Business licenses are an age-old compliance rule that local governments enforce on businesses in a specific area. Quite literally, business licenses are everywhere you are. They serve a few purposes; in larger municipalities, they are a revenue generator tied to gross receipts reporting. In smaller jurisdictions, licenses are regulatory fees that allow cities to keep track of new businesses opening and closing in a given area. Entrepreneurship drives a community forward. It brings offices, employees, infrastructure, and tax revenue. A city keeping a pulse on who is starting businesses in a given area can give major insight into potential community growth. Also, ensuring that each business is in proper location zoning is imperative to the safety of the community.
I live in a city that has recently built a football stadium as a new home to two local teams. The city required the facility owner to obtain a city business license. Let’s assume that the team ownership failed to get the license and tried to build the stadium without it. The city could then legally shut the project down. This is because it is usually unlawful for any business to operate in the boundaries of a jurisdiction without permission. That license is your permission.
Another example, I used to work for a company that delivered uniforms and business supplies using a company truck (think Amazon Prime but only for businesses). They drove into Mobile, Alabama to do a daily delivery to a dry-cleaning company. As soon as the driver reached the city limits getting ready to cross into the town he noticed a sheriffs vehicle following him, and forced the driver to pull over. The sheriff tells the driver that the company’s business license had expired and attempts to renew were not complied with, and that the driver would need to follow the sheriff back out of town. He proceeds to say that the company could not perform deliveries in that city until the license was properly renewed.
What I haven’t mentioned yet is exactly how much the license fee was. What financial requirement warranted a police escort out of town? After checking with the city clerk, the company learned that $80 and a completed renewal form was all that was needed. The form was filled out, and the tax team paid the fee immediately, but that was not the end of it. The company’s CEO had been notified, and the executive suite was fuming, wondering why the tax department let this slip between the cracks. Sounds a bit extreme, and I wish I could tell you that I made it up, but I did not; this actually happened. That’s how serious jurisdictions are about compliance. It is less about the money and more about the rules. And nothing is worse to a small jurisdiction than a company that does not want to follow the rules.
Present-day experiences have been teaching business owners the importance of tax compliance. Entrepreneurs have been trying to navigate government funding opportunities with the PPP and EIDL programs as well as city and county grant funding. Each of these programs requires different support documents to prove a companies validity. Support documents include tax returns bank statements and business licenses. The logic is that you cannot receive money from the city as a valid entity if you do not comply with all of the cities’ rules.
While business licensing is a nuisance in theory, it is a requirement in practice. And each license comes with regular renewal fees usually, due at the beginning of the year. To establish your business, get your license and get back to what you love doing.