Reno business license ordinance has community on alert over new fee proposal

The City of Reno is proposing an amendment to its Reno business license ordinance in response to a challenge against an earlier reinterpretation of how to apply the city’s gross receipts tax.

A public workshop will be held at 3:30 p.m. Jan. 19 in the Reno Council Chambers to discuss the changes, that include a new fee proposal.

Around 2014, city officials began interpreting an existing ordinance to calculate the gross revenues tax to include everything that flows through a warehouse or distribution center regardless of where the product is eventually sold, explained Josh Hicks, a partner with McDonald Carano law group.

“When they took that position, some of the businesses saw their taxes go up from four figures into the six figures,” Hicks told the NNBW in a phone interview.

The City of Reno explained the action in a written statement to the NNBW:

“The practice of assessing taxes or fees based on gross value of total product was intended to reach the actual impact on roads and other City services.”

Representing an unidentified business, in April 2016 Hicks and attorney Adam Hosmer-Henner filed an appeal to the tax on constitutional grounds that it was a burden on interstate commerce. He said Reno officials backed down on their broad interpretation and agreed to limit the tax to those goods sold within the city.

While business officials consider that change a victory, the City was left looking for additional revenue.

The first part of the proposed Reno business license ordinance amendment clarifies the definitions of “gross receipts,” “manufacturing facility,” and “warehousing/distribution center.” It then goes on to propose a new annual license fee of 10 cents per square foot for those types of businesses.

In an email to its constituents, the Economic Development Authority of Western Nevada on Jan. 3 urged the business community to pay attention and get involved.

Explaining the fee, the City said, “The City estimates that proposed changes will result in a total revenue decrease of approximately $95,000 in the first year. However, given the amount of new construction projected, within a few years licensing fees should surpass current totals simply due to growth and without an increase in rate. We project businesses will save money on average with the new proposed fee.”

However, because manufacturers, warehouses and distribution centers count their buildings in thousands of square feet, the fee will still hit hard.

“We’re still going to see license fees go from four figures to well into five figures on an annual basis,” Hicks said.

“Right now all these distribution centers pay property taxes as well.”

City officials consider the fee a better way to distribute the financial burden.

“A fee based on square footage more equitably distributes the costs of providing City services because it’s based on the amount of space a business occupies, and not the value of the product,” the statement said. “For example, under the current scenario, a professional office business with 5,000 square feet of space and 15 employees typically pays substantially less than a distribution business with 5,000 square feet of space and five employees because one business stores merchandise on site and the other doesn’t. While there is no perfectly equitable fee formula, this is consistent with current best practices in other communities.”

Business and economic officials will have a lot of questions for the city during the upcoming public workshop.

“The city needs to explain to the tax payers what are the needs for those fees,” Hicks said. “It’s unknown exactly what the justification is for this.”

The proposed ordinance can be viewed at: http://www.reno.gov/home/showdocument?id=66247

Originally published in the January 9, 2017, issue of the Northern Nevada Business Weekly and regularly vetted for accuracy.