• by Wendy Davis  @wendyndavis, August 24, 2010

Some bloggers in Philadelphia who run ads on their sites are finding that they owe more in taxes than they are earning in ad dollars, thanks to a little-publicized law requiring anyone engaged in a commercial activity to pay a business privilege tax.

The fee is either $50 a year or $300 for a lifetime license, no matter how little revenue is taken in. While the law has been on the books since 1985, the licensing fee has recently drawn media attention -- apparently because the city recently sent out tens of thousands of letters to people who owed money as part of an amnesty program.

Those amnesty offers were mailed in May and June to anyone who reported self-employment income on Schedule C of a federal tax return, a representative of the city's tax department tells Online Media Daily. The program -- part of a city revenue-raising initiative -- allowed people to pay for licenses, and also pay any owed back taxes, without penalties.

Although the business privilege tax applies to all entrepreneurs, not just bloggers, it became known this week as the "blogger tax" after the City Paper ran a piece examining bloggers who recently learned that they owed the city money.

The author of the environmental blog MS Philly Organic, for instance, told the City Paper that the city sent her a letter in May informing her of the $300 tax, although she has made only $50 total from her site.

City records show that 726 information companies paid the business privilege tax between 2004 and 2008. It wasn't immediately clear how many of the owners of those businesses were bloggers.

Philadelphia's business privilege tax is probably legal provided that it is applied in a non-discriminatory fashion, says David Ardia, director of the Citizen Media Law Project. Nonetheless, he says, the law seems outdated.

"One new wrinkle that comes from the fact that we've got a cadre of individuals out there performing functions that were previously performed by the press, is that the tax structure that was created around certain assumptions needs to be rethought," he says. "I don't think the end result that Philadelphia wants is for all the bloggers to cease their activities, because that's going to create an information gap."