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HomeMy WebLinkAbout06-20-2017 Item 17 Business License Compliance Program Implementation Plan Meeting Date: 6/20/2017 FROM: Xenia Bradford, Interim Finance Director SUBJECT: BUSINESS LICENSE COMPLIANCE PROGRAM IMPLEMENTATION PLAN RECOMMENDATION Approve Business License Compliance implementation plan. REPORT-IN-BRIEF The purpose of this item is to inform the Council and community about the impending efforts to launch a business license compliance program and receive conceptual approval of proposed enforcement. The Municipal Code requires a business license to conduct business in San Luis Obispo. Based on community feedback from businesses owners who comply with business license requirements who have over the years asked that they city level the playing field and uniformly apply the ordinance to all businesses. In the 2015-17 Financial Plan, the Council adopted a business license compliance program. The concept is that a skilled and focused consultant will identify unlicensed businesses within the community and then seek compliance. The consultant uses databases and other means to identify business that may be out of compliance and then reaches out to that business to determine the facts and seek compliance. In October 2016, the Council approved a contract for business license compliances services with HDL Software, LLC. Utilization of HDL consulting services, will enhance equitable enforcement of business license requirements through educational outreach and enforcement to uniformly enforce business license requirements across all businesses subject to the Municipal Code requirement. Based on the analysis presented to the Council with 2015-17 Financial Plan, the cost of the services will be offset by increased revenue. The cost is at 35% of recovery; therefore, there is no direct cost to the City unless revenue is recovered. It is estimated that ultimately there will be a net increase in business license tax revenues after offsetting the cost of providing the compliance. This report outlines the implementation timeline and methodology for Business License Compliance program. Additionally, Council concurrence on policy choices is sought before the program is launched. DISCUSSION The first question may be – “why should the City enforce business license compliance?” The City Charter Municipal Code section 5.01 establishes a duty for the Finance Director to enforce the provisions of the Business License Program, however, there are limited City resources to enforce the requirements of the Business License Program. The result is lack of uniformity of Packet Pg 249 17 enforcement across all businesses and resulting frustration of compliant business owners. Ultimately, the compelling reason for focused enforcement is equitable application of the ordinance. Staff has received complaints that those that do not pay have an unfair business advantage in that they avoid the costs of this requirement. City of San Luis Obispo Municipal Code Chapter 5.01 sets forth the City’s Business License Program. The purpose of the city’s business license regulations is to provide for necessary regulation of lawful businesses being conducted within the city in the interest of the public health, safety and welfare of the people of the city. While due diligence will be exercised in reasonably assuring compliance with all city policies, regulations and ordinances before issuing a business license, the primary focus of the city’s business license regulations is to provide reasonable assurance that businesses operating in the city are doing so in compliance with the city’s planning and building policies, regulations and ordinances; in compliance with the city’s business tax provisions as set forth in Chapter 3.01, and in compliance with the city’s storm water quality ordinance, set forth in Chapter 12.08. Furthermore, City of San Luis Obispo Municipal Code Chapter 3.01 sets forth business tax certification requirements. Although the City’s business tax certification is entirely separate from the license provisions, the two ordinances operate in conjunction with one another. The purpose of the City’s business tax requirements are solely to raise revenue for general municipal purposes and are not intended for regulation. The code sections above apply to businesses. The City’s Municipal Code defines a business as follows: Business shall mean and include professions, trades, vocations, rentals, leases, enterprises, establishments and occupations, and all and every kind of calling, any of which is conducted for the purpose of earning in whole, or in part, a profit or livelihood, whether or not a profit or a livelihood actually is earned thereby, whether paid in money, good, labor or otherwise, and whether or not the business has a fixed place of business in the city. The City’s Business License Program exempts certain types of business es from the license requirements. Specifically, the following businesses are exempt: 1. Businesses owned by a minor under the age of 18 years old. 2. Charitable, Religious and Nonprofit Organizations. 3. Instances where there is a conflict with Federal or State laws or contractual agreements. Business license fees are charged on annual basis and are established by Council resolution and business license tax is fifty cents per thousand dollars of gross receipts or a minimum of $25 annually as defined by Municipal Code section 3.01. Packet Pg 250 17 With the 2015-17 Financial Plan, Council adopted implementation of a business license compliance program using consultants to identify unlicensed businesses within the community. In October of 2016 Council approved a contract for business license compliance services with HDL Software, LLC. One of the primary reasons that the City selected HDL for Business License Compliance was based on their business friendly and education centric approach. HDL’s program is based on the premise of equal enforcement of the City’s regulations for all businesses conducting business within the city in the interest of the public health, safety and welfare of the people of the city. Through proven discovery services provided by HDL, entities subject to licensure/taxation that are not currently registered or otherwise non-compliant are identified. HDL provides communication and outreach to identified businesses in every effort to simplify the process for customers and utilizes a variety of mediums for communication including mail, telephone, and email and web-site access. HDL also provides with a Business Assistance Center that provides customer support and service center. City staff proposes the following implementation plan with HDL Staff is seeking feedback from Council about the implementation plan noted below. IMPLEMENTATION PLAN HDL has access to the City’s business license database. The purpose for