Suburbs to Scrutinize Loopholes That Allow Dense Building,” The Washington Post, March 13, 2006. Counties mentioned here include Prince William (Va) and Montgomery (MD).

Residential Zoning

In 2005, some communities (such as Manassas VA) attempted to pass or enforce existing ordinances regarding the number of unrelated persons that could live together in a dwelling, house, or apartment. All communities have some measure of these laws, and most apartments have rules related to square footage. However, there has been concern that these laws would be used to target illegal aliens, especially in metropolitan areas with high rents. Manassas backed down somewhat after public protests.

Residential zoning laws have been used for “moral” purposes. Martha T. Moore has a story on the May 18, 2006 USA Today, “ACLU to sue after community rejects unmarried pair: Black Jack, MO declines to change zoning law,” about Olivia Shelltrack and Fondary Loving, an unmarried heterosexual couple with three children between them. Apparently the suburban city (near St. Louis) is trying to prevent them from living in a house that they own, although it is unclear that they can. It is rather obvious that such laws could be used against gay couples, especially those with custody of children from adoption or from previous legal marriages, and that this could become an important political issue in states (like Virginia and Ohio) where conservatives have been particularly virulent in opposing gay marriage.

There is an interesting story by Janny Scott in The New York Times, Jan. 27, 2007, p A1. “Private Eyes Turn to the Case of the Illegal Sublet,” about the fact that landlords of rent-controlled apartments, particularly in New York City, look for excuses to evict tenants for minor lease violations, which often include zoning violations and running businesses. (Obviously the most common violation, though, is probably illegal subletting.) Google and the Web and provide valuable evidence. It would sound conceivable that a tenant who attracted undesirable attention on the web could be setting himself up for eviction, depending on the lease, which is likely written to prohibit practices that could increase the property owner’s insurance premiums.

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Any feedback considering absurd zoning laws, send it to me at JBoushka@aol.com or 571-334-6107 I checked with a writer living in the LA area in early 2005 and he said that he has not heard of any recent enforcement actions in LA against freelance writers; these stories given as references are several years old now. The policy may well be “don’t ask don’t tell.”