Authorized under the Local Tax Enabling Act (53 P.S. § 6924.101 et. seq.), a Business Privilege Tax may be imposed by local municipalities upon the privilege of conducting business therein. This tax is measured by the gross receipts of a business that operates or provides services within the taxing municipality. The rate of taxation varies by municipality (often between 0.12-1.75 mills) and is calculated by applying this millage rate to the gross receipts of a business.For many small businesses, the amount of Business Privilege Tax due will not be significant due to the low millage rate. However, it would be a mistake to overlook this tax because many municipalities impose high interest and penalty rates, as approved and affirmed by the appellate courts of Pennsylvania, for failures to properly report taxes due and owing. In some cases, these interest and penalties may easily approach or eclipse the amount of tax due and owing. Furthermore, if a business has not filed annual returns, there is no statute of limitations imposed upon a municipality’s ability to collect past due Business Privilege Taxes.Further complicating this matter for unaware business owners is the fact that the Business Privilege Tax is self-reporting. Business owners will not automatically receive a return for payment of the tax. Rather, businesses are expected to obtain local business licenses and file annual tax returns that are based upon the prior year’s gross receipts. Should your business be in its first year of operation, local ordinances dictate how the first year of tax should be estimated and paid.As stated above, the tax is based upon gross receipts, subject to very limited statutory deductions, so it is likely that a business operating at a loss will still owe payment of a Business Privilege Tax to the host municipality. It is also important that business owners be aware that certain types of business are treated differently under the tax. “Wholesalers” are subject to a lesser rate of taxation than “retailers” (these rates vary by municipality). Additionally, certain business activities such as manufacturing, public utilities, and others may be exempt from payment of the business privilege tax. However, one must tread with caution when asserting an exemption such as “manufacturing”. There is plentiful controlling case law distinguishing “manufacture” from “assembly”, and many business owners unfamiliar with these legal definitions may consider themselves to be an exempt “manufacturer”, only to find during a later audit that the business is classified as a taxable “assembler”.Although the tax is self-reporting, this does not mean that a failure to pay will go unnoticed. Many municipalities audit businesses operating within their territorial limits to ensure proper payment of the business privilege tax. If a business is audited and assessed with deficient payments, the business does have a statutory right to appeal the assessment. However, such appeals can be highly technical in nature and may require legal representation. Once a business is assessed with a tax deficiency, the assessment is presumed to be valid and the business has the burden of rebutting this presumption. Additionally, some municipalities have criminal enforcement remedies for failure to report business privilege taxes. This criminal option to not appear to be utilized in most circumstances, but businesses must be aware of all of the potential implications of failures to report the tax.On a final note, while many municipalities impose a business privilege tax, some choose not to pursue this source of revenue. Businesses should check with their host municipality and other municipalities in which they provide services to ensure that they do not run afoul of their requirements under this tax.Daniel A. Prestosh is a business lawyer focusing on general matters including contracts and agreements, commercial real estate deals, and employment issues. Dan’s clients include small businesses, entrepreneurs, and start-ups.