Q&A: Letter to The Bottom Line

Dear Jennifer,

Your Aug. 10 article on the hidden costs of running a home business was informative and very helpful. I've been running a home-based business for the past six years. However, you missed one license and filing that is required and very little known: counties or cities you have clients within.

If you as a business (any type I believe) do business [outside of your area] you have to have a business license. Owners are also required to file a tax form which assesses whether or not they owe a percentage in tax on the amount of business they do in that area.

I became aware of it a couple of years ago when one county where I have clients ran an amnesty ad in the local newspaper. I was assessed fees and taxes back to the day I started business!! You might want to check this out and put it into your future advice files. -- Kathryn Delany, artist and owner of ColorSplashes.com

Jennifer's Response:

Ms. Delany, it's great to hear from another dedicated reader. You are prudent to point out the additional licensing requirements. My original column's length didn't allow me to go into details outside of the specific areas served by this publication. However, this spot does.

Theoretically, a business entity - whether home-based or not - should have a business license from every city or county you do business in that requires it. Nearly all nearby cities and counties do.

However, if your business makes less than $25,000 from clients in another area, then often you can file for an exemption (a form known as SPO5) or won't need that additional license at all.

License requirements and cost

For example, Oregon's MutnomahCounty business licensing program is handled by the same office that processes the Portland business licenses.

"There are two separate business licensing programs: you file for both of those on the same form," says Terri Williams, the City of Portland's Revenue Bureau license and tax division manager.

One license is for doing business anywhere in Multnomah County (including Portland) and the other is for doing business just within Portland city limits.

If your business grosses more than $25,000 in the county, then there's a $100 business application fee and taxes will apply - whether or not you made a profit in the process. You'll also pay 1.45 percent tax on your net income.

Portland's annual business license fee is basically a business tax. It's 2.2 percent of the net income you make from clients within its city limits, with a minimum of $100 if they've grossed more than $25,000.

Apportionment

The tax form Ms. Delany refers to in her letter is the county's "apportionment worksheet." That worksheet tells county and city planners how much of your business was done within its borders.

"If you sit at home working over your computer, but selling all over the country, and some of your business is inside the district and some is outside," says Penny Raths, a self-employment coordinator for the state of Oregon, just "take your total self-employed earnings and fill out an apportionment worksheet so you're only taxed on the work you do in each district."

The worksheet "rather handily is online," Ms. Delany tells me by phone. "If you work in Quicken or Turbo Tax, it figures out [the county tax] for you too."

Amnesty and enforcement

For future reference, I did ask Multnomah County about the terms of its amnesty program.

"It's open to anyone at any time," Williams says.

But it's not forgiveness.

"If you've never filed with us, and we've never contacted you to tell you that you need to file, then you could 1) file all open years and pay tax and interest and avoid a penalty," Williams says, "or 2) you could file for selective years and the penalty would be limited to 25 percent - though you still pay tax and interest."

For Ms. Delany, amnesty meant that "to get up and legal I had to pay about $600 for over five years or so," Delany says by phone. "Still, it was a little less than I would have had to pay otherwise."

Multnomah County enforces business-license compliance with its "unlicensed compliance team," staff dedicated to identifying businesses that haven't filed. They search for local addresses filed with business directories, the state's Department of Labor and its own purchasing department.

"Then we contact businesses if it appears they're doing business here and not filing with us," Williams says.

However, enforcement when your home or business address is outside the area is difficult. That's why both Portland and Multnomah County has a "voluntary compliance policy" that's only made mandatory after a notice from the county to start paying.

"When we're doing filing enforcement on home businesses," Raths says, "we look for the local home address zip codes first."

NOTE: An excerpt of this response first ran in The Oregonian's Washington County Weekly and Southwest Weekly tabloids

Local resource list for those doing business in Multnomah County

Multnomah County/City of Portland Business Licenses

Phone: 503-823-5157

Online business license application form

Other online forms/updates

Online Multnomah County Business Income Tax form

Online exemption application

First time filer

Renewal filer

Respective cities within Multnomah County: