Setting the Record Straight on the Home-Based Business Act

by Christina Sandefur
April 6, 2018

SB 1387, the Home-Based Business Fairness Act, is a modest yet much-needed reform that presents an opportunity for Arizona to modernize and standardize its regulations, eliminating confusion and refocusing local resources on addressing true nuisances, while embracing the new economy and empowering individuals and small businesses to pursue the American Dream.

The City of Phoenix is opposed to this bill, and unfortunately, that opposition is based on misunderstandings and distortions about what the bill would accomplish. Once again, we’d like to set the record straight:

Phoenix claims the bill “will allow businesses such as secondhand dealers, massage establishments, retail stores and restaurants to operate out of their homes without a City license or regulation.”

This is blatantly false. Under the bill, all types of home-based businesses – even “no impact” home-based businesses – are subject to city regulations, including those designed to protect health and safety, ensure that the business is compatible with the residential area and is secondary to the home’s residential use, and regulate noise and traffic. Home-based businesses that are not “no impact” or aren’t compatible with the neighborhood can be subject to further regulations, permitting, or even prohibited from operating altogether.

Phoenix claims the bill “will make it difficult for Phoenix to regulate sober living homes in residential neighborhoods.”

The bill does not place any additional burdens on cities wishing to regulate sober living homes in residential neighborhoods. To the contrary, it specifically exempts regulations that “limit[] the use of a home-based business for . . . operating or maintaining a structured sober living home.” SB 1387(C)(3)(c).

Phoenix claims the bill “will make it impossible to determine when a proposal meets the substantial traffic threshold.”

Governments enforce provisions like this all the time, and in this same context. The term “substantial” is a commonly used and well-defined term in Arizona law. Arizona courts define “substantial” as “considerable in amount, value, or worth.” State v. Barnett, 173 Ariz. 282, 286 (App. 1991). Indeed, the City of Phoenix already uses this term in its own zoning ordinance in determining, among other things, whether to grant a variance to a zoning ordinance. See, e.g., Phoenix Zoning Ord. § 307(9)(c).

Phoenix claims the bill “[c]onverts homes into open store-fronts in the middle of a neighborhood.”

In order to be considered a “no-impact” home-based business, the homeowner must operate her business “inside the residential dwelling,” and any activity must be “not visible from the street.” It’s simply disingenuous to claim that this bill would transform homes into storefronts.

Phoenix claims the bill “[a]llows an unlimited number of customers on site at any one time.”

The bill caps the number of non-resident and non-relative employees that can be present at three. That number is based on the best practice standards that Maricopa County and a number of cities already have in place. And although the bill does not limit the number of residents or immediate family members that can participate in a home-based business, there’s no reason to be concerned that this will cause problems. First, cities can still enforce nuisance rules that protect quiet, clean, and safe neighborhoods, including fire and building codes that limit the number of individuals that can be in a home, as well as noise restrictions. And cities can still enforce their traffic and parking rules. No-impact home-based businesses cannot “generate on-street parking” – employees and clients must park on site – and they cannot create a “substantial increase in traffic” in the neighborhood. Finally, “no-impact” home-based businesses must operate within the home and may not be visible from the street.

It’s hard to see how, with cities retaining the power to regulate noise, traffic, parking, activities taking place outside the home, and other nuisance, any home-based business could employ enough residents or family members to cause concern.

Phoenix claims the bill’s “‘no-impact’ business definition is too broad and up for interpretation.”

The bill defines “no impact” clearly and thoroughly. Home-based businesses are only considered to be “no impact” if they meet all of the following requirements: (1) sell legal goods and services, (2) do not “generate on-street parking” – employees and clients must park on site, (3) do not create a “substantial increase in traffic” in the neighborhood, (4) operate inside the home and “are not visible from the street,” and (5) comply with all city and county regulations that protect health and safety and ensure the business is compatible with the residential area and secondary to the home’s residential use.

If a home-based business can’t meet all of those requirements, then it is subject to any reasonable permitting or regulatory restrictions a city wishes to impose so long as the city doesn’t require a rezoning, a business license, or fire sprinklers in certain homes. This safeguards families with home-based businesses from lengthy, uncertain, and expensive permitting or rezoning processes that are not designed to mitigate a nuisance but are aimed at a homeowner simply because she works from home rather than in a traditional office. But it preserves flexibility for cities to focus their limited resources on overseeing compatible use and mitigating nuisances through health and safety regulations; building codes; and traffic, parking, and noise ordinances.

Phoenix claims the bill “[i]ncents businesses to just operate out of a residence to avoid licensing requirements that would apply to them if they were conducting the same activity on commercial property.”

In reality, cities retain their authority to ensure all home-based businesses are compatible with the residential environment and that the business activity is secondary to the property’s use as a home. In other words, the bill leaves cities with a great degree of flexibility to set forth what uses are permitted in residential zones and only requires that any such regulations are a reasonable fit to ensure the businesses are compatible and secondary to the residential use.

Moreover, home-based businesses will still be required to obtain and maintain any applicable professional licenses, remit taxes, and comply with public health and safety standards. Cities will be able to prevent dangerous or disruptive activities in neighborhoods just as they do now.

With the bill’s clear criteria and the cities’ flexibility, there’s simply no risk of businesses transforming a residential area into a commercial zone in order to evade rules.

This bill is about protecting those activities that don’t cause any impact on their communities. If it’s ok for a person to do her own income taxes at her kitchen table, it should be ok for an accountant to do someone else’s income taxes in her home office.  Additionally, the City of Phoenix does not have a general business license, so most of their home-based businesses already operate legally without a license.  This bill will have very little impact on the City of Phoenix’s current home-based business environment.

Phoenix claims “[e]nforcement will be difficult” because “agents may not be able to enter a property to check on a complaint.”

The bill does nothing to bolster people’s privacy rights in their homes – the state and federal constitutions already provide those protections today. Under the bill, enforcement will be the same as it is now, so long as the city’s enforcement action is reasonable. The bill leaves cities with significant flexibility to enforce nuisance complaints and oversee compatible use. Today, many home-based businesses operate “under the radar” and cause no problems. This bill simply establishes that if a home-based business has no impact on the residential neighborhood, a homeowner is allowed to operate without first seeking permission. The minute that homeowner causes a problem, however, the city can require her to mitigate the harm – or to stop from operating altogether.

Phoenix claims the bill will allow “[s]moke shops and paraphernalia” in residential neighborhoods, and that the City “currently licenses based on the activity being regulated,” such as secondhand dealers and massage establishments.

Under the bill, cities will retain the flexibility to set forth what uses are “compatible with the residential use of the property and the surrounding residential use.” Cities already have zoning ordinances determining what uses are permitted in residential zones, and the bill does nothing to diminish that power, so long as those regulations are reasonable (a very permissive standard).

Most neighborhoods already have multiple home-based businesses that operate without disturbing anyone – and those are the practices this bill will protect. The Home-Based Business Fairness Act modernizes Arizona’s piecemeal and outmoded regulations in favor of a clear, consistent, and common-sense approach. Let’s let local governments focus on nuisance while embracing the new economy and empowering individuals and small businesses to pursue the American Dream.