Business License Tax Audit
Business License Program
The City issues over 10,000 business licenses per year generating about $4.0 million annually in General Fund revenue. Retail businesses pay the tax based on a percentage of gross receipts and are billed annually in January. Service-type businesses pay the tax based on a flat fee, as well as on the number of employees and are billed annually in July. Business license taxpayers complete and sign a form declaring gross receipts, or number of employees, and pay the tax due. Due to staff limitations, Finance does not verify information provided by taxpayers.
Municipal Auditing Services
Municipal Auditing Services (MAS) provides a full service “business tax compliance/enforcement program.” Kevin Weigant, President of MAS, has over twenty-years of municipal auditing experience. MAS’ compliance/enforcement three-year program includes auditing all 10,000 plus business licenses issued by the City, locating unlicensed businesses and handling all communications (phone calls and letters) with the affected businesses. The program was paused for almost a year and has now started again as of March 2013. A new approach includes requesting voluntary participation of existing businesses who already have business licenses. MAS collects amounts due and submits the amounts collected as well as supporting documentation to the City for processing. MAS will receive a one-time payment of a percentage of the actual tax recovered. The City will receive 100% of all future tax collections, thereby permanently increasing the City’s business license tax base and supporting vital services in the community.
Impact on Business
The City’s Business License Tax Ordinance provides for the collection of the current year tax, plus three-years back taxes and penalties to a maximum of a percentage of the tax due. Under this penalty structure, the financial impact to business will be moderate.
Impact on City
The City issues over 10,000 business licenses per year generating about $4.0 million annually in General Fund revenue. Assuming that 15% percent of businesses in the City are unlicensed, or otherwise deficient and are discovered during the three-year audit program, the City’s business license tax base would increase $600,000 annually on a permanent basis.
The proposed contract with Municipal Auditing Services (MAS) is for three-years (and can be terminated for any reason with 30 days notice) with compensation in the form of a one-time payment of a percentage of the actual tax and penalties recovered.