Tax and/or Regulatory Departments really like to keep business license compliance off the company radar. After all, can news about your business license compliance ever be good news? It’s not like one of the executive suits ever submits Sally’s name for Employee of the Month because “as far as we know, she kept all of our business licenses in compliance!” Never gonna happen.  So let’s avoid the radar, right?

There is one thing that is certain to get you on the company radar, and as you might suspect, it’s not a trophy-worthy occurrence. Ignore a Gross Receipts based business license registration or license renewal and eventually you’re going to owe a bunch of money.  And penalties. And interest. The same kind of trouble your sales and use tax colleagues avoid like a drunk at the pistol range.  Or an auditor in a windowless room.

It makes sense to use the same care and concern with Gross Receipts based business licenses that you would with your sales tax reporting responsibilities. Companies that don’t are inevitably sorry that they didn’t treat these licenses and reporting with greater respect. Take this company for example – they had hundreds of facilities in a number of states that had been amassed through acquisitions over a ten year period. The small companies they had acquired had done a poor job of initial business licensing and the constant flow of new acquisitions caused them to take their eye off the legacy renewals. That turned into double trouble when a city auditor asked for their business license and his share of the revenue. Then the issue gets into the wind and several other municipalities start dropping by to take a look at the books and begin wrestling for their share of a large six-figure settlement. What did they have in common? All had gross receipts elements to their business license registrations and renewals.

How do you fix that before it gets on the radar?  Well, you don’t if there’s money involved. So take early precautions with those gross receipt “taxes” and know where you may be off the mark. Look at your business licenses (or lack of) by location and match them against a reliable licensing database to help you collate your locations by jurisdictions with a gross receipts reporting requirement, those with a less imposing flat fee requirement, and those with no licensing requirement. It’s quick and inexpensive to do. And if you still see a windowless room in your future, start to slowly and proactively fix it.  Prioritize your locations, get the base research done for you, create a remediation strategy, and get some locations on a “below the radar” trajectory. That’s the flight plan well clear of the pistol range.

There are a lot of changes on the 2013 horizon from an economic and financial standpoint. With changes in Federal and State budgets and taxes, many cities are going to be forced to look at alternative funding options. One source of significant revenues for cities is their Business License roll. We anticipate that the cities will be more vigilant in pursuing companies to ensure compliance, and to ensure a steady stream of fees into their coffers.

This poses a challenge to companies that are “under-licensed.” No licensing professional wants to be holding the bag if a location gets padlocked for non-compliance. Therefore, now is the time to get any licensing gaps identified and get the proper licensing in place on a proactive basis.

The first order of business would be to prepare a list of all physical locations, and secondarily, a list of service areas, if applicable to your business. Once you have your list compiled, a match of licenses on file with the physical location list will start illuminating any gaps. If files are incomplete, a call to the authority to confirm the status of the license is in order. It is important that you have the license number, or FEIN, for the company, as well as officer information handy, so you can assure the official that you have the authority to inquire on behalf of your company.

Gathering forms and requirements for locations in which no license exists is next. Many cities now maintain robust websites, and some of those cities will allow you to apply online. The city website should be your first destination in researching requirements. If an online application process is not set up, you can usually download forms from the website for onward submission in hard copy. If no forms are available, a call to the City Clerk, or Department of Finance would be the last resort.

Evaluate which licenses are based on gross receipts vs. those that are based on the number of employees, other similar bases, or a flat fee. Prioritize the filing process accordingly- eliminating the licenses with the most risk first. As you move through your list and build your compliance levels, you will secure your company’s position and reduce exposure to the scrutiny of revenue hungry jurisdictions.

As we hurl down the Internet’s information super highway at increasingly dizzying speeds, it is hard to take the time to recognize the monumental changes occurring in the surrounding landscape.  I’m not ashamed to admit that I remember life before the Internet and I am certain that almost everyone would agree with me that the Internet and the social media age that it has spawned has changed pretty much everything in how we live our lives.  For instance, how we purchase and pay for just about everything has changed.  We can buy anything from anywhere at any time of the day or night without even leaving our homes.  As an accomplished armchair shopper, I have to admit it’s wonderful but do you ever stop to think about the logistics of all that money and payment information floating around in cyberspace?

If you are a payment processing company, or even a company like Facebook or one of the many Internet companies that match up people who want to buy with people who have something to sell, then you should be very cognizant of the changing payment landscape.  These advances in commerce and payment have created vulnerabilities in money laundering, identity theft, terrorist financing and other illicit activities.  Government regulators are racing to catch up and amend old laws or draft new ones to encompass these new technologies and the attendant new threats.

Traditionally, payment processing companies that handle payments from customers to merchants have viewed their activities as a type of “data processing” outside the scope of actual money transmission, subject to regulation.  On the federal level, the Financial Crimes Enforcement Network has agreed with this conclusion and such companies have not been held to the requirements of the Bank Secrecy Act.  However, on the state level, this area is rapidly evolving and may become a compliance hotbed in the very near future.  Just last year, California enacted a sweeping new money transmission law that significantly broadens the definition of “money transmission” to leave no doubt that the new mobile payment applications and payment platforms are included.  All companies whose activities fall within this broad definition will be required to obtain a California money transmitter license.  As for the other states, 46 of them already have money transmitter laws that could be easily broadened to the same degree as California.  In fact, some companies are trying to get ahead of the curve and are obtaining money transmitter licenses now.  Facebook has already obtained money transmitter licenses in about 15 states and Square Inc. applied for its California license last April.  It may be a brave new world, but chances are you’re going to need a license.

