Regulation of business licenses is increasing, as are enforcement actions against business license violations. These developments have made business license management an organizational imperative.
At the same time, regulatory agencies are de-emphasizing their role in providing renewal and compliance notifications. It is up to organizations to understand business license requirements and to see that these obligations are met on time.
To help ensure that your business remains compliant and free from penalties or disruptions, it's important to be aware of all regulatory reporting requirements at state and local levels.
Municipalities are taking a firmer line on business licensing
One licensing trend is that more local jurisdictions are passing and enforcing stricter licensing requirements.
City councilors in Berlin, Maryland, recently passed a law that increased business license late penalties. Local businesses that fail to secure a business license (or stay current with their annual $75 license fee) are at risk of increased interest rates. Another possible sanction involves businesses having their names published on a list of late licensing violators.
City officials in Independence, Missouri, have given their business license compliance officers a new task: An aggressive door-to-door campaign to collect unpaid license fees from many of that town's 9,000 businesses.
Independence isn't the only city intent on pursuing businesses for back taxes and overdue licensing fees. In North Myrtle Beach, South Carolina, a local investigation uncovered more than $140,000 in unpaid business license fines—a significant sum for any small- to mid-sized jurisdiction.
How larger business licensing trends impact planning and operations
The emergence of ecommerce posed a new question for businesses and local jurisdictions. If a company sells products to residents of a state—yet has no physical presence within the state's borders—should sales taxes still apply?
The U.S. Supreme Court addressed this issue in a 2018 case, South Dakota vs. Wayfair. The Court held that states can require online or remote sellers to collect and remit sales taxes on purchases made by customers in the state, even if the seller has no in-state physical presence.
This decision now requires remote sellers to register for sales tax licenses, and to collect and remit taxes on the sale of goods and services, in any state that imposes a sales tax where those businesses meet the tax law’s nexus requirement.
Having remote workers presents similar issues, depending on state and local laws. Companies employing out-of-state staff must determine where and how to properly withhold payroll taxes. Meanwhile, remote workers must also stay current on the licensing requirements of their jurisdiction, as some municipalities require workers to obtain home occupation permits.
Businesses must remain aware of so-called "tax nexus" considerations. A tax nexus is defined as any situation where an organization does business in a state other than its primary physical headquarters. Having remote workers in a secondary state may subject a business to that state's sales, income and tax laws. Having remote workers may also make it necessary for businesses to register with the specific tax department in the jurisdiction where these workers live.
Because these situations can be complex and highly variable, the counsel of a tax adviser can help businesses determine how to best fulfill these requirements.