|More on Business Licenses
October 6, 2005
Based on some feedback from my last E-FORUM piece, I offer the following:
License laws ensnare small businesses in new red tape
Ilana DeBare, Chronicle Staff Writer
Tuesday, September 6, 2005
Has someone from your company ever met with a client or customer at their premises in the city of Alameda?
Guess what -- you need an Alameda city business license.
Following in the steps of several other small East Bay cities, Alameda has started cracking down on out-of-town consultants and contractors who do any business at all within their boundaries.
Alameda finance officials say that licenses are required not just for firms located in the city, but for anyone who holds even a single business meeting in the city.
"If a CPA has an office in San Ramon and sends stuff to a client here, he is not conducting business" in Alameda, said Juelle-Ann Boyer, chief financial officer for Alameda. "But if he comes to Alameda and sits down with a client, that is the conduct of business and he needs a license."
Critics, including some business owners who have been snagged in the crackdown, call the policy absurd. If every city interpreted its business license law this way, they say, a consultant with clients in a dozen Bay Area cities would need to file for a dozen different business licenses.
"This isn't fair," said Patricia Haddock, a San Francisco communications consultant who was told she needed an Alameda license because she did 29 hours of work at clients' offices there during the past three years. "If I had a storefront there, or did 90 percent of my business there, or if I were actively soliciting business there, it would be different. But this just makes me speechless, I am so annoyed."
Actually, Alameda's business license law is neither new nor unusual. What is new is how aggressively the city is enforcing the law.
Nearly all California cities require local companies to purchase a business license. In a lesser-known provision, many of these cities also require licenses for out-of-town companies that transact or solicit business within their borders.
Most cities have applied their license law to out-of-town businesses in a somewhat spotty fashion. Officials typically required out-of-town architects and contractors to get city licenses when they sought building permits. Or if they noticed a truck from an out-of-town business parked in their city on a regular basis, they would tell the owner to get a local license.
But officials rarely required salespeople or white-collar professionals like Haddock to get licenses to meet with their clients.
In recent years, however, some cash-strapped cities have decided to enforce business license laws more strenuously. In 2004, the Contra Costa County cities of Martinez and Clayton hired a firm called Municipal Auditing Services to identify unlicensed businesses and collect fees from them.
The move increased Clayton's business license revenue by about $30,000 and Martinez's revenue by about $47,000, according to officials there.
But it also sparked a political firestorm in tiny Clayton. About 1,000 of the city's 11,000 residents signed a petition against taxing out-of-town companies. Residents worried that out-of-town house cleaners, real estate agents and other service providers would stop doing business there because of the license requirement. Clayton recently placed collection efforts on hold so it could take another look at its business license law.
Early this year, the city of Alameda hired Municipal Auditing Services. It asked Alameda-based businesses for lists of their outside vendors and contractors, and then notified those vendors that they needed a local business license.
Officials from both the company and the city defended their actions as fair and legal. "This has been in our municipal code for a number of years," said Boyer, the chief financial officer. "My responsibility is to administer the municipal code as adopted by the City Council."
Officials noted that state law requires cities to levy business taxes in a proportional manner, taxing companies only on the portion of work they do in each city. That should, in theory, eliminate the risk of being taxed twice for the same income.
However, many cities set a flat minimum fee for business licenses that can undermine proportionality. For instance, Alameda charges $68 for most companies with revenue less than $68,000. And Oakland has a minimum business license fee of $60, plus a registration fee of $30 regardless of the size of a business.
So a company that has a lot of very small jobs in different cities could end up paying more to all those places than if it purchased a single business license in its home city.
"I have customers in probably 80 jurisdictions," said Gene Zahas, owner of Johnstone Supply, an Oakland firm that sells heating and air-conditioning equipment and was notified by Municipal Auditing Services that it needed an Alameda license. "If this proliferates and I have to get licenses for 80 or 90 jurisdictions, it would be a nightmare."
Critics say that Alameda's newly aggressive enforcement campaign will drive business away.
"This could have a chilling effect on inter-city commerce," said Stephen Judson, a lawyer with Fitzgerald Abbott & Beardsley who is representing Zahas. "If a business in Oakland feels they are going to get pestered for having a client in Alameda, they will just eliminate Alameda from their service area. That hurts the consumers."
Among those taken by surprise by the enforcement effort was Alameda Mayor Beverly Johnson. Johnson didn't know how the law was being enforced until she received complaints from some out-of-town businesses. As a businesswoman herself, she was perplexed. She said she would look into the issue.
"I am an attorney," Johnson said. "(What) if attorneys had to get business licenses in every city where we went to court? It can't be that way ... . It does seem like there should be some minimal amount of business you have to do, especially if you do business all over the place."
In fact, some of California's biggest cities do exempt firms that conduct only a small amount of business within their borders.
San Francisco has a seven-day rule under which out-of-town firms are exempt from the payroll tax if they do less than seven days of business there each year. And San Jose doesn't require a license unless a business does five days of work there over the course of a year. It also refunds the license fee if a business makes less than $18,000 in the city.
E-mail Ilana DeBare at firstname.lastname@example.org.