Data dive: Tracking untapped business tax revenue in Charlottesville

To generate a data set of companies that might be failing to pay local license fees (represented in orange), open data advocate Waldo Jaquith compared a list of 
existing Charlottesville business licenses to a list of SCC-registered companies with Charlottesville addresses. To generate a data set of companies that might be failing to pay local license fees (represented in orange), open data advocate Waldo Jaquith compared a list of existing Charlottesville business licenses to a list of SCC-registered companies with Charlottesville addresses.

Earlier this month, news outlets around the state picked up a story about a local government data crusader who hit on a potential treasure trove of untapped municipal tax revenue. Waldo Jaquith, who founded the nonprofit U.S. Open Data, had paid for access to the State Corporation Commission’s (SCC) list of more than 1.1 million registered Virginia businesses, written some code to clean up the data and posted it online—because, he said on his blog at the time, “it’s not right that people should have to pay for public data.”

It didn’t take long for people to pick up on the fact that the data offered the chance of a windfall for cities: If tax officials could compare Jaquith’s list to their own records, they could find SCC-registered businesses that had failed to file for local business tax licenses, which come with a fee based on annual revenue, and make those businesses pay up.

Jaquith wrote some more code that allowed him to make that very comparison for his hometown, and generated a list of 1,900 active Charlottesville businesses registered with the SCC, but not with the city.

As Jaquith has pointed out, not all 1,900 are guilty of failing to register their businesses in town—a Class 1 misdemeanor, it’s worth noting, which carries with it the potential for a $2,500 fine and up to a year in jail. Many are exempted by state laws, or are simply registered here but do all their business elsewhere. But he pointed out that if 20 percent* of those on the list should, in fact, be licensed in Charlottesville, and if they all ponied up the average annual license fee of $1,588, the city could rake in an extra $600,000 per year without raising existing tax rates.

The story pretty much stopped there, but it raises a lot of questions. Just how many of the 1,900 are breaking the law? And is it even possible to find out which ones are?

We decided to pick up where others had left off, and took Jaquith’s data out for a spin.

To generate a data set of companies that might be failing to pay local license fees (represented in orange), open data advocate Waldo Jaquith compared a list of  existing Charlottesville business licenses to a list of SCC-registered companies with Charlottesville addresses.
WHERE’S THE POTENTIAL REVENUE? To generate a data set of companies that might be failing to pay local license fees (represented in orange), open data advocate Waldo Jaquith compared a list of existing Charlottesville business licenses to a list of SCC-registered companies with Charlottesville addresses.

Who owes Charlottesville money?

We narrowed our focus to an arbitrarily selected 50 businesses out of the list of 1,900.

We eliminated some from investigation because it appeared they didn’t actually do any real business in the city—LLCs that appeared to exist solely as property-holding entities, for instance. There were also a handful of companies that listed only a law firm’s address and for which we could find no online presence—a strong indication that the company was merely established here by a local agent, but doesn’t actually operate in town.

Others in our sample were written off because they clearly met the criteria for exemption from local business license fees. (The list of exemptions is long, and some are oddly specific: Businesses involved in “severing minerals from the earth” and vending stands owned by blind people don’t need local licenses, for instance. But some rather broad categories of business are also exempt, including insurance firms and property rental companies.)

We confirmed one company actually did have a business license in the city, and apparently made it onto the unlicensed list in error.

That left us 26 potentially unlicensed city businesses to track down. For 17, we could find no viable contact information or website. Out of the final 10, some calls went unreturned. A major event planning company was unable to make anybody available to discuss the issue of its apparently absent license. The owner of an expert witness agency hung up on us.

Three were more forthcoming. One company owner said he wasn’t doing any business at the moment, so the license wasn’t relevant. The owner of a second, a community management agency, explained that the company was only a few months old, and a staffer had just that week been assigned to look into getting a license. Then there was an accounting consultant who called back promptly, and sheepishly explained she’s been meaning to file with the city for the last two years, but never got around to it.

Why hasn’t she paid the fees?

“That’s a really good question,” she said. “I tell all my clients to, and I haven’t.” Typically, new companies like the ones she advises have no idea that they’re supposed to register their businesses locally. “It isn’t easy to know what to do,” she said. “I’m spurred to do it now.”

A sample size of 50, a week of searching, calling and e-mailing and 10 potential fee-dodgers—with just one confirmed who actually owed the city money. If, in fact, all 10 did need licenses and paid the city average of $1,588 this year, that would mean the city could snap up nearly $16,000 in addition revenues in 2015 if it duplicated our little data dive. Extrapolate that to the rest of Jaquith’s list of 1,900, and that’s about $300,000 per year in extra tax revenue.

But it would take some time.

Acting on the data

Todd Divers, Charlottesville’s commissioner of revenue, knows very well how hard it is to keep up with the task of policing businesses.

“We try to get the ones that we can,” he said. The SCC sends him and other commissioners around the state a weekly list of newly registered businesses in their localities, and Divers said he’ll regularly peruse local media and walk the streets of the city looking for newcomers—and then issue a gentle reminder to the owners of their obligations.

But for the most part, he said, “You rely on businesses doing the right thing and reporting their income. Obviously, not everyone’s going to report. It gets into an issue of staffing and manpower and time.”

With four employees in his office focused on business taxation, his ability to dig into the numbers that Jaquith crunched is limited, Divers said—but he’s grateful for the innovative look at the data, and he plans to make use of it.

“I’m putting in a budget request for a new auditor this year,” he said. “We’re really just trying to scratch the surface.”

*We initially wrote that Jaquith said the city could take in another $600,000 if 80 percent of the businesses on the list of 1,900 were, in fact, unlicensed. That’s incorrect; the number is 20 percent.