Are you legal? Ignorance not an excuse for lack of licenses

State and local governments are focusing on stricter enforcement and higher fees to meet budget shortfalls. At the same time, the principals in many veterinary practices are discovering just how much government services cost their practices - and how many of those increasingly more expensive licenses and permits they do not have.

Yes, almost every practice, even home-based practices and businesses, face not only higher government taxes and fees, but find that they must bring their operations into compliance with those local and state rules and regulations. Failure to comply, even unknowingly, can stop a startup operation before it begins- or result in the closing of an ongoing veterinary practice.

Embroiled in the day-to-day battle to keep your veterinary practice profitable, it is easy to ignore the need for licenses and permits. Health department inspections, approval and permits are necessary for a restaurant to operate and liquor, wine and beer licenses are mandatory for businesses in the hospitality industry. But, what about your own practice?

Business licenses and permits

The lack of proper licenses and permits can often be attributed to ignorance; who, after all, could ever imagine that so many government agencies were interested in your small practice? Unfortunately, the lack of proper licenses and expenses is a mistake than can come back to haunt - especially now that many state and local governments are looking more closely at the revenue generated by licenses and permits.

Consider a few of the most common licenses and permits you and your veterinary practice may need:

Don't foget these

• A license to use your name. If you operate your business under a name other than your own, you might be required by the county, city or state to register your fictitious name. In other words, while John Doe, Veterinarian, is acceptable, if you want your business to be known as Doe's Veterinary Clinic or Professional Vet Service Associates, a license for a fictitious business name may be required.

Procedures for doing this vary among states. In many states, all you have to do is go to the county office and pay a registration fee to the county clerk. In other states, you have to publish a fictitious name notice ad in a local newspaper for a certain length of time. Your local bank may also require a fictitious name certificate to open a business account for you.

In most states, corporations are not required to file fictitious business names unless the incorporated practice conducts business under names other than their own. Incorporation documents have the same effect for incorporated practices and professional corporations as fictitious name filings do for sole practitioners and partnerships.

• A license for your practice. Even a veterinarian operating in a business district usually requires a business license. A business license essentially grants you the right (after the payment of a fee, of course) to operate in that city. When you file your license application with the city's business license department, the city's planning or zoning department will usually check to ensure that your area is zoned for the purpose you want to use it for.

That's right, no veterinarian can operate in an area that is not zoned for your type of practice unless they first get a variance or conditional-use permit. Ordinarily, to get a zoning variance you'll need to present your case before the planning commission in your city. In most cases, such variations are fairly easy to get, as long as it can be shown that your practice won't disrupt the character of the neighborhood where you plan to locate.

• A permit for your sign. Some cities and municipalities have ordinances that restrict the size, location and sometimes the lighting and type of sign you can use outside your practice. Landlords may also impose their own restrictions; they are likely to be most stringent in a mall or office park.

• County permits. County governments often require essentially the same types of permits and licenses as cities. A veterinary practice located outside a city's or town's jurisdiction, may face county restrictions. Fortunately, county regulations are usually not as strict as those of adjoining cities.

• State licenses. It goes without saying that many states require people in certain occupations to have licenses or occupational permits. Often, they must pass state examinations before they can get these permits and conduct business. State licenses are usually required for auto mechanics, plumbers, electricians, building contractors and anyone providing personal services such as barbers, cosmetologists, doctors and nurses and, obviously, veterinarians.

• Federal licenses. Most veterinarians do not have to worry about federal licenses. After all, only a few types of businesses require federal licenses, including meat processors, radio and TV stations and investment advisory services. The Federal Trade Commission can tell you if your practice requires a federal license.

• Fire department permits. If your veterinary practice uses any flammable materials, you may need a permit from your fire department. A fire department permit may also be required if your practice premises are open to the public.

While most fire departments require a permit before a practice can open its doors, others don't require permits but simply schedule periodic inspections of your practice to see whether you meet fire safety regulations.

• Environmental permits. If your veterinary practice burns any materials, discharges anything into the sewer or waterways or uses products that produce gas (such as paint sprayers), a special permit from a city or county department that works to control air and water pollution may be necessary.

Environmental protection regulations may also require you to get approval before doing any construction or remodeling. Check with your state environmental protection agency regarding federal or state regulations that may apply to your practice.

• Becoming an official government tax collector. Sales taxes are imposed by state and even some local governments. Not too surprisingly, many state governments are attempting to broaden the base upon which sales taxes are levied. Even some services are today subjected to sales taxes.

Products and goods once exempted from the collection of sales taxes as "necessities" or for "humanitarian purposes," are increasingly subject to sales taxes. It is important for every veterinarian to know the rules in the states and localities where they operate.

Today, many veterinarians are discovering that, even before their practice opens its doors for business, they must register to collect sales tax by applying for a sale permit for each separate place of business within the taxing jurisdiction. A license or permit is important because in some states it is a criminal offense to undertake sales without one. In fact, a veterinarian who fails to collect - and remit - sales taxes, can be held liable for the uncollected amounts or amounts not paid over.

• And, then there are 'those' taxes. Every veterinary practice must have a taxpayer identification number so that the Internal Revenue Service can process the practice's tax returns. There are two types of identification numbers: a Social Security number and an Employee Identification number (EIN).

The EIN is used to identify the tax accounts of sole practitioners, corporations, partnerships and other practice entities. You need an EIN if you have employees or operate the practice as a partnership or corporation.

An EIN can be obtained by mail, phone or even via the Internet. Form SS-4 (Application for Employee Identification Number) is used when mailing.

The fees paid for licenses and permits that must be renewed on an annual basis are generally tax deductible in the year paid. However, under our federal income tax laws, many of those licenses, permits or other rights granted by a governmental unit or agency are considered to be a Section 197 intangible asset.

Offsetting license and permit costs

As an intangible asset, the longer-lived licenses, permits and rights, are generally amortized or written-off over a 15-year period. Fortunately, in addition to annual licenses, an exception exists for so-called "de minimis" expenditures for intangible assets, generally amounts under $5,000.

Similarly, although legal fees are generally immediately tax deductible, the deductibility tests are substantially the same as those other business expenses and preclude a current deduction for a legal expense incurred in the acquisition of capital assets, unless of course they fall within the de minimis exception. In other words, the cost of legal assistance to obtain those needed, or overlooked, permits, licenses and even zoning variances become a part of that intangible asset and must be capitalized and amortized.

While many veterinarians face tougher government enforcement and higher fees for government services and licenses, the good news is that it is not difficult to bring your practice into compliance. After all, those local and state governments want your practice to operate and badly need both the taxes you pay on your profits and the fees required to operate it.

Mr. Battersby is a financial consultant in Ardmore, Pa.