The hinge of American citizenship is the rule of law.  We expect citizens to abide by it, and even more, we expect our governments to abide by it as well.  Governments that rule by whim and ignore the law become tyrannies or “banana republics:, as the owners of Creators Syndicate discovered in their dealings with the city of Los Angeles.  The city ignored its own ruling on a tax issue and demanded back taxes that the company does not owe to them:

From the beginning, we’ve been headquartered in Los Angeles. But 15 years ago we had a dispute with the city over our business tax classification. The city argued that we should be in an “occupations and professions” classification that has an extremely high tax rate, while we fought for a “wholesale and retail” classification with a much lower rate. The city forced us to invest a small fortune in legal fees over two years, but we felt it was worth it in order to establish the correct classification once and for all.

After enduring a series of bureaucratic hearings, we anxiously awaited a ruling to find out what our tax rate would be. Everything was at stake. We had already decided that if we lost, we would move.

You can imagine how relieved we were on July 1, 1994, when the ruling was issued. We won, and firmly planted our roots in the City of Angels and proceeded to build our business.

Everything was fine until the city started running out of money in 2007. Suddenly, the city announced that it was going to ignore its own ruling and reclassify us in the higher tax category. Even more incredible is the fact that the new classification was to be imposed retroactively to 2004 with interest and penalties. No explanation was given for the new classification, or for the city’s decision to ignore its 1994 ruling.

Their official position is that the city is not bound by past rulings — only taxpayers are. This is why we have been forced to file a lawsuit. We will let the courts decide whether it is legal for adverse rulings to apply only to taxpayers and not to the city.

First, one has to wonder why a city that specializes in entertainment — which Creators Syndicate distributes — would choose to impose penalizing taxes on distributors.  Clearly, a media syndicate sells content at either wholesale or retail to other businesses.  They don’t create the content; they sell it, either directly or indirectly, to the public.  Even if it didn’t, though, how does LA justify a significantly higher tax rate to the actual producers of content?  They hardly impact city services, certainly not as much as manufacturing.

However, that’s a matter of public policy and open for debate, while this case has deeper implications.  The decision of LA to ignore its own ruling and penalize CS forrelying on the city’s own decision (through the retroactive application) defies explanation.  That is not the act of a representative government that abides by the law; that is the action of tyrannical bureaucrats deciding that they are the law.  That’s dangerous regardless of whom the city victimizes in any specific case.  It demonstrates a lack of checks and balances, and a mentality that reduces Los Angeles residents to the status of subjects rather than citizens.

Rick Newcombe will leave Los Angeles as a result of this, and no one can blame him or anyone else who leaves a city intent on turning itself into a “banana republic,” as Newcombe accurately observes.   (via Michelle)