Why are so many business licenses, permits, and tax registrations required?
Governments on the federal, state, and local level require these licenses in order to:
- Identify a business, make sure it's accountable for its actions, and prevent fraud
- Protect the public by ensuring a business meets minimum health and safety requirements
- Track business activity for tax purposes
- Notify citizens of activities that impact them
What makes business license data such an immense burden?
Business license data is voluminous and includes license information, licensing authority contacts, statutes, regulations, ordinances, interpretations, clarifications, procedures, forms, instructions, fee schedules, and the unique requirements of every federal, state, and local authority. Many corporations opt for 3rd-party assistance just to keep track of their business license portfolio data and ensure that they always remain compliant.
Does it get harder when a company operates in more than one location?
Most definitely. Compliance for businesses operating in multiple locations is a colossal hardship. For example, one well-known retailer manages 180,000 separate licenses and permits per year. Another large retailer's annual compliance budget is $25 million. Opening or closing locations, moving locations, changing names, changing ownership, or launching products multiplies the problem exponentially.
Are any industries exempt from this burden?
We sometimes cross paths with companies that think they have unique flexibility due to their particular business. Perhaps they sell commonly accepted goods, operate a conventional business model, or possess a sterling ethical reputation.
Why would any governmental authority pursue them?
The answer is simple. They generate revenue (and with great revenue comes great scrutiny).
Who issues business licenses, permits, and tax registrations?
Business licenses, permits, and tax registrations are issued by federal, state, county, and local governmental authorities to allow individuals or companies to conduct business within each authority's jurisdiction. Local governmental authorities include cities, municipalities, boroughs, townships, and a vast array of special-purpose districts for fire, police, water, economic development, etc. There are over 74,000 government bodies in the United States, each of which has the authority to issue licenses, permits, and registrations.
These jurisdictions overlay and overlap, so a single business often requires multiple authorizations issued by different levels of government. In addition, within each level of government there are often multiple agencies with authorization authority, each with its own requirements, considerably multiplying the compliance challenge.
What is the difference between business licenses, permits, and tax registrations?
A license typically covers a certain business activity in a specific location for a period of time and is intended to be regularly renewed. A permit is usually more permanent, covering an activity in a specific location. However, permits are usually narrow in scope, so each time an activity takes place in a new location, a new permit is required. Some permits also require inspections in order to remain in force. Tax registrations are usually indefinite, although they need to be updated when details about the business change.
The types of licenses required for businesses depend on a number of factors, including location, industry, products and services, sales territory, and number of employees. There are over 200 different types of business licenses, permits, and tax registrations. Activities as basic as putting up a sign may require a unique license.
Doesn't the Internet make business license compliance easier?
Not all local authorities post their forms and documents on the Internet. Even when they do, they are often incomplete, out-of-date, or confusing. It is rare that such forms are embedded with fill-in fields, which means they must be completed by hand or typewriter. Local governments are notoriously unresponsive or unhelpful when trying to obtain information by phone or email. Standing in line or waiting on hold to obtain a license or ask a question is a costly waste of time. Panic can set in as deadlines loom, especially if a company's licensing staff is stretched to capacity, or, as is more often the case, a company has no dedicated licensing staff at all. A company can opt to retain a law firm or accounting firm to conduct the relevant research, but the costs can be exorbitant. Accountants and attorneys tend to loathe this type of work as it is outside their core competencies and yields little profit.
What fees are involved in business license compliance?
It depends on the license and the governmental authority, but license applications typically entail governmental fees. Business license fees vary by authority. Licensing authorities use different basis to establish fees, which can depend on, among other things, fixed fees, number of employees, square footage, and gross receipts.
How often do business licenses have to be renewed?
Most business licenses have to be renewed once a year. This fact alone can be a nightmare when many locations are involved. Good calendars that track due-dates along with specific license details are rarely maintained. Therefore, companies rely instead on inadequate and loosely-organized spreadsheets created by individuals who (let's say this delicately) are not typically trained in the nuances of business license compliance. Moreover, when they depart a company, they leave behind a void in the licensing process. Companies often have to start over and develop a new workflow.
Who must comply?
Nearly every business must obtain some type(s) of licenses, permits, or tax registrations and keep them current. Even activities that are not considered a formal business can trigger a license requirement. For example, the occasional renting out of a vacation home requires a license in some jurisdictions. If a company operates in multiple locations, it will need to comply with licenses, permits, and tax registrations in every location in which it does business, even if the company does not have a physical business location in the jurisdiction.
What are the dangers of noncompliance?
A business can encounter a number of problems if it is noncompliant. These consequences can range from annoying to devastating. For example, a business that is out of compliance may:
- Not receive permission to open a new location
- Not be able to release a new product or service
- Waste valuable time due to repeat inspections
- Lose revenue due to existing locations being padlocked, closed, and/or suspended
- Be charged with expensive fines, interest, and personal liens
- See its insurance coverage placed at risk and liability exposure increased
- Find that it cannot raise funds, sell shares, pass due diligence, or enter into other important contracts
- Discover that its customer contracts are voidable under the law
- Get suspended from a particular business or occupation
How proactive should a company be with business license compliance?
