The County Line - January/February 1999

Reforming Business Licensing May Be New Challenge for Counties
As the 1999 regular session of the Alabama Legislature begins, yet another "challenge" for county government and the business community appears to be just below the horizon.

A report in The Montgomery Advertiser a few weeks ago may have gone unnoticed in most courthouses; however, the ears around the Association office and those of the county revenue officers perked up. It seems that the business community has tagged the reforming of the business licensing process as its "top priority" in the 1999 legislative session.

And this announcement comes on the heels of a two-year endurance test between business and local governments that were involved in a similar overhaul of the process for collecting sales and other similar taxes on the local level. That process, which ended with the passage of two bills that provide for a common sales tax reporting form throughout the state and a standardized set of collection, enforcement and auditing rules, was enough to stretch even the patience of Job.

For the record, the process for reforming business licensing began about a year ago when then-Gov. Fob James appointed a committee to begin looking at the matter. The group, composed of twelve voting members, includes three county-associated persons and two from the municipalities. The remaining members include a legislator and six persons with ties to the business community.

The executive order creating the committee included a long list of issues to be examined, including most of the things now on the business community's wish list. But in an effort to help keep the sales tax reform effort on track, the group met only two times in 1998 and delayed its work until after the sales tax bills were signed into law.

Now, with the ink dry on those new acts, it appears that the newest "challenge" is upon us. The "challenge" is much like the one that came with the sales tax issue. The business community on one hand wishes to have the payment of business licenses as quick, easy and - yes - as cheap as possible. The local governments want to make sure that ALL businesses purchase a proper license and pay the proper fee. To achieve the wishes of local governments, the business license process must have a bit of good ol' "red tape." Otherwise, you can't separate the folks who are paying from the folks who aren't and, just as important, you can't be sure that everyone is paying the proper license fee.

Specifically, the loudest business community complaint has its nexus in the fact that most of the more than 400 municipalities and all of the 67 counties issue their own business licenses.
However, few of the entities follow the same rules. In fact, the business categories for the licenses, the rates for purchasing the licenses, the base upon which the rates are applied, the dates for purchasing the licenses and even the rules for conducting audits vary greatly from jurisdiction to jurisdiction. For a small business, this must be confusing.

The business group has expressed as its goal for 1999 the establishment a common site for purchasing business licenses, a common set of business categories, rates and common auditing practices and procedures. Local governments, I suppose, would have the goal of leaving things just as they are today.

Both sides, it would appear from our experiences with the sales tax reform effort, will likely fall short of their targets. However, to follow with that logic, the sales tax reform effort also taught us that neither side is likely to come to that realization quickly or painlessly.

The business license question is a much more important one for municipal government than county government. That is not to say that business licensing isn't important on the county-level. But it is not as significant a source of revenue in the county courthouse as it is in the city hall. For many municipalities business license revenue is one of the three largest sources of revenue, making this issue a very sensitive one in the municipal arena.

During the last few months a committee of municipal officials has been working to address as many of the business concerns as possible. At the same time, a committee of county officials was organized by the Association to look at the issue of county and state business licenses.

At the time of this writing, both the municipal and county groups were on the verge of issuing their reports. The county committee's version, which will include suggestions for state business license issues, will contain some - but hopefully not significant - controversy.

Our state business license statutes are long overdue for a tune-up. We still have a long list of 19th century occupations that are licensed by state law. And, to be honest, the state and county business license rates are so low as to almost be laughable.
Under current state law, there is a state-created county and state business license in all 67 Alabama counties. The licenses are issued in the local county courthouse and the modest revenue is split equally between the counties and the state.

Under current state law, a retail business establishment that has annual gross revenues of, say, $5 million will pay the same amount for its state and county business license as a similar retail establishment that has gross revenues of only $200,000 per year. This approach may have been reasonable decades ago, but as we approach the 21st century it is clear that a business that generates $5 million in sales certainly should bear a little larger share of the governmental burden than a business that is generating only $200,000 in sales.

It seems logical that if the business community is going to demand that a comprehensive evaluation of the business licensing issue be conducted, this obvious unfairness must also be addressed. In the business community's defense, they have not slammed the door shut when we have raised this idea.

But one would be wise to assume that they are probably just waiting for us to move our foot out of the way so they can close the door and bolt it shut behind us.

And so, there is the jest of the coming "challenge." The business community wants "reform" and the local governments are willing to accept some "reform." The problem is determining whose definition of reform will be passed through the legislative process.

The 1997 and 1998 sales tax exercise produced set of committees that have worked during the last year to establish a common form for paying taxes, a set of educational standards for sales tax collectors and a set of common procedures for conducting sales tax audits. The work of the committees has been productive and may have even brought the business and government crowds a bit closer together.

If this newest round of "reform" work can produce legislation that deals with a common set of business license categories, a common license purchase and delinquent date, a common application form and even a common set of auditing procedures, then it, too, will have been productive.

And if that happens, we may be able to move off this issue and on to something a little less "challenging."