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Act 176 and Third-Party Collection Companies

Act 176, the SC Business License Tax Standardization Act, requires every local government with a business license tax to administer the tax in the same way across the state starting January 1, 2022. Compliance with the new law requires cities and towns to make several adjustments to their existing business license ordinances, schedules and practices. 

The law also establishes rules and restrictions for third-party collection companies that identify businesses delinquent in paying their business license taxes and that also assist municipalities in collecting those taxes. Here are some basics under the new law:

Identifying businesses that owe a business license tax
Before a third-party company can begin work for a city, the city and the company must have a written contract in place. 

Once contracted, the company may search for and identify businesses that are operating without a business license. The company may contact those businesses to notify them that they owe the business license tax, and the company may provide the city’s license application relevant contact information to the businesses. 

After that initial contact, businesses may notify either the city or the third-party company in writing that the company may not contact that business again. When this occurs, Act 176 specifies that only the city may contact the business about the unpaid tax — not the third-party company. 

Collection of delinquent business license taxes
The new law allows a third-party company to help a city collect business license taxes under these circumstances:
  • the city has assessed on the delinquent business the license tax amount that is due, and
  • the business has not appealed the assessment. 
The third-party companies may be paid by the city based on a percentage of delinquent taxes that they help the city collect. An opinion issued by the South Carolina Attorney General on October 13, 2020, about Act 176 concluded that taxing jurisdictions can only engage third-party companies on a contingency fee basis for debt collection services for unpaid business license taxes — not for identifying businesses without a business license. 

More information
Act 176 has created steps that every city and town with a business license tax needs to take in 2021, no matter what business license actions they have taken in recent years. The Municipal Association is available to assist anyone that needs help in complying with this process.

The standardization webpage  explains the seven action steps, including converting to the standard license year, managing business license data and rebalancing rates, using the standard class schedule, adopting the model ordinance, and setting up an account for the online business licensing portal. 

Each city and town with business licenses has designated Municipal Association staff members to serve as standardization liaisons. The page also offers a collection of articles and podcasts to help local officials better understand the standardization process.