Business License Tax

What is a business license tax?

A business license tax is neither a property tax nor an income tax. Rather, it is a way of requiring an entity or individual doing business within a municipality to contribute its share in support of the city. Municipalities are given the ability to levy a business license tax on the gross income of businesses in state law.

Why is there a business license tax?

 

Businesses locate in cities because of the concentration of commercial activity centered in a city which acts as both a source for customers and a magnet for talent. To be successful, this commercial activity relies on city services, including police and fire protection, zoning, street lights, sidewalks and many others that can’t be billed on an individual usage basis.

Through a business license tax, businesses help pay for the city services that they depend on to operate successfully.

How important is the business license tax to city services?

 

In most cities, 25% to 50% of their general fund budgets come from the business license tax, and there is no alternative revenue stream to replace it. 

City leaders have little flexibility in raising revenue because of Act 388’s millage and reassessment caps and restrictions on the use of other revenue sources such as hospitality and accommodations taxes