The SC Business License Tax Standardization Act
, Act 176, created several tasks for cities and towns to complete before January 1, 2022, with the process of rebalancing business license tax rates coming as perhaps the largest single task.
The law specifies that cities and towns cannot receive a revenue windfall as a result of the business license standardization process. “Rebalancing” means that a municipality must adjust its business license tax rates to ensure that business license revenue collected in the 2022 – 2023 license year does not exceed the revenue collected from the same businesses in the 2020 license year. If a city or town projects it might lose revenue as a result of rebalancing, it may adjust its rates to ensure that does not happen.
The various steps needed to comply with Act 176 build upon one another, and rebalancing should not be the first action taken. First, a city or town council should adjust its business license year to the new standard license year, May 1 through April 30.
Next, city and town staff must assign each of their business license records a correct, six-digit 2017 North American Industry Classification System code, or NAICS code. NAICS codes bundle individual businesses into similar industry groups. Staff should then ensure that each business is assigned to the correct, state-mandated rate class using the 2021 Class Schedule. Cities and towns can obtain the standard class schedule by contacting their business license standardization liaison at the Municipal Association of SC.
The rebalancing process requires some potentially intensive data analysis that can be performed by municipal staff or with assistance from the Municipal Association. Cities and towns that seek help from the Association must export their business license data in a specific format provided by the Association, which will help during this rebalancing process. The purpose for exporting the records is to ensure the data within each of the records is accurate. After exporting their data, municipal staff should ask these questions:
- Does each record have a six-digit 2017 NAICS code?
- Are the gross income amounts correct?
- Is each business assigned to a rate class?
- Are there data formatting errors?
- Are there tax calculation errors?
Once the data is deemed accurate, staff should begin reviewing the license tax rate for each class and suggest changes to the rates, if necessary to achieve a revenue-neutral result.
Remember: time is running out
Municipal Association staff have been working with business licensing officials in each city or town to adjust tax rates appropriately. Given the significant amount of work involved to rebalance business license tax rates, the cities and towns now requesting rebalancing assistance are going into a queue. The cities and towns that need the Association’s assistance to rebalance must provide the required data to the Association no later than October 15, 2021. Those that miss this deadline might not receive assistance from the Association.