Businesses beware: New city rules may cost you

Employee fees will increase to $90 per employee with new business licensing rules beginning January 1

Most Vancouver businesses are likely aware of the need for a City of Vancouver Business License. Businesses may not, however, be aware that the city business licensing rules have recently changed, with more changes to come.

Currently, the Vancouver Municipal Code states that those engaging in “any business or activity” within Vancouver’s city limits must have a valid city business license, absent an exemption. “Business” includes virtually everything a person does with the object of gain. In other words, anyone who is generating (or attempting to generate) income in Vancouver needs a license, unless an exception applies. The license applies to home-based businesses as well, even if customers do not frequent the home. The current exemptions from the license requirement include businesses generating less than $12,000 per year and businesses engaged in casual or isolated sales. In addition, while nonprofit businesses need to obtain a license, they are not required to pay license fees. Virtually all other businesses operating within the city limits (even if those businesses do not have a physical location within the city limits) are required to hold a license.

Under the current licensing regime, the base annual fee for a business license is $125 for every location within the city limits, with an additional fee of $80 per employee (including owners), for up to a total of 400 employees ($32,000 maximum per year). If a business has more than 400 employees, there is no fee for those additional employees. Employee fees will increase to $90 per employee beginning January 1, 2018, for up to a total of 400 employees ($36,000 maximum per year). The number of employees is calculated based on the number of hours worked by employees in the city limits. For example, a business with three full-time employees and two half-time employees working in the city limits would only need to pay for four employees per year (the two half-time employees equal one full-time employee).

According to the Vancouver Municipal Code, the employee surcharge was increased from $60 per employee to $80 per employee in December of 2016 to fund police staffing based on the recommendation of the Community Resource Team, and the employee surcharge increase in 2018 will be used to fund a street initiative.

Despite the hefty surcharge for employees, not all may be lost for a large business. In particular, in order to promote business development, the city may waive the employee surcharge for certain larger employers for five years (this may be extended for two subsequent five-year periods) if the business has recently moved to Vancouver or expanded its existing business and meets certain other requirements.

While the current fees are generally understood and may not have a large financial impact on many local businesses, recent changes to the Vancouver Municipal Code increase business licensing fees and could significantly impact local businesses in the near future.

Beginning on January 1, 2019, businesses with locations in the city limits will be required to pay an additional surcharge based upon the “net square footage” of indoor space used by the business. “Net square footage” includes all square feet in excess of 5,000 square feet. The fee is calculated based on the indoor “net square footage” that is either used by the business or that is leased to others, meaning that both landlords who own the space and tenants who lease the space appear to be required to pay the surcharge.

The surcharge applies to the following types of businesses: retail (direct on-premises sales to customers) – $0.10 per square foot beginning January 1, 2019, and $0.20 per square foot beginning January 1, 2020; industrial (an on-site activity that makes, processes, or stores a tangible thing) – $0.05 per square foot beginning January 1, 2019, and $0.10 per square foot beginning January 1, 2020; and commercial (any activity that does not qualify as retail, industrial or residential) – $0.07 per square foot.

Perhaps the most surprising change is a surcharge for businesses with multi-family residential units (a building with more than one residential unit). These businesses will be required to pay $90 per residential unit beginning on January 1, 2019, which could quickly become expensive for those owning or operating multi-family apartment complexes.

While it may seem easier to ignore the licensing requirements altogether, businesses should not act too hastily in doing so. In particular, the city code contains a provision criminalizing violations of the city’s business licensing rules, and violators may be assessed monetary fines or imprisoned, or both.

The new licensing rules clearly illustrate the impact that budget tensions in Olympia and federally have had on our region. As a prudent business owner, it is important to not only understand but abide by the local licensing rules applicable to the business. For those businesses with a large footprint in Vancouver, it will be important to plan for the financial impact the new rules will have on the business.

Erin Lambley is an attorney with Landerholm working out of the firm’s Vancouver office. She focuses on general business law, including representing corporations, limited liability companies, partnerships and nonprofit organizations. This column was written with special thanks to Amanda Davey, paralegal.