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Published on Monday, October 3, 2016

Discussion continues on proposed changes to city business licensing authority

The task force on local business tax and licensing simplification continues to meet, and discussions still largely center on the simplification of city business licenses. The task force is specifically focused on two areas:

  1. A threshold before a city can require licenses for out-of-town businesses
  2. City participation in the state’s Business Licensing Service (BLS)

Currently, more than 230 cities have business license requirements, and 67 of those participate in the state’s Business Licensing System (BLS), which recently underwent a major upgrade and overhaul. In addition, four of the state’s largest cities have launched FileLocal for B&O tax administration and business licensing. FileLocal will be available for additional cities in 2017. Licenses for the remaining cities must be obtained directly from the city (online, in-person, or by mail). Of the cities with business licenses, most require licenses for all businesses based outside of the jurisdiction, even if it conducts a minimum amount of business within the city.

Business representatives to the task force have expressed concern about businesses being required to register and pay for licenses in multiple jurisdictions with different requirements. They assert this creates confusion for small businesses and seek a one-stop shop for business licensing.

Business representatives also have expressed concern about some businesses being required to get a license for one trip into a city. Examples include a locksmith who unlocks one car door or a furniture store that delivers one couch to a customer in an adjacent city. As a result, cities are facing mounting pressure to develop a minimum, uniform threshold before these out-of-town businesses would be required to get a license. The state already has a threshold for out-of-state businesses of $12,000 in gross receipts per year, unless the business is required to collect sales tax. For cities, businesses have proposed dollar thresholds as low as $1,000 and as high as $12,000 in gross receipts from customers in the city.

Instead of a strict dollar threshold, one proposal is the development of a voluntary model ordinance for business licenses in non-B&O tax cities. The model could include a definition of “engaging in business” that mirrors the city B&O model ordinance and establish a de minimus threshold that would guide when an out-of-town business would be required to obtain a business license. In addition, businesses not meeting the threshold would still be required to register with the city, without charge, to address city concerns about knowing which businesses are operating in their jurisdiction. AWC will be conducting additional outreach to cities on this proposal over the next few weeks.

As for city participation in BLS, the task force is considering a proposal that would encourage cities to voluntarily join the state’s licensing service. Key items in that proposal include:

  • City participation in BLS would remain voluntary.
  • AWC and DOR would continue to work together to communicate the benefits of BLS to cities.
  • DOR will use its 2017 experience of onboarding new cities to determine a reasonable pace under which additional cities can partner with BLS.
  • DOR will provide a report to the Legislature by October 31, 2017, with an action plan identifying various paces at which cities can be on-boarded and the funding required to on-board at each of those levels, not to exceed five years.
  • The Legislature will provide grant funding to support cities that want to partner with BLS but face hardship that prevent them from doing so. Such support may include financial assistance, staffing support, hardware and software, broadband/internet access, kiosks, and other services.
  • When DOR has exhausted the list of cities wanting to partner/join BLS or by January 1, 2023, whichever is sooner, DOR will submit a report to the Legislature describing its efforts to onboard cities, identifying cities that have and have not partnered with BLS, and describing any identified barriers.
  • DOR will establish an advisory committee with local jurisdiction partners to provide input to the BLS on service level agreements/expectations, partner portal changes, and administration of partner change priorities.
  • DOR and FileLocal will explore a seamless interchange between the two systems.

We continue to seek city feedback as the task force works through these items. Please do not hesitate to contact AWC’s Peter King, Victoria Lincoln, or Serena Dolly with questions or comments.

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