City of St. Louis Says Even Small Landlords Need a Business License
Say you buy that problem house next door to yours so you can do a better job of screening renters. You buy the house in your personal name, just like your own house, and proceed. But wait, even though you’ve got a day job the city license collector’s office says you are operating a business and therefore must obtain a graduated business license — at $200 per year.
At issue is what constitutes a business. Over the last few months this topic is repeatedly raised on the Rehabber’s Club discussion list.
Some argue, presumably in agreement with the city, if you receive money you are operating a business. Others cite the fact they own the property in their personal names, do not have an FIN (Federal Identification Number) and that the IRS considers such income as “passive” as opposed to their “active” income from work in which you typically receive a W-2 or 1099 as reasons why they are not a business.
Here is what I gather from the discussion:
- The license collector makes no distinction between owning the property in your personal name, an LLC (Limited Liability Corporation), a partnership, or a corporation.
- The license collectors office does not distinguish between owning one rental unit or hundreds.
- The city cites ordinances requiring all businesses to have a license unless specifically exempt — a few professionals such as a doctors, engineers, real estate agents, etc. are exempt by state law.
- The license collector doesn’t consider it a business if you live in the building, say in the case of a two-family.
I do concur that if you establish some sort of legal structure (LLC, corporation, etc..) in which to own property that may well constitute a business even if the income is passive. That said, I once had a stake in an LLC that owned a piece of rental property and we didn’t have a business license — it never occurred to us as we didn’t think this was a “business.” The business license is that thing you post in your place of business for customers to see, right? And for the record, I no longer have an interest in that property and it is no longer held in an LLC.
Ironically, one person posting on the discussion list indicates he was told that the license collector is basically ignoring those hard to find landlords that have LLC’s but are tracking down individual owners of property where the property tax bill is mailed to an address other than the property address.
For ten years I owned a two-family building — living in the first floor unit and renting the 2nd floor unit. From what I gather, such an arrangement would be exempt — that does not constitute a business they say. However, after 10 years I bought another building and moved from that first 2-family so then it apparently would qualify as a business and require a license. I sold that first 2-family in January 2006.
If we look at the issues and policies being tossed around it would appear that owning a single family house that you rent and thus receive passive rental income (possibly at an annual loss on a cash accounting basis) you are operating a business. However, you can own a 20-unit building in which you live in one unit and rent the remaining but that is not a business.  WTF?
The license collector’s office says you need a business license for each location in the city. If you operate a chain of McDonald’s drive-thrus you must have a business license for each location even if all are operated under the name of one entity. Seems pretty logical. So if you bought several properties on your block to help stabilize it I wonder if they’d require a license for each address? And if so, is it based on address or the assessor’s parcel number? For example, many corner storefront properties have two tax ID numbers — one for the commercial space and one for the residential space. Does each constitute a separate business from a landlord perspective? If so, each address may require more than one $200 business license.
The ordinances on this are not helpful. Stating any business, except those that are exempt, requires a business license leaves far too much gray area. Short of an ordinance clarifying how and when property owners must have a business license, I want to see a written policy. I plan to talk with our License Collector, Mike McMillan, about this issue as I have many questions. I’m sure you have plenty as well. And finally, remember that it may be wise to talk to your attorney if you don’t think you should be required to have a business license.
And sure enough Steve Conway raised that tax a few years ago to fund the police force. You just can’t get it through these people’s heads that these taxes are passed on to the renters, make it more expensive to own property, and drive people out of the city.
Yet City Hall turns around and grants Centenne the right to use its one percent and half percent payroll taxes to funds its new development in a TIF.
I’ve got an idea. How about cutting taxes and corresponding city employment, quite juicing the retirement system which causes long term underfunding, and watch the city become an enticing place to do business again.
does a blogger need a business license? or a freelance web designer? I do the latter on the side, taking in less than 3K a year, and have wondered about the business license. My business location is wherever my laptop is, do I post the license on the inside or outside of my computer? 🙂
Let’s say I give up the use of my property under an agreement with a legal entity (individual, corporation, partnership, etc.) in exchange for a specific payment. I don’t claim I need an office, I just do the paperwork at my kitchen table periodically.
If that property is cash and my deal is with a bank, I don’t need a business license and I’m not going to pay self employment tax to the IRS. If the property is real estate, the City says it’s a business but the IRS still doesn’t want self employment tax.
If the City wants to use a newfangled definition of “business,” then they better be clear about their definition and how it differs from the IRS definition. They shouldn’t be able to just randomly charge taxpayers an extra $200 or more without some regulation that specifies the taxpayer is required to pay the fee. Until then, they need to find a better way to fill the funding gaps from their giveaways to their corporate campaign donors.
I don’t know if the city follows the same guidelines but for federal/state laws, you can look under the definitions in the tax code pertaining to ‘the hobby law’. If you make a certain amount per year or per quarter, you are indeed a businees and no longer a ‘hobby’ or ‘hobbiest’. If this blog somehow made $ 3,001 a quarter in profit, it would become a business and no longer a hobby and under STL law would need the lic. Chicago had similar laws.
