Why Do I Have To Pay a Business License?

woman leaning on pink desk

As a small business owner you’re always watching you bottom line and it stings a little when that business license renewal comes in the door. Don’t I already pay taxes?

Not so fast! Business Licensing helps your business be more successful in three ways:

  • Infrastructure
  • Level Playing Field
  • Community Quality of Life

By requiring that all business operating within the jurisdiction, the business licensing process provides a shared point-of-entry for all businesses.

Infrastructure

Business licenses fees are levied to help maintain the infrastructure conducive for business operations such as:

  • Safe and Pleasant Streets
  • Public Safety
  • Efficient Fire Protection
  • Reliable Transportation for customers and employees

Of course property taxes also fund some of these same programs, so why do businesses pay additional?

One rationalization is that businesses provide a great level of activity and risk (and therefore cost) to the system. Businesses operate in larger buildings so larger equipment investments need to be made in fire equipment. There is is more traffic created by a retail establishment, increasing the public safety and infrastructure costs. Licensing attempt to quantify these additional costs and share them back across the business base.

Level Playing Field

As the final checkpoint before being allowed to operate a business, the licensing process allows the jurisdiction to ensure:

  • Is the planned building safe and fit for the business activity?
  • Are all professionals in the business properly licensed to state laws? (setting aside the argument for the moment if all such professional licenses are either needed or valid)

Enforcing these regulations helps to ensure a level playing field. After all, if you’re abiding by the law and ensuring all the plumbers in your shop are properly licensed, but the business on the other side of town doesn’t, they can probably also hire cheaper plumbers and either make more money or charge less. They’re also less likely to perform quality work, which brings us to our third reason:

Community Quality of Life

Business licensing performs two key functions that help the jurisdictions desired quality of life: quality control and business regulation.

While business licensing departments are in no way trying to be the community’s equivalent of Consumer Reports, by ensure the minimal state and local requirements of contractors and other professions, they help ensure a baseline level of quality for consumers within the community.

Second, while planning and permitting ordinances regulate whether and where a business may become established in a community, the business license process and rates are methods to help recoup the costs of those businesses. Is you local dive bar a great place to hang out? Definitely. Does it create more calls for police than the average home or restaurant in the community? Most likely. Those calls cost community time and infrastructure and business license fees help cover the difference.

The community’s overall quality of life impacts your business’s ability to grow and attract quality talent. It’s in all businesses best interest to participate.

Conclusion

Seeing that money go out the door hurts, but it’s benefits help ensure your business has a level playing field. They also help you and your community’s quality of life. The best past is that most of those dollars also go right back into the local economy. It’s part of your long-term investment to help ensure that the places where you do business continue to improve and grow, creating more opportunities for you in turn in the future.

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