Why Governments are Stepping-up Business License Enforcement

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.