Business License Compliance: The Oft-Forgotten Registration

Guest Author: Alan Ruttenberg
Senior Product Marketing Manager for Business Licenses, Avalara

Every business operating in America is required to be business license compliant. Many are also required to maintain multiple business licenses, permits, and tax registrations with the government. That’s a tall order when you consider that there are 55 states and territories, 3,000 counties and parishes, approximately 35,000 local municipalities, and special purpose districts that all have their own rules regarding business licenses, permits, and registrations.

Consequently, a comprehensive business license portfolio often includes at least one authorization for the most basic business activity and a multiple of that for highly regulated activities. This complexity can be a substantial headache for any business, especially when it acquires other companies, penetrates new verticals, opens stores, or expands existing operations.

So how do businesses achieve compliance? Although there may not be a one-size-fits-all strategy for every use case, you can often begin by creating an accurate snapshot of your business’s comprehensive business license portfolio. That may not be possible, however, until somebody first assumes responsibility.

Put Somebody in Charge

A recent survey conducted by Avalara and Chain Store Age found that a minority of retail businesses (37%) have a department or team dedicated to overseeing licenses. The truth is that far too many companies treat business licenses as the oft-forgotten registration of compliance. Companies are prone to passing this task along from department to department or, worse yet, trusting individual location managers to handle their own compliance. The danger of this kind of workflow is that a business might fall out of compliance and never know it. This oversight could expose businesses to potential punitive measures from authorities and brand degradation from the public.

Define Your Business

Defining your business may not be as easy as it looks since even seemingly straightforward goods and services may trigger the need for surprising license requirements. (Did you know that there’s an egg breaking license required of restaurants and caterers in Hillsborough, Oregon? Would you have guessed that some municipalities in New York require car dealerships to obtain a food license to serve complimentary coffee?) The situation is even more complex when you factor in the ancillary products you might sell, the supply chain that supports your business, and the services you offer which may bring the personal certifications of employees and contractors into the mix.

Map Your Locations

You know where you primarily operate your business, but it’s worth considering all the locations that lack a traditional physical presence. For example, construction businesses often need to register for work with local municipalities even if their headquarters are elsewhere. Meanwhile, a wide variety of companies allow employees to work from home (especially since the onset of the COVID-19 pandemic), and home occupancy licenses need to be considered. That’s also the case when a business stores equipment or confidential information on its premises. Creating a true map of your business that accounts for all of these “hidden” locations takes time and patience.

Find the Proper Authorities

It’s not always easy to determine which municipalities have jurisdiction over a business location. The licensing offices you need to contact may not actually be located in the same municipality as your business, and sometimes the licensing offices outsource their licensing functions to third-party companies. Moreover, licensing offices may not always be able to give out accurate information since the people who work there don’t always know the answers. The list of ordinances for the municipality might be long and complicated, and it might feel like it requires a detective to get to the bottom of which regulations are relevant to which business, especially if it’s an uncommon business model. (Have you ever tried to get licenses for an escape room?)

Contact Officials

It’s perhaps the most obvious step mentioned in this blog post, but it shouldn’t be mistaken for a panacea for your business license headaches. Not every clerk who answers the phone at city hall is an expert in the intricate nature of business license compliance. It’s simply not reasonable to expect agency officials to conduct research on your behalf. There is a reason, after all, why we recommend this step toward the middle of this article. It’s better to do your own analysis first and contact officials only after you’re done. They can’t give you answers until you’ve come up with the right questions.

Pay Attention to Ownership

Many jurisdictions require a direct change in ownership to be reported to them within a certain time period, which frequently varies from 15 to 60 days. This rule of thumb applies to transfers between franchisees, stores going corporate, sales, mergers, and acquisitions. Higher level corporate changes (for example, a parent company’s parent company being sold) are sometimes an exception and do not require immediate updates.

Prepare for Acquisitions

Municipalities sometimes give greater scrutiny to the status of a company’s business licenses when they are involved in a merger or acquisition. They may also seize the opportunity to force a business to bring its premises up to code, thereby requiring the unprepared business to spend time, money, and resources on construction and repairs when they had hoped to keep their operations running smoothly and without disruption. There are numerous concrete actions that a company can take to protect themselves both prior to and after closing a deal. They include:

• Pinpointing all the locations in which the merged entity will operate and geocoding them for accuracy
• Ensuring the company’s listings with the relevant secretary of state are consistent and up to date
• Confirming that physical license certificates are furnished prior to closing
• Applying for all the regulatory licenses that require grace periods
• Having a third party audit the new portfolio to confirm that all licenses have been transferred correctly

Prepare for Evolving Rules

The only constant in the world of compliance is that nothing stays the same forever. City councils update their ordinances with new rules and regulations on a regular basis, state-run liquor commissions update their processes often, and local municipalities frequently change their calendars, fees, and schedules. But one thing is certain — don’t get lulled into a false sense of security because of lax enforcement. If a law is on the books, and it hasn’t been repealed, jurisdictions can begin enforcing it at any time and without warning.

Be Proactive

Some companies take a passive role with business license compliance. These businesses 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 to 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. And since the final license certificates often must be displayed in a public place at every location, a lack of attention can cause enormous headaches when inspectors make surprise appearances.

It’s never a good idea for corporate headquarters to depend on either the reliability of the government or the due diligence of its local employees. Companies should maintain copies of updated license certificates in a central repository. This way the certificates can be quickly produced if an inspector asks for them or if they engage in an important strategic transaction. And above all else, businesses should be proactive in their approach. The challenge of maintaining business license compliance won’t simply go away on its own.