Cost Accounting in Local Government

Appeals Court rules against Business License Processing Fees

Last month, the Fourth District of the State Court of Appeals ruled in Weisblat v. City of San Diego, that fees collected for the primary purpose of revenue collection are a tax and not a fee. This will have particular implications for those cities in California that are charging a Business License Processing fee.

The case turned on the fact that the City of San Diego resolution authorizing the fee:

states that the purpose of the levy is to recover costs associated with processing applications and renewals for Business Tax Certificates and [Renewal] Certificates.’Nothing in the language of the Resolution indicates that the purpose of the levy is to fund any regulatory activity or provide any municipal services beyond those involved in recovering the costs associated with processing the Business Tax and [Renewal] certificate applications.

The Court goes on to say: It is also undisputed that the levy is not exacted in return for permits or other governmental privileges.

The Court does make a distinction between services that are regulatory in nature and those that are primarily for revenue collection:

Under the Sinclair Paint primary purpose test, if revenue is the primary purpose of a levy and regulation is merely incidental, the levy is a tax, but if regulation is the primary purpose, the mere fact that revenue is also obtained does not make the levy a tax.

So it appears that any Business License Processing fee for which the primary purpose is the processing of the tax itself is no longer allowed. But if your Business License Processing fee includes a regulatory review by, say, the Planning Department for zoning regulation purposes, that part of the fee may be allowed.

So ask your City Attorney for his or her interpretation of this Court decision. If you have the cost detail which shows what was included in the processing fee, show that to your City Attorney and ask for an opinion on what is now allowable.

If you need help in providing this cost detail for work that RCS has done for you then just let us know.

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