Act 176, the South Carolina Business License Tax Standardization Act
, requires the state’s cities and towns to use standard methods of administering the business license tax by January 1, 2022. Standardization will be ongoing throughout 2021, and Municipal Association staff will assist municipalities throughout the year as they work to comply with the law.
Cities and towns should be working now on the initial steps toward compliance with Act 176: analyzing their business license data and setting new business license rates. For some cities and towns these efforts may be the most difficult steps toward compliance, but they are important to ensure a smooth transition to the new law.
Here are three key steps to take now:
1. Assign North American Industry Classification System codes to each business license
The law requires cities and towns to assign businesses into classes using a standardized class schedule. That schedule uses the latest six-digit NAICS codes to determine the class to which each business is assigned.
Cities and towns should ensure that each business license in its licensing system has the correct six-digit NAICS code assigned to it.
2. Assemble business license records
After assigning the correct NAICS codes to all of their business licensees, municipal staff should review the records and correct problems they find. Potential problems could include transposed numbers, formatting errors or unusual gross income amounts. To conduct this review, municipal staff may use a standardized Excel spreadsheet template, available from the Municipal Association’s Melissa Harrill at email@example.com
3. Review data to prevent windfalls
In the first year of implementation, Act 176 prohibits taxing jurisdictions from receiving a revenue windfall as a result of transitioning to the standard class schedule. Because of this prohibition, municipal staff need to carefully analyze their cities’ business license data to determine the tax rates for each class, making sure that the municipality does not gain a revenue windfall during the first year. After 2022, city and town councils will be allowed to set business license tax rates to meet their fiscal needs.
The Association’s staff have developed training materials and tools to help municipal staff members conduct these analyses themselves. However, for those who are unable to conduct the analyses, Association staff can assist.
Later in 2021
Assigning NAICS codes and analyzing business license data now will lay a solid foundation for compliance with Act 176, but there will be additional steps to take this year as well.
- Adopt a new ordinance. Every city and town will need to adopt a new business license ordinance that complies with the law. The Association strongly recommends that councils adopt its model business license ordinance before December 31, 2021.
- Communicate with businesses. Businesses need to understand that Act 176 is bringing changes to the licensing process. If requested, the Association can help with templates and messaging.
- Direct staff to the Association’s training. The Association is conducting ongoing training on the compliance process and NAICS codes.
- Prepare for the online portal — the Local Business License Renewal Center. The law establishes an online business license renewal portal, hosted and managed by the SC Revenue and Fiscal Affairs Office, although it does not set a deadline for jurisdictions to begin using it. Cities and towns that may be ready to use it should have their primary business license official contact the Municipal Association’s Fran Adcock, collections analyst, at firstname.lastname@example.org or 803.933.1201.