I realize that it must seem like a pain to an individual who doesn’t make much on a side business to go through the trouble of making the business “official”.
But, the law is the law. Those who try to skirt under it, for whatever rational sounding reason, are not being fair to others.
I wonder how many of those who do not get business licenses report all of their income to the IRS. I bet very few.
I wonder what the reaction would be to a retired CEO making millions in dividends and other “passive” income claiming that he is not in business.
I’m a landlord in the city of Ferguson, and here, anyone who offers real estate for rent is required to obtain a landlord’s license from the city. No landlord license, no occupancy permit. No occupancy permit, no trash service, and kids can’t enroll in school. Plus, if you let people live there without an occupancy permit, you’re in REAL trouble. In order to obtain a landlord license, they require a REAL name, address, and phone number. If they have problems with your property, they can take disciplinary action against your landlord license.
The result of this is, we have much less problems with rental property in Ferguson than in neighboring communities. Personally, I tell my tenants that if they cause disturbances, leave messes, or sell drugs, they won’t be my tenants for long. The license is only $20, but the benefits to our community are tremendous. In fact, the biggest problem homes I know of in Ferguson have been owner occupied, because it is very difficult to get rid of somebody who owns the house.
Perhaps, instead of another money grab, the city could implement something similar, that would actually HELP the community.
Divide and conquer has long been the key to understanding why our political structure is less than representative and avoids accountability. This issue is the tip-of-the-iceberg in explaining the interrelationship between businesses, elected leaders, and how laws/codes are utilized and enforced.
Commonly known as Selective Enforcement, “vagueness” is often used by leadership and their appointees for favoritism and power. I appreciate how you’re simplifying the issue with the license example but the “grey areas” as you know are much larger than that.
Leadership that favors a particular project will look the other way or provide a positive interpretation of the rules. As you’ve explained, the public typically sees the results as poorly designed developments with inadequate sidewalks, large but dangerous parking lots, lack of ADA access, etc., and in violation of federal laws. Just imagine how difficult these rules become in the County with 92 different municipalities with 92 different sets of rules and hundreds of appointees.
The issue explains why outside capital, progressive ideas, and competition to the status quo are kept out of our area… keep going, you’re on the right track. Did anyone mention campaign contributions, entertainment budgets, connected attorneys, etc. yet?
I don’t understand why the city is focusing on a business license and not requiring occupancy permits for rental property in about 25% of the city. (Occupancy permits are only required in conservation districts, which cover 75% of the city now). The no-occupancy-permit neighborhoods just *happen* to be those which the last census shows as less-white and less-wealthy. My neighborhood is one of these, and does not require occupancy permits. The rental across the street has turned over 3 times in as many years with zero maintenance and zero inspections. Children in the building, yes, exposed wiring in the building, yes. Neighbors complain to the Building Division,yes. Inspection occurred, sadly no. We all pay taxes for the services, but only some of us get to benefit from them. Hunting down the owner for a $200 fee for a business license only brings in revenue for the city, it does nothing for the health and safety of the communities without occupancy permits required. Oh! Is that the plan?
Barbara, that is an amazing statistic. In fact, the city says about 2/3 of the city is in conservations districts. That is a huge increase. Not so long ago, only about half of south city was within conservation districts. Now most of the city is. We should be commending our aldermen for moving this program forward.
Actually, they are tracking the small LLCs as well–my parents (County residents) own one that holds a couple of two-families, and they got the letter a couple of weeks ago. The Stepfather (STL native) ranted for a while about it, then wrote the check. They’re raising rents to cover it.
I’m not saying I’m opposed to some sort of business license–but the cost at the lowest level is 4 times Clayton’s ($200 vs. $50), and really is a strain for small & start-up operations. I guess it’s not for the large corporations and chains that really matter …..
I really like the Ferguson idea mentioned above…it makes perfect sense to me but maybe I am missing something (I always feel that way when something seems TOO simple). Can anyone come up with a reason why it might not work as well as a business liscense? If it IS as good an idea as it sounds, we should press McMillan’s office/alderman to consider it.
I was involved in a similar rehabbers club discussion last summer and I discussed the issue with an attorney friend of mine. He said that I should ask the city to specifically cite the clause that sattes a property owner is a business. I looked and it isn’t there. It just says “other business interests.” I called them and said if they could show me where it says I have to pay this fee, I would. They never did. And I was talking the the supervisor at the office in question.
My take is that until the board of alderman specifically address address this issue, I am not paying a dime. Paying a fee because someone in the Collector of Revenue’s office decides they need to cover a budget shortfall. Thats not how things work. If you don’t pay they won’t do anything to you. The law is not on their side.
By the way, I have no problem with Nick’s suggestion of duplicating a Ferguson-like arrangement. Tracking down trouble landlords is a real problem. However, I don’t like the annual registration deal the alderman were discussing the other week. You’ve got to keep it simple.