An August South Carolina Supreme Court ruling in a business license case should prompt cities and towns across the state to review their business license ordinances and make adjustments if needed.
In Olds v. City of Goose Creek, the Supreme Court ruled that the City of Goose Creek's business license ordinance used the federal income tax definition of gross income rather than the broader definition of gross income found in the model business license ordinance offered by the Municipal Association of South Carolina.
The effect of using a definition of gross income that differs from the definition found in the model ordinance allowed the plaintiff to successfully argue that only the net income from his business should be used in calculating his business license tax. The business license tax is an excise tax for the privilege of doing business in a city, not an income tax. In fact, cities in South Carolina cannot levy an income tax.
The model business license ordinance has evolved over the years to help cities and towns using it avoid possible challenges like this one. For instance, to avoid the potential for challenges, the Association modified the model ordinance's definition of "gross income" before the Olds ruling to refer to "gross receipts or gross revenues." This change requires a business to count all of its revenue, not just its profit, for the purpose of calculating the business license tax.
In addition to using these standard definitions in the model business license ordinance, cities and towns should use the model to standardize its due dates and enforcement procedures to make paying a business license easier and more business friendly.
This especially helps those businesses operating in more than one municipality. More cities and towns using the model ordinance across the state takes the "hassle factor" out of paying the business license tax and boosts compliance from businesses.
Business license taxes are an important revenue source for municipalities in South Carolina. In fact, an average 25 to 50 percent of cities' general fund revenues come from business license taxes.
Every city should periodically review its business license ordinance to ensure it conforms with the model ordinance and should avoid local modifications without seeking legal advice.
What can cities do to standardize their business license renewal practices right now?
Cities that haven't adopted the model business license ordinance should transition to using it as soon as possible. This standardizes license periods and due dates, which further streamlines licensing for businesses.
Cities should encourage business owners or operators who do business in multiple cities and towns to use the standardized business license application which helps avoid the hassle of filling out a different application for every jurisdiction where the business operates.
Business License Standardization Checklist
- Accept the standardized business license application
- Adopt the most current model business license ordinance with the standard seven classes
- Adopt calculating the tax based on the business' prior calendar year
- Adopt the standard license year due dates and penalty dates:
– May 1 – April 30: License Year
– April 30: Due Date
– May 1: Penalty Date