Cities and towns throughout South Carolina regularly seek ways to promote economic development projects that can enhance residents’ quality of life, using a variety of state and local tools to attract and retain businesses. For some cities and towns, specific economic development tools are out of reach. For most, however, the business license tax can serve as an economic development incentive. The enactment of the South Carolina Business License Tax Standardization Act, or Act 176, in 2020 affirmed and protected the use of the business license tax as an incentive.
While Act 176 created a standard business license rate class schedule that all cities and towns must use, it also contains three subsections that provide cities and towns flexibility to use their business license tax to address a variety of economic development scenarios.
SC Code Section 6-1-400(g)(2) allows a city, town or county to deviate from the standard rate class schedule and create subclassifications of businesses “based upon the particularized considerations as needed for economic stimulus or the enhanced or disproportionate demands by specific business[es]” on municipal services.
For example, in a coastal city where tourists create higher service demands than permanent residents, that city could create a standalone classification for tourist-related industries and apply a unique tax rate to it. The same holds true if a town wanted to incentivize certain types of industries to locate within its borders.
Though Act 176 standardizes business licensing across the state, it recognizes that cities and towns have for years made local decisions to address local circumstances that might contradict provisions found in the new law. To that end, SC Code Section 6-1-400(h)(1) preserves special business license agreements that cities and towns may have in place prior to Act 176’s effective date of January 1, 2022. Specifically, any ordinance, formal or informal agreement, flat fee or unique calculation of any business’s license tax enacted before January 1, 2022, will be unaffected by the new law. Importantly, this provision ensures continuity for both the local business and the city as the new law goes into effect.
Finally, SC Code Section 6-1-400(h)(2) affirms municipalities’ authority to continue to address unique circumstances through their business license tax systems. The law states that a city or town may deviate from the standard rate class schedule in the future with an “ordinance passed for economic stimulus, an annual flat fee, or any formal or informal agreement … regarding the calculation of business license taxes.” Preserving this economic development tool is vital for cities and towns as they seek to take advantage of opportunities that can benefit their communities.
Act 176 is a sweeping law that is presenting new opportunities for cities and businesses to grow together. The law will make doing business easier in cities and towns primarily by standardizing the licensing process. Just as importantly, it has also ensured local leaders’ authority to continue to attract business and address unique circumstances in their efforts to build strong South Carolina cities and towns.
Learn more about Act 176.