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Washington Business License Costs Are Soaring » Publications » Washington Policy Center

Small businesses (and practically all businesses in Washington State) are witnessing exponential cost increases in business license fees charged by local governments. Many cities now charge business license fees based on revenue, number of employees, and hours worked, rather than a fixed fee.

The latest city to consider a price increase is Tacoma, which has increased to $1,000. This is a 400% increase from last year’s fee ($250) for companies with revenue over $1 million.

Complicating the calculation of the license fee charged is the requirement in some cities to count only the hours an employee physically worked within the boundaries of the city or where the nexus was created. State law, as is the case with many remote service providers, specifically restricts the city from requiring a business license when work is being done outside city limits.

These fees can amount to thousands of dollars for small businesses and millions of dollars for large companies.

Take the City of Redmond as an example, the city’s original business license structure was created in 1996 and was most recently updated in 2020. For a small business with 5 full-time employees that is within city limits and has revenues greater than $2,000, the annual fee would be 5 x $122, or $610. Originally charged at $10 per employee in 1996, a series of council actions raised it to $122 per full-time employee by 2022, an increase of over 1,100% .

At some of Redmond’s largest employers, fees run into millions of dollars.

Source: Washington State Department of Revenue

The problem becomes even more complicated when a business operates in multiple jurisdictions. For companies operating in only one municipality, the application is relatively straightforward. However, for companies operating in multiple locations, licensing fees can be substantial. The business may be in one city, but he must pay a license fee in every city in which he operates.

The recent requirement for local governments to use the Washington State Department of Revenue’s centralized system has made the application process more streamlined, but income generated in each city while physically located within city limits is complicated by the need to calculate

Business license eligibility requirements require businesses to track time and revenue separately for work done within and outside city limits. For contractors who can do minimal work within a city, this is a huge administrative burden.

Many companies skip the hassle of applying for a license because the licensing process is difficult. Especially if the work performed within the boundaries of the jurisdiction is minimal or infrequent. Rising fees reduce profits from working in a jurisdiction and increase incentives to ignore licensing requirements. Further complicating the process is that each municipality has different rules, fees and eligibility processes.

License fees are hidden costs of doing business, these costs are added to the cost of the products and services a business provides, and in some jurisdictions other taxes are payable on essential services within city limits. Do not provide benefits or services to businesses because they are

High license fees rob jobs and discourage companies from expanding into new areas and creating new jobs.