Many companies take a passive role with business license compliance. They rely on renewal notices sent by government agencies and pay whenever told. That sometimes works. But it often creates more problems than it solves. As a general rule, pinning your hopes on the efficiency and reliability of government agencies is not a smart business practice. Consider that many renewal notices sent by government agencies don't reach their intended destinations at all. Since current license certificates often have to be displayed in a public place at every location, this can cause enormous headaches when inspectors make surprise appearances.
To minimize risk, it's never a good idea for a corporate headquarters to depend on either the reliability of the government or the due diligence of its local employees. They should maintain copies of updated license certificates in a central repository so that they can be quickly produced in the event that an inspector asks for them or if they plan to engage in an important strategic transaction.
Why is it hard to find the proper authorities?
It's not always easy to determine which municipal authorities have jurisdiction over your locations. Sometimes business locations fall into unincorporated areas and there is no telling in advance whether or not you will need to navigate the complex requirements of both county and city laws, not to mention the Rube Goldberg-like network of townships, fire districts, school districts, and other special districts.
Are there unique challenges for licensing a restaurant?
It isn't easy to acquire a license to sell packaged food. It's even harder to acquire a license to sell fresh food. It's MUCH harder to acquire a license to prepare and serve fresh food in your own restaurant. And this is to say nothing of alcohol licenses which, in some instances, can never be acquired at all.
What does it mean that some alcohol licenses can never be acquired at all?
It all depends upon local ordinances. Some towns are “dry” and, as such, will not permit anyone to sell alcohol within their city limits. In those instances, it is obviously impossible to acquire a liquor license, barring a change in ordinances. In other cases, a town may issue only a limited number of alcohol licenses. In those instances, it's important to apply early and often.
What does it really mean when a town is dry?
It depends. Cities often use population data to establish quotas for liquor licenses. Some cities/counties and states also establish dry precincts that strictly prohibit alcohol sales. These dry areas can prohibit certain types of alcohol (liquor usually), certain types of sales (retail vs. by the drink), sales of consumption on certain days, or sometimes they can prohibit alcohol entirely. This is usually done by ballot through the local voters.
Some jurisdictions require that a certain percentage of liquor establishment sales come from non-alcohol-related sales (this is often seen in restaurants, with the authorities requiring that non-alcohol-related sales be the majority of gross revenue). Some jurisdictions provide temporary licenses to allow businesses to gain enough revenue to hopefully reach the required figures, but if they fail to do so, a license will not be issued. Additionally, authorities may require that a certain number of seats be offered and/or a certain designated area of a minimum size be provided strictly for food and/or entertainment.
Some jurisdictions require that alcohol establishments maintain a minimum distance from schools, places of worship, and other alcohol sales establishments. This can sometimes be waived if the licensees petition the municipality/jurisdiction, but this can be a difficult and lengthy process.
If an alcohol license is not available in a jurisdiction, what options are available?
The best solution to this predicament is to avoid ending up there in the first place. Experienced license managers keep detailed records of what jurisdictions bar alcohol licenses so that they can advise those in charge of new store expansions to plan accordingly. It is immensely useful to have access to a national database of business licenses to make this process feasible.
When filling out a food/alcohol license application, why is so much personal information required and is it possible to avoid giving it?
Some authorities will reject applications that don't have the requested personal information, such as the officer's home address, birth date, social security number, driver's license number, etc. In the case of online registrations, personal information may be a required field so you will not be able to proceed without entering something. Generally speaking, heavily-regulated filings like contractor licenses, vehicle dealer licenses, secondhand dealer licenses, collection agency licenses, and of course, food/alcohol licenses (to name a few) will absolutely require personal information.
In the case of large corporations, county and local licensing authorities will sometimes make an exception for personal information, since the questions on those license applications are generally geared more toward small businesses. Authorities understand that in the case of large entities with many levels of leadership, the people filling out the forms are most likely not the individuals who will be listed on the application, and it would be virtually impossible to list personal information for all officers
Which government departments are relevant to the process of getting a restaurant licensed?
It varies from jurisdiction to jurisdiction. In our experience, business license managers will need to interact with revenue departments, labor departments, re-employment departments, alcohol boards, secretary of states, state regulatory boards, departments of health, and environmental health departments.
What happens when there is a change in store ownership?
Most jurisdictions require a direct change in ownership to be reported to them within a certain time period (which is often 15-60 days depending on the jurisdiction). This rule of thumb applies to transfers between franchisees, stores going corporate, sales, mergers, and acquisitions. Higher level corporate changes (for example, a company's parent company being sold) are not required to be updated, with the exception of some regulated licenses, such as pharmaceutical licensing.
Is Business Licenses by Avalara a government entity?
No. We are a private company that assists both small business owners and large corporations find, obtain, and maintain their business licenses, permits, and tax registrations.
Does Business Licenses by Avalara issue business licenses and permits?
Absolutely not. Only a licensing authority (i.e., the government) can directly issue valid business licenses. Any private company or 3rd-party organization that claims to have this authority is lying.
Does Business Licenses by Avalara work with every municipality in the U.S.?
Yes. We cover every federal, state, county, and municipal government throughout the U.S. with all of our products and services.
Does Business Licenses by Avalara cover every business license and permit in the U.S.?
Yes, we cover any and all business licenses, permits, and tax registrations and everything that could possibly fall under that classification in the entire country. We generally do not cover professional licenses issued on the person rather than the company, but do so upon requests from companies.
Does Business Licenses by Avalara cover licenses and permits in countries other than the U.S.?
No. We work only in The United States of America.