Starting a business license program

Written by enrique

Saturday, 06 June 2009 11:15

The “nuance” is this:

1. The “license” is regulatory (not revenue raising) in nature. Thus, any costs associated with its administration (such as time spent by planners to review applications for zoning compliance or Finance staff in issuing or renewing the license) is a fee, and not subject to the voter approval requirements of Prop 218.

2. The “tax” is just that – a tax, and only exists to raise revenues. There is no expectation of a link between costs and revenues. Any increase (even in just in categories but revenue neutral overall) would be subject to voter approval: majority if general purpose and two-thirds if earmarked. To keep these concepts distinctly different, we have two separate ordinances: one for business tax – which sets tax amounts; and another for businesses licenses, which authorizes fees to be set by resolution. For clarity, they are in separate sections of our municipal code: the tax in “Revenue and Finance” (Chapter 3); and the license in “Licenses, Permits and Regulations (Chapter 5). Thus, when we renew business licenses and taxes, businesses pay for two distinctly different things: a business license (fixed fee of $34 – slated to go to $42 in July); and a business tax, which is .0005 of gross receipts (or $50 per $100,000 of gross receipts), with a minimum tax of $25. Until 2005, we only had a business tax ordinance. Among other things, in order to recover the regulatory costs we were in fact incurring, we adopted a business license ordinance.

To help understand this dual concept, I’ve attached three things:

Summary of the “business license” concept when we implemented it in 2005.
Our business tax ordinance (last updated in 1991)
Our business license ordinance (adopted in 2005)

A key feature of our business license ordinance is: 5.01.104 Illegal Occupations. A business license issued pursuant to this chapter does not authorize, permit or allow the license holder to do any act or conduct any business of any kind which is otherwise prohibited by City policies, regulations or ordinances ; or any state or federal statute, law, rule, order or regulation In short, the business license ordinance does not allow anyone to do anything they aren’t otherwise allowed to do. In summary, to the extent that you set a separate fee for a “license” (whether new or an increase in an existing fee), the amount is not subject to voter approval. However, for this to be the case, the fee must be based on the cost of processing/administering the license program. For context, in addition to business tax revenues of $1.8 million annually, business license fee revenues generate about $300,000 annually. So, the “nuance,” from a revenue perspective, is not an insignificant one. (And believe it or not, our business community was supportive of the business license ordinance.) Hope this helpful. Please call me if you have any questions.

- Bill

Bill Statler

Director of Finance & Information Technology

City of San Luis Obispo

Last Updated on Saturday, 06 June 2009 11:17