*The information contained herein is intended for informational purposes only and does not constitute legal advice and is not intended to constitute advertising or solicitation for legal services.

The news is replete with stories about how federal, state, and local licensing authorities are becoming more vigilant about business license compliance.  The Los Angeles Times recently published an article entitled “Tax Collectors Checking Business Licenses.”  Out of Modesto, CA comes a government claim that “Business License Enforcement Pays Off in Big Way.” Similar headlines are popping up in other places around the country.

There are three main reasons for the renewed level of licensing interest in enforcement by governments.

First, government is dependent on revenue, especially with the great recession causing the downfall in economy tax revenue. According to the U.S. Census Bureau, in the 12-month period ending June 30, 2012, state governments took in 1.5 billion dollars less in corporation tax revenue than in the same period in 2011. With a weak outlook for a quick rebound, governments must act to recover lost revenue. They are running out of options and must look to new avenues.

The one area where enforcement has been lax has been business license revenue. Traditionally, business license enforcement has been low on the totem pole. Since business license fees are low compared to other taxes, the intake from individual scofflaws has been too little to justify devoting resources to it. However, when the going gets tough, the tough get going. And, in this case, governments are becoming tough. Not only are they instituting new business licenses and increasing fees for existing licenses, they are also stepping up enforcement of existing business license renewals.

Second, with high unemployment people take to entrepreneurship. They also cut corners. In doing so, unlicensed businesses proliferate. In a recent post-hurricane Sandy report, the rolls of contractors listed with the state of NJ were reviewed by a news outlet. Amazingly, they found every third contractor license expired. This is cause for people to be ripped off, creating an outcry by the public.

Third, governments impose licenses to ensure that businesses comply with government-mandated guidelines for safety, soundness, and tax. Legitimate businesses that are paying their license fees year after year are very upset at unlicensed businesses because a) they don’t pay the same fees and b) because without being known to the government they aren’t held to the same standards. Therefore, compliant businesses are always pressuring their governments to enforce licensing, especially in bad economic times when they feel more vulnerable to interlopers.

All of these reasons combine to increase pressure on governments to enforce business license compliance. And enforcing they are. In more ways, and with more resources than ever. Governments are even sending out agents to knock on Main Street doors and to walk the malls all over this great country.

If the inspectors spot businesses that cannot produce the required licenses or have expired licenses, they aren’t shy about imposing stiff penalties and fines, dating back to the time a business came into being. Disobeying leads to even stiffer fines and ultimately to being padlocked. Stronger emphasis is placed on larger or better-known companies, since governmental agents feel more powerful if they can tame a lion.

So be forewarned. Being proactive in having all your licenses and in keeping them up-to-date will save you a lot of headaches and money down the road.

I’m surprised at the low level of attention that proper business licensing gets in public companies. I get the fact that this function is under the radar most of the time – a mundane task that is managed by a group of people who are paid to keep any licensing issues from cropping up. But my observation is that most licensing administrators inherit issues that they were not even aware existed. And those issues do raise their heads now and again, embarrassing the organization and costing them money.

How hard can it be to perform research to stay business license compliant? They are just registrations and permits, right? But you have to understand that the issue does not really start with the license renewal activity, which companies view as their “business license compliance process”. It inevitably starts in the very beginning with the initial business licensing and permitting decisions that are likely made by someone else. It’s like the party where the punch bowl has already been contaminated, and the “server” has no idea that they have been set up as the fall guy when they are refilling guests’ cups. No tip for that guy at the end of the night.

Here’s how it happens. A regulatory or tax team has responsibility for getting a new location or product ready to be released in the market. Somebody looks up the licensing requirements online, or even calls a licensing authority with a few questions. Sometimes the website is unclear and often the questions aren’t the right questions. As a result, the license acquisition team gets the licenses they deem adequate, and then they open the store or release the product/service with what they think is the jurisdiction’s blessing. Both are unaware that they are under-licensed or have business license reporting requirements that are undefined. This happens because somebody didn’t commission the appropriate, thorough license research.

So what’s the big deal? What could go wrong and how bad could that be anyway? All I can say is that in almost every case, the license renewal team somehow takes the blame for somebody else’s shortcut. A jurisdiction that requires business license gross receipts reporting comes knocking and finds a six or 7 figure short fall. Or an over-zealous licensing official locks your doors and boasts about his “finding a bad guy” to the media.  Bad stuff…and costly too. All because somebody initially thought this business license research stuff was child’s play.

I know I have a vested interest in seeing this done right. After all, I spend my days (and some nights) helping companies climb out of these holes they’ve dug. Why not get an expert opinion from somebody who has been there before. Sure, I can help you, but you really just need to find a reliable someone who knows how to traverse the curious nexus, reporting, and licensing requirements. They’ll know the truth and they will save you a ton of clean up in the long run. Spend a little time and money now and save a boatload of time, money, and negative PR in the future. That’s a much better plan.