Understanding Business License Standardization

Businesses choose to locate inside the boundaries of cities and towns because they need the concentrated commercial activity those municipalities offer, but businesses also need the services that cities provide.

Business license taxes allow cities to adequately provide for these needs, and this revenue represents a significant portion of what cities need to operate successfully. In most cities, anywhere from a quarter to one-half of general fund revenue comes from business license taxes, and currently, there is no alternative revenue stream that can replace it.

Why standardize?

Cities have just one location, but businesses often have many. Business owners operating within multiple jurisdictions can face the frustrating task of tracking a wide variety of due dates for license renewals and rate class schedules. 

For this reason, the Municipal Association created the model business license ordinance, which cities can use to ensure compliance with state law and other best practices of business licensing. This ordinance reduces confusion for businesses while demonstrating to them that municipalities are business friendly. 

The model ordinance uses the North American Industry Classification System to place businesses into appropriate classes for tax purposes. This model class schedule groups businesses according to their profitability indices, which are based on IRS data.

Steps cities and towns can take to standardize

  • Accept the Association’s standardized business license application, which was crafted to address the needs of businesses that operate in multiple jurisdictions. More than 100 cities and towns accept the standardized application.
  • Adopt the most current model business license ordinance with the standard seven classes.
  • Adopt the practice of calculating business license taxes based on the prior calendar year or a business’ prior fiscal year.
  • Adopt the standard license year (May 1 ­– April 30), license tax due date (April 30) and penalty date (May 1).
The Association’s Business License Handbook outlines proper application and collection of the tax. City business licensing officials receive substantial training about professional best practices from the SC Business Licensing Officials Association.

View more information on business license taxes and the SC Business Licensing Officials Association and access the standardized business license application, model ordinance and Business License Handbook online.