Local Businesses Burned by Lack of Licenses

You've got to hand it to the agencies charged with collecting taxes. They have some creative ways of making sure they get every penny owed to them. And especially when budgets are tight, this mission becomes even more important. There is an initiative now going on in both Loudoun and Fairfax Counties (and maybe more) to make sure that small businesses pay up.

No, this isn't going to be the usual post ranting about the unfairness of the tax system and how the little guy gets the short end of the stick. That's for another time.

What is going on now is an effort to make sure that local businesses are registered and are licensed with their home counties. The second part deals with personal property taxes on cars claiming personal use.

Here is what is going on.

Say you have a little business here in Ashburn. You've got your federal Employer ID Number, and you dutifully file your taxes every year. What you may not know is that those data are shared with local governments. So if you file a business tax return with the IRS and Virginia Department of Taxation, your data will be shared with Loudoun County.

Loudoun in turn checks to see if your business is registered and licensed in the county. If not, you can expect either a letter or even a visit from a county employee. And of course, you'll be paying back taxes with some penalties thrown in for good measure. It's estimated that hundreds if not thousands of small businesses here are flying under the radar by not having a county license. And by the way, you also need to file returns of business personal property so they can tax your desk and computer, too.

Usually there isn't any sinister motive to dodge what can be just a $30 tax every year. Instead, it's just pure ignorance--not knowing that you have to register your business with the county within 75 days of starting.

There is a similar situation with Personal Property Taxes on cars. We all know that you get relief of half of the normal car tax if your vehicle is used for personal use only. But if you then go and claim more than half of the mileage as business mileage on your federal return, you're going to get caught and fined for mis-reporting your car as a personal use vehicle.

In our practice, we're seeing clients getting caught in both of these traps, particularly recently. That tells us that there is an enforcement blitz underway, and with county coffers as low as they are, the creativity is equal parts admirable and frightening.

So check your records, business owners. It's OK to register your business late or change your personal property tax designation on your car from personal to business use. You may even be able to avoid some penalties if you are lucky enough to encounter a merciful county employee who understands that you're being proactive about getting right with the county.

And of course, there are tax professionals all over the area who can help you with this, too. Even the smallest, one-person, home-based business needs to register.

By the way, you also need zoning approval (and maybe that of your homeowners' association) to run your business out of your home, too. But that's a topic for another post.