granting access is to analyze existing businesses that have been part of the City’s Business License Program. HDL’s program specializes not only in identifying business physically located within the boundaries of the City, but also those that may conduct business within the City while having an intermittent or no physical presence at all. HDL discovery services include a data portfolio, utilizing data provided by the City, as well as the HDL data. HDL team builds an enhanced listing of entities subject to taxation in the city. These entities are electronically matched to the existing files of the City using data matching algorithms, allowing HDL staff to identify which entities are in compliance with the City’s requirements and which entities require follow-up. HDL also utilizes field surveys to provide on-site verification of data culled from other sources. HDL does not rely on electronic matching alone. Records are reviewed by HDL team members and City staff as needed, filtering out records that may lead to erroneous or unnecessary contacts. The following is an outline of the steps that staff has and/or will be taking to roll out the program: 1. A Frequently Asked Questions and answers has been posted on the City website to aid business community in understanding current City requirements and the reasons behind the program. 2. July 2017: General outreach by City staff and HDL representatives to business organizations including but not limited to the Chamber of Commerce and the Downtown Association so that their members are aware that this effort is underway. Packet Pg 251 17 3. Outreach to businesses identified by HDL through discovery process. Notices will be sent to businesses that are potentially out of compliance with the City’s Business License requirements and asking the business to submit a business license application packet. Full customer support will be provided by HDL via telephone and web-site access to help the business obtain compliance. HDL will send out notices in batches to a selection of businesses to allow for processing time. HDL will continuously review available data identifying businesses potentially not in compliance with the City Municipal Code and monitor compliance. 4. If the business is identified in violation of the Municipal Code sections 5.01 and 3.01, a notice of violation and an administrative citation will be issued if the business does not comply with the notice of violation. As established by the Municipal Code, for the first violation, the administrative citation will be $100. If the business still fails to comply, then a second citation will be issued in the amount of $200. Further failure to comply will result in a third violation of $500. Consistent with the City’s current application of the Municipal Code business license and business tax requirements, the City will issue the first citation 30 days following the first notice issued by HdL. HdL will continue outreach to identified businesses sending a minimum of three notices, and subsequent citations will be issued at 60 days and 90 days increments from the original notice. If a business does not comply, other enforcement options will be pursued by HDL or the City which may include but not limited to turning an account to collections or pursuing a court action. 5. As established by City of San Luis Obispo ordinance, late fees in the amount of $15 per month will be applied to outstanding unpaid balances from the time that non-compliance is discovered. Late fee will be applied to the business account, where the balance includes all fees, taxes, and fines due to the City. 6. No retroactive penalties will be applied for this phase on the business license compliance program. According to the Municipal Code, the City could seek up to three years of business license fees, taxes and associated fines and penalties for any unlicensed business which is found to have been operated within that time period. This program will not seek retroactive penalties, license fees or taxes. This is limited to this program – there may be special circumstances outside of the implementation of this program that warrant retroactive payment. Staff is not aware of any instances at this time but this limited waiver of the retroactive enforcement as part of this program should not be interpreted to waive this provision in perpetuity or in circumstances outside the framework of this Packet Pg 252 17 program or after this program is discontinued. The City’s executed contract with HDL is for two years and the compliance efforts will continue throughout this timeframe. It is worth noting that staff anticipates that during this timeframe there will be some complaints about this program (or at least this has been the case in other cities that have implemented a business license/tax compliance program). Every attempt will be made to explain the rationale for the program and ensure the consultant provides exceptional service to the people expressing concern. If there are complaints about the program they should be directed to Xenia Bradford, Interim Finance Director who will address the concerns as expediously and professionally as possible. ALTERNATIVES 1. The Council may direct the Finance Director not to proceed with business license enforcement program and direct the City staff to return with a proposal to amend the Municipal Code. The Municipal Code established a duty to enforce business license program. This action is not recommended. The purpose of the city’s business license regulations is to provide for necessary regulation of lawful businesses being conducted within the city in the interest of the public health, safety and welfare of the people of the city. Enforcement of the business license program is intended to create an equitable and even playing field for all businesses operating within the City that require a license. 2. The Council could direct staff to revise the Business License compliance implementation plan. Staff recommendation is to waive retroactive application of fees, penalties and fines. The Municipal Code section 5.01.501, provides with adjustment powers. Alternatively, Council could direct the Finance Director to collect business license fees and tax based on evidence provided by HDL to the date when a business was first in operation without a license. This approach may result in enhanced fact finding efforts by HDL and potentially subsequently the City staff. Attachments: a - Executed Contract with HDL Business License Compliance Packet Pg 253 17 Packet Pg 254 17 Packet Pg 255 17 Packet Pg 256 17 Packet Pg 257 17 Packet Pg 258 17 Packet Pg 259 17 Packet Pg 260 17 Packet Pg 261 17 Packet Pg 262 17 Packet Pg 263 17 Packet Pg 264 17 Packet Pg 265 17 Packet Pg 266 17 Packet Pg 267 17 Packet Pg 268 17 Packet Pg 269 17 Packet Pg 270 17 Packet Pg 271 17 Page intentionally left blank. Packet Pg 272 17