Business license administrators sometimes face questions about whether a given business counts as a resident business or nonresident business for the purpose of calculating the tax. Here are some key points to consider for this determination.
Many cities and towns use higher business license tax rates for those businesses not residing within the municipality. For businesses, a permanent or fixed place of business within the municipal boundaries will generally establish residency, and businesses may have residence in more than one municipality for this purpose.
Higher rates help establish fairness between those businesses that are paying property tax as well as the business license tax, and those businesses that are paying the business license tax only. Both types of businesses are paying for the same city services — utilities, sanitation, police, fire and others — so the higher business license tax rate allows for the nonresident businesses to contribute to these services fairly.
There is no rule on how much higher nonresident rates can be, but court decisions have found that the increased rates cannot be unreasonable. Cities will often double the rates for nonresident businesses.
The Municipal Association of SC offers a model ordinance for business licenses that calls for doubled tax rates for all nonresident businesses and itinerants that have no “fixed principal place of business within the municipality.” The Association strongly recommends that cities and towns use this model ordinance, which helps ensure that business licensing practices comply with the SC Business License Tax Standardization Act
, Act 176, which the legislature passed in 2020.
For those cities and towns who are using different rates for resident and nonresident businesses, these two questions can help officials determine the residency of a given business:
1. Does the business have a brick-and-mortar operation within the city limits?
The term “resident” in “resident business” has nothing to do with where the business owner lives. It also has nothing to do with whether the business is a corporation headquartered elsewhere in the state, nation or world. The term indicates that the business has a physical location or facility located inside the city.
Examples of companies who do business in the city that would count as a nonresident business include those that regularly make deliveries inside the city, or contractors who provide services in the city, so long as these businesses do not have a fixed physical location in the city.
There are exceptions, like a company that delivers merchandise in the city a single time with no expectation of further deliveries. See the discussions on “limited activities” and “tests for doing business” in the Business License Handbook
2. Does the business pay property taxes to the city?
Higher nonresident rates exist in part to counteract the lack of property taxes on a business. If the business pays property taxes on property relating to the business, then paying higher nonresident business license rates might not be appropriate.
The Municipal Association’s Local Revenue Services is hosting monthly virtual training sessions in 2022 for business licensing officials to learn more and ask questions. Also, during the Municipal Association’s Annual Meeting in July, the Association’s Manager for Local Revenue Services Caitlin Cothran will explain five key questions that city officials should ask their business licensing staff to ensure the city is complying with the law.