FROM:
Finance
SUBJECT:
Title
Business License Compliance Program - Home-based Businesses
End
RECOMMENDATION:
Recommendation
Authorize the one-time waiver of penalties and prior year business license tax for home-based businesses or individuals who are brought into compliance with City Code Chapter 15-36 through the Business License Compliance Program - Home-based Businesses.
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COUNCIL GOALS:
• Operate in a businesslike manner by creating a memorable customer experience with every interaction.
• Operate in a businesslike manner by improving services through the effective use of technology.
• Operate in a businesslike manner by correcting problems immediately.
• Promote economic development by being business friendly at all levels and striving to constantly improve the city's competitiveness.
DISCUSSION:
Per Section 15-36 of the Fontana City Code, all businesses, trades, professions, callings and occupations who transact and carry on any business, trade, profession, calling or occupation in the city is required to first obtain a license from the City to do so. In April of 2023, the City of Fontana contracted with HDL Business Services to assist the City with its Business License Compliance program. The City has issued on average over 8,400 business licenses annually since 2017-18 that generate over $7 million in revenue for the City’s general fund. Through the Business License Compliance Program, HDL has forecasted that the City would realize an increase of over $660,000 in on-going business license tax revenue as a result of increased compliance through this program. To date, over $1.4 million in current and prior year business license fee and penalty revenue has been received.
Per section 15-45 of the Code, failure to pay a license tax under this article when due shall result in a penalty of 20 percent of such license tax on 31st day after the business commenced to operate for the first time and an additional 20 percent on the first day of each month thereafter, provided that the amount of such penalty to be added shall in no event exceed 100 percent of the amount of the license tax due. Section 15-39(h) allows for a waiver of fees only for applications that are not more than 30 days past due.
The Business License Compliance Program is outlined below:
• The City has partnered with HdL for business license software since 2004. The software is used to process all business license applications.
• The Business License Compliance Program is administered by HdL. HdL takes the data in the business license software and compares it to sales tax data to ensure that every business that is reporting sales tax is also licensed. Additionally, HdL conducts field surveys.
• Once non-compliant businesses are identified, HdL communicates required compliance information and outreach services to the business which includes a business license application.
• The non-compliant business applicant completes the application and returns it to HdL.
• HdL reviews the application and applies the required annual business license fee and associated penalties per the City code based upon the information provided by the non-compliant business and invoices the business accordingly.
• In the event the non-compliant business has been conducting business within the City for more than three years without a license, City code determines that they will only be invoiced for a maximum of three years plus the current year.
• HdL also provides a business support center via phone or online where business owners can get answers to questions that arise; provides document submission/processing, invoicing, and data entry into the business license software.
Since the implementation of the program, numerous businesses have been successfully brought into compliance, and for others, compliance has presented a significant hardship. Due to some businesses owing multiple years’ worth of fees, with the associated penalties equally 100% of the fee, these businesses have requested the waiver of the penalties. Additionally, as home-based businesses are generally small and are more seriously impacted financially by unexpected expenses, they are requesting a waiver of prior year Business License tax in addition to the penalties. As the goal of this program is compliance and due to the fact that the Finance Department does not have any legal authority to waive any penalties or Business License taxes, with the exception of that as cited above, staff is requesting the formal approval of the Business License Compliance Program - Home-based Businesses that would be retroactive covering all associated notices/invoices that have already been sent, and to continue to the process as outlined above and including the following parameters:
• While penalty waivers have already been approved for all compliance customers who are brought into compliance within 30 days from the date of notice, Business License tax waivers shall only be applied to home-based businesses.
• Adding the authority allowing the Finance Department to waive all penalties and prior year Business License tax for prior years, for invoices associated with and identified as home-based businesses through the Business License Compliance Program if payment is made within 30 days from the date of the invoice.
• Authorize the reimbursement of the penalty payments and prior year Business License taxes already collected from home-based businesses if payment had been made within 30 days.
• Authorizing the Finance Department to negotiate payment plans to assist businesses if requested.
FISCAL IMPACT:
Based upon the program estimate, if taxes and fees, including penalties, are received from the currently identified home-based businesses, the revenue is forecasted to be just under $160,000. The waiver of penalties and prior year fees would result in a fiscal impact of an approximate 72% or $115,000 decrease in one-time revenue to the general fund. In addition, once commission is paid to HdL and the accounts that have paid have been refunded, it would result in a one-time expense of approximately $4,500.
MOTION:
To approve staff recommendation