Anyone who starts or relocates a business goes through exciting and challenging times. It is understandable that the business owner’s primary focus is getting established and meeting customer needs. It stands to reason that a business plan will include big picture items such as marketing strategy and customer satisfaction, which in turn may lead to profits and success.
But there are many other issues to consider, some of which even experienced business owners overlook. An important part of the original due diligence process and planning period should be attention to the local rules and regulations. If proper attention is not given to local regulations, the business can have difficulty down the road. That is why it is important for any person contemplating a change in business location or starting a business to consult not only an experienced financial professional but an experienced municipal attorney.
Three important areas of local regulations are taxation, zoning and land use. This blog will deal with tax issues. Zoning and land use issues arise earlier in the process, when a business buys or leases land. Local ordinances may include additional protections beyond federal or state law (e.g., LGBT), but the pattern of regulation is similar to the federal or state regulations.
But taxation can be a trap for the unwary. When choosing a business location, business organizers often consult with accountants and financial planners who are familiar with federal and state taxes. These businesses assume that their consultants are familiar with local tax laws. But this may not be a correct assumption. The business owner needs to ask whether there are local taxes or registration requirements to be concerned about. The answer may be yes and should be answered as soon as possible and before the doors open for business.
Pennsylvania is unique in that it consists of 67 individual counties and 2,500 municipalities – cities, townships and boroughs, each with their own ordinances and regulations. Allegheny County, containing Pittsburgh, has 130 municipalities! The four suburban Philadelphia counties contain 238 municipalities, ranging from Chester County’s 73 down to Delaware County’s 49.
Of the Commonwealth’s 2,500 plus municipalities and over 500 school districts, 90% impose Earned Income Tax and 80% impose a Local Services Tax (formerly Occupational Privilege Tax or Municipal and Emergency Services Tax). These taxes are paid by employees but must be collected and remitted by the employer or the employer may be responsible for penalty, interest and perhaps fines. The passage of Act 32 of 2008 providing for Central Tax Collection Committees on the County level made the payment, collection and disbursement of Earned Income Tax easier for all parties. But even this statute requires employers to collect the taxes from employees and quarterly remit the taxes to the correct county, failure to do so will result in interest and possibly penalty imposed on the employer.
It is at least as important that each business know the registration and tax requirements of any municipality in which it does business. Failure to register a business when required and remit Business Privilege and Mercantile License Tax (business taxes) can result in penalty and interest assessments by the municipality. These taxes are often overlooked when starting a new business or moving an existing business because less than 10% of all municipalities in Pennsylvania impose Business Taxes. The taxes are self reporting, and the responsibility for filing and reporting falls on each business. It is imperative when moving or starting a business, especially in southeastern Pennsylvania, to consult with an experienced municipal attorney who can guide you through the process of making sure you are properly registered and ready to pay any taxes the way they should be paid to avoid any unnecessary penalty and interest. This will help you keep your focus on the reason you are in business to begin with – your success and the satisfaction of your customers.
At High Swartz, our business and corporate law attorneys provide businesses of all types and sizes with efficient and precise commercial law solutions. For more information or if you have any questions, please contact Kathleen M. Thomas at 215-345-8888 or kthomas@highswartz.com.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.