When the City Comes for Your Home-Based Business

Posted by on October 01, 2018 at 1:08 PM

By C. Jarrett Dieterle & Shoshana Weissmann, R Street Institute. Reposted from the Wall Street Journal

Chandler, Ariz.—a city of some 250,000 southeast of Phoenix—describes itself as “built on entrepreneurial spirit.” You could forgive Kim O’Neil for not buying it.

Ms. O’Neil and her family are longtime residents of Chandler. Until recently she ran a medical-billing company in the town. For years she worked out of leased office space, but when Ms. O’Neil’s father became ill in 2013 she moved the business to her home. After her father died in 2015, she continued to run the business out of her house, because she could fulfill her work obligations while caring for her elderly mother.

In the summer of 2016, Ms. O’Neil received a letter from the city of Chandler informing her that she was illegally operating a home-based business. She needed to apply for a permit within seven days or face action from the city government. Ms. O’Neil assumed the permit would be easy to obtain. Her business was conducted entirely within her home, had no signage or visiting customers, and didn’t require the storage of commercial equipment or inventory.

Chandler officials didn’t see it that way. They told Ms. O’Neil that her three employees were not allowed to work on-site, though they parked in her driveway and didn’t cause traffic concerns. Eventually, in an attempt to appease city officials, Ms. O’Neil instructed her employees to work from their own residences rather than her home.

City officials were still unmoved. They informed Ms. O’Neil that she would have to build a parking facility, submit architectural drawings of her home, and obtain approval from every neighbor within 600 feet. Doing so would have been expensive, but that wasn’t all. The city even suggested Ms. O’Neil might have to attend monthly meetings with city officials. Her business bothered no one and was entirely self-contained in her home, but Ms. O’Neil eventually gave up. She shut down her business, calling the episode “one of the most stressful experiences of my life.”

Ms. O’Neil isn’t alone. In 1992 there were about 16 million home businesses in the U.S., according to census data. By 2012 that number grew to 27 million. Today about half of all American businesses are home-based, according to the Small Business Administration. At the same time, local governments have become more aggressive in cracking down on home-based businesses.

Officials in Cobb County, Ga., temporarily shut down a videogame blogger whose primary business activity was uploading YouTube videos from his house. A record producer in Nashville, Tenn., who ran a recording studio out of his garage received a cease-and-desist letter from the city, though none of his neighbors had complained. Phoenix refused to grant a permit to a yoga instructor who hoped to teach small classes at her house. It’s hard to gauge exactly how many cities require permits for working from home, but cities in all corners of the country have such rules.

State lawmakers should provide clarity on the issue. The Arizona Legislature recently considered one option for reform, the Home-Based Business Fairness Act. The bill, drafted by the Phoenix-based Goldwater Institute, would have exempted “no impact” home businesses from onerous licensing requirements. Under the bill’s framework, if a home-based business didn’t employ more than three nonresident employees, didn’t cause traffic or parking issues in its neighborhood, and wasn’t the primary purpose of the home, then a business license wouldn’t be required, despite local laws to the contrary.

The bill’s drafters were careful to retain other local rules—such as fire and building codes, pollution controls and noise ordinances—to allow cities sufficient authority to ensure safety. But this did little to placate local officials. Numerous cities in Arizona pushed back and killed the bill. Political leadership in Arizona should make the bill a key priority in the next legislative session and ensure that all home-based businesses are protected from overzealous municipalities.

Some regulation is necessary, and nuisance laws can play an important role in ensuring that a home-based business doesn’t unduly burden the neighbors. But many local rules hurt small businesses with no discernible benefit. Not all businesses may be appropriate to run out of a home, but operations like Ms. O’Neil’s are the sort of entrepreneurial endeavors that government should be supporting, not thwarting.

Mr. Dieterle is director of commercial freedom and a senior fellow at the R Street Institute. Ms. Weissmann is a policy analyst and the digital media specialist at R Street.


Disclaimer: The views expressed in this blog post and these essays are strictly those of the author and do not represent the views of the Bridge Alliance Education Fund, the Bridge Alliance, or the Bridge Alliance’s member organizations. Additionally, the Bridge Alliance Education Fund makes no representations as to the accuracy of this post’s contents.