The South Carolina General Assembly overwhelmingly passed the SC Business License Tax Standardization Act
in September 2020, bringing a resolution to years of attacks on the business license tax. For many cities and towns across the state, it also marked the need to transition to a new way to administer the business license tax.
While the task of complying with the new law may seem burdensome, the benefits of standardizing business license tax administration statewide will make doing business in cities easier. It will also ensure the tax’s stability as a municipal revenue source against possible future efforts to eliminate it.
What does the law require?
The new law, Act 176, standardizes many elements of business license tax administration that were previously determined by individual municipalities.
Effective January 1, 2022, Act 176 will require cities and towns that levy a business license tax to
- Issue a business license for a period of May 1 to April 30.
- Calculate the tax based on a business’ gross income for the previous calendar year or its previous fiscal year.
- Use the law’s definition of gross income.
- Accept a standardized application approved by the SC Revenue and Fiscal Affairs Office.
- Use the law’s standardized class schedule.
- Allow businesses to make renewal payments through an online payment system hosted by the SCRFA.
- Use the law’s standardized appeals process.
- Set rates for the 2022 license year to prevent a revenue windfall in the first year of compliance with the law.
Getting started with compliance
The Municipal Association maintains an extensive menu of resources for cities and towns that levy the business license tax.
Municipal officials should familiarize themselves with the model business license ordinance, the Business Licensing Handbook and the Business Licensing Officials Association, which has provided specialized business license training to municipal staff since 1985.
To help municipalities comply with Act 176 by the end of 2021, a diverse group of Association staff has developed a phased implementation plan for cities and towns to use. While these staff members will provide hands-on assistance to municipalities as they move toward compliance, there is critical work municipal licensing officials can do to ensure their city or town’s success.
Steps to take immediately
Assign a six-digit North American Industry Classification System code to each of the businesses that have a current license.
The law’s standardized class schedule uses the latest edition of the NAICS codes to place businesses into appropriate rate classes. All cities and towns must begin using the 2017 edition, six-digit NAICS codes found at www.census.gov/eos/www/naics/
Export each business license record into a standardized Excel spreadsheet after the correct NAICS codes are assigned. The Association can provide the spreadsheet needed for this step. This action is needed so that municipal and Association staff can review records to help with compliance with the law.
Once the records are exported, each municipality should have someone review them for errors. Municipal staff will want to ensure there are no obvious flaws with the records like transposed numbers or formatting problems.
Second, someone should analyze the city’s license data to ensure each business is properly classified as required by the law. The Municipal Association maintains the standardized class schedule.
Finally, municipal staff must analyze the data to determine the tax rates for each class to ensure the city or town does not gain a revenue windfall in the first year of implementation. After the first year, municipal councils may set business license tax rates to meet their city’s fiscal needs.
Municipal Association staff have developed training and a spreadsheet model to help municipal staff members conduct these analyses themselves. However, for those that do not have the capability to conduct the analyses, Association staff can assist.
What to expect
The initial data analysis and rate setting will be the most difficult part of complying with Act 176. That phase of compliance will be ongoing through spring 2021. After that, cities and towns should expect to:
- Adopt a new business license ordinance to comply with Act 176. The Association strongly recommends cities and towns adopt its model business license ordinance by December 31, 2021.
- Reach out to businesses with information about the licensing changes. As soon as possible, begin reaching out to businesses about the changes Act 176 will bring to the licensing process. The Association can assist municipalities with templates and messaging if requested.
- Direct staff to Municipal Association training on the new law and online license renewal payment portal. The Association will conduct frequent training sessions for municipal staff members. These will address, most importantly, how to use the online business license renewal payment software developed by the Association and hosted by the SCRFA.