BUSINESS LICENSE TAX

November 27, 2000

Dear DGA Member:

It is our understanding that some of our members may have been contacted recently by the City of Los Angeles regarding the Business License tax registration requirements. As with all such matters you should consult your legal, tax, accounting, or other business advisors for advice regarding the applicability of the Business License to you and your particular work activities. However, we thought it would be useful for us to provide the enclosed materials and information for you and your advisors.

As you may know, over the last several years there has been a great deal of legislative activity in Sacramento and at the City regarding the Business License provisions. In general, none of the reforms or changes have been adopted to date. However, approximately one year ago, the Los Angeles City Council did amend the Business License provisions to add definitions for "independent contractor" and "employee". This was done through Ordinance No 172783, (a copy of which is enclosed) which was included in the Los Angeles Municipal Codes as Sections 21.00 (j) & (k) became effective on September 30, 1999. As you and your advisors will see, it provides twenty factors which indicate status as either an independent contractor or employee.

In general, the Business License provisions are applicable to businesses such as independent contractors rather than employees. However, in some instances, status as an employee may be relevant to the Business License provisions. See, for example, the provision for "motion, radio, television or radio producers" included in the Los Angeles Municipal Code at Section 21.109.

Under the Los Angeles Municipal Code, an independent contractor means "any entity, other than an individual, that performs services for a principal; and any individual who performs services for a principal for a specified recompense for a specified result under the control of the principal as to the result of the work only and not as to the means by which such result is accomplished. An independent contractor receives income that should be reported to the Internal Revenue Service by the principal on IRS Form 1099, should report the income to the Internal Revenue Service on IRS Form 1040, Schedule C and may deduct the cost of the use of a home for business purposes on said Schedule C. . . . ". An employee, on the other hand, is defined as "any individual who performs services for a principal in a capacity other than as an independent contractor. An employee receives income that should be reported to the Internal Revenue Service by the principal on IRS Form W2, should not report the income to the Internal Revenue Service on IRS Form 1040, Schedule C and may not deduct the cost of the use of a home for business on said Schedule C. . . . " Please refer to the enclosed materials for further information.

You should also be aware when gross receipt of an independent contractor arise from activities both within the City of Los Angeles and outside the City, gross receipts are to be allocated in manner to fairly calculate the amount derived from or attributable to engaging in business within the City. The Municipal Code provides some guidance as to factors such as payroll, and value and status of tangible property. However, the City Clerk is authorized to establish rules and regulations regarding such allocations. See Los Angeles Municipal Code Section 21.190(d). The City Clerk has issued a ruling that an independent contractor:

Shall include in the measure of tax the total gross receipts from work performed within the City; and in addition thereto, if such person owns, leases, occupies or otherwise maintains within the City a place or premises from which such person engages in business activities outside the City, such person shall include a portion of the gross receipts from work performed outside the City in the measure of tax. In the absence of substantial information, 20% of gross receipts from work performed outside the City shall be deemed to be that portion subject to tax as attributable to business engaged in within the City.

See City Clerk Ruling No. 15. You may find additional information at the City Clerk's page on the website of the City of Los Angeles at www.cityofla.com/CLK or by contacting the City Clerk at (213) 485-3960. The Municipal Code can be found on www.codesite.com. (Although be aware as with any Internet website the information may not be current or updated.) Look in particular for Section 21.109 (motion picture, television, and radio producers) and Section 21.190 (independent contractors).

We anticipate that there will continue to be legislative reform proposals and efforts both in Sacramento and locally during the comings months and perhaps over the next several years. As we have in the past, we will continue to monitor these activities to ensure evenhanded and fair treatment of DGA members. We will of course keep you informed of any major developments. In the meantime, if you are contacted by the City of Los Angeles regarding the Business License registration we believe that it is appropriate for you to contact your advisors in such matters.

We hope that you and your advisors will find the enclosed information helpful. Thank you.

Sincerely,

Jay D. Roth

National Executive Director