Hundreds of cities and counties across California collect a business license tax to provide a sustainable revenue channel for their communities. Now, many are looking to modernize their codes in the face of budget deficits.
Facing lower revenues from federal and state sources, many cities and counties are looking to update the tax structure, which will result in tax increases for many types of local businesses.
Cities across the peninsula are working to update their business license tax, balancing the need to provide relief to small businesses while closing budget deficits. (Read the article.) Others are updating their tax rates to include annual consumer price index (CPI) adjustments (like the City of El Segundo).
At the same time, some cities and counties have been pushing for more efficiency gains to reduce and even eliminate their business license tax (like the City of Irvine).
The Hidden Costs of Updating Your Business License Tax
Administering a business license tax carries real costs for the city or county; even small cities must allocate staff to support business filers and reporting. Because of staffing costs, many cities and counties outsource this function entirely to solutions providers, but this approach is not a panacea.
Solutions providers often charge what amounts to the annual subscription fee for their software to make simple changes, and business license tax updates will require significant updates to their customized software.
Additionally, solutions providers are often the ones who are interfacing with local businesses, which causes frustration for tax filers. Cities and counties should be looking to improve their relations with local business owners when updates are going into effect, but many will find themselves disconnected if they are outsourcing this function.
Finally, updates carry a greater risk of non-compliance, with local business owners not understanding the changes. Cities and counties that outsource compliance services will see much of this revenue lost to outsourced providers who charge high collection fees.
Best Practices for Updating Your Business License Fees
Cities and counties looking to update their business license tax should use this opportunity to seek a solution that offers configurability to avoid costly fees for updates and customizations and allows for greater future flexibility.
Maintaining the ability to ensure high-quality customer service at a time of change is critical. Local businesses are the backbone of their communities, and they should have the ability to interface directly with government staff who can ensure that they understand updates and the value to them.
Compliance and reporting are two areas where local governments struggle with their current solution and service providers. Cloud software solutions have advanced tremendously in their ability to surface data with AI. Cities and counties should use the timing of business license tax updates to test out solutions that incorporate new technologies.
