Thousands in Richmond Told to Get Licenses for Businesses Many Didn’t Even Know They Owned

Around 4,000 Richmond residents this month received letters from the city’s finance department saying they need to register their businesses and pay the appropriate taxes from last year.

But that came as a surprise to many who were unaware that they were operating a business in Richmond.

The letters — which the city said are part of a new approach to get “everyone to pay their fair share” — direct recipients to City Hall to get their business cleared and inspected by Sept. 30.

The letters say the city received information from the state Franchise Tax Board that shows business activity was conducted at a Richmond residence, most often people’s home address, without the appropriate business tax certificate. That requires paying a $39 application fee and annual taxes of between 0.075% to 1.395% on a business’ gross receipts.

For someone making $40,000 a year, that could be between $70 and $600, depending on the type of industry.

Since the letters went out late last month, a steady stream of people have trickled into City Hall, letters and tax information in hand, wondering why the city thought they were running a business out of their homes. (Full disclosure: one of those people was this reporter’s spouse.)

KQED spoke to nearly two dozen people who received a letter. The two things most had in common were that they lived in Richmond and that last year, they filed a version of Form 1099, a common document for independent contractors, freelance employees, gig workers or people who received one-time payments.

Many said they felt confused and even fearful when they opened the letters, as they worried they could face penalties if they didn’t get a license. Some said they had tried to call the number on the letter but couldn’t reach anyone.

Residents who received letters and subsequent business applications from city staff included a full-time Uber driver, a landscaper, a handyman, and a housekeeper, all who said they don’t work in Richmond. One confused recipient was a mother who didn’t work at all in 2023 because she was caring for her newborn child. Another recipient said their only 1099 in 2023 was for $17.07.

Richmond is one of many California cities participating in the state’s opt-in information-sharing program, which uses tax board information to help “identify unlicensed individuals or businesses.” In return, the state uses city and county data to “identify self-employed individuals or businesses who are not filing required state income tax returns.”

Katherine Gorringe, a documentary filmmaker, said receiving that letter “struck fear into my heart.” She has an accountant and has her business pay taxes as an S Corporation, where she’s the only employee.

“I like to think I’m really on top of those things. So it was shocking to get in the mail, and it had some wording on it that I would have to be approved or have an inspection, and so that just made me really nervous,” she said.

But there was one thing that really stuck out to Gorringe: she got an extension on her 2023 taxes and her accountant hasn’t even filed them yet.

“In the letter, it indicated that it was for the calendar year 2023 that the Franchise Tax Board had informed them that I had reported business income, so that is just untrue,” Gorringe said.

Andrew LePage, a spokesperson for the Franchise Tax Board, said the state doesn’t share 1099 filing information or business expenses or income with cities and counties. Instead, local governments submit their business tax licensee data, which the tax board matches with tax returns. That process reveals “additional businesses or individuals who have indicated on their return that they conduct business in the participating city or county.”

In a FAQ on the back of the letter, the city states that businesses “both large and small” in Richmond are required to have the tax certificate and that “Most activities conducted within the city on a continuing and regular basis are considered engaging in business and subject to business license tax.”

Jeff Rogers, a handyman who has lived in Richmond for 17 years, was surprised and confused by the letter. “I work all over the place,” he said.

His business is based out of El Cerrito, where he has a business license, so he wonders what Richmond wants him to pay taxes on. City rules say taxes will be calculated based on gross receipts from sales in Richmond.

“I have no problem getting a business license, but if this is just a way for them to get their hands in my pockets and screw me over, that’s where I have a problem,” Rogers said.

David James has been in real estate for 20 years. He works for an agency in Berkeley and doesn’t consider his Richmond home his office. Still, he got the letter and left City Hall Friday with a business license application form.

“I didn’t understand what it was or what it was about, and now they’re telling me I have to pay for doing business in Richmond and have a business license, and I don’t have a business in Richmond,” James said after visiting the Finance Department. “If I knew how to fight it, I would be fighting it. I’m trying to figure it out. Right now, it makes no sense at all.”

Antonio Banuelos — the city accounting manager whose signature appears on the letters — briefed the city council on the information-sharing agreement with the Franchise Tax Board at its Sept. 10 meeting. Banuelos told the council that many people who responded to the letters were not aware the city required them to have a business license. Some, he said, should not have received a letter, including people whose businesses are located outside the city or whose employer gave them a 1099 instead of a W-2.

Banuelos said the city also mistakenly only included the name of one person on the letter when people were filing jointly.

“That was an error on our part and has caused some confusion,” Banuelos told the council.

Banuelos said the data exchange program with the Franchise Tax Board has been in place since 2009, but the city doesn’t use it every year because “it’s very labor intensive and oftentimes doesn’t lead to a lot of revenue.”

In response to questions from KQED, Banuelos said via email that the Franchise Tax Board information provided a listing of all non-wage earners, both businesses and the self-employed. Of them, “most have 1099s.” The city reviewed what the state sent, matching the tax ID or Social Security number, and then sent out the letters.

Banuelos said when people come into City Hall, “we do not know if we are talking with someone that reported $600 or $1,000,000 in non-wage income.”

Banuelos said if people do not meet the Sept. 30 deadline listed on the letter, they’ll receive another notice from the city.

Colisa McFadden, owner of CMA Financial Services in the Hilltop neighborhood, said the city sending letters en masse was “quite ridiculous.”

“It’s scary to get that letter,” she said.

McFadden said Richmond residents who are not doing business within Richmond’s borders do not need to get a business license. “If you work from home and file a 1099, you’re self-employed and need a business license,” she said.

The letters are the latest in the city’s efforts to fund city critical services, which began in 2020 with Measure U, which changed the city’s business tax from a per-employee payroll fee to a tax on gross receipts. The change, which voters approved, was expected to bring $6.2 million into the city’s general fund to address quality-of-life issues, like 911 response times and potholes.

As Measure U took effect, the city sent registered businesses letters about the changes — 4,000 of them went out in January 2022. But the people KQED spoke to for this story say this was the first time they’d received letters from the city about alleged business activity.

Shawn Dunning, a candidate for the District 6 city council seat that includes City Hall, has a business license with the city for his consulting job, even though he said he has no clients in Richmond. He said Measure U changed how businesses’ taxes are calculated but not the requirements for those who need a business license.

“It’s confusing to me why there’s an entirely new approach going on right now,” Dunning said. “I would like to give the benefit of the doubt and hope that this is just an administrative error, but if they are literally just casting a wide net and fishing to see who will take the bait, that would be really sad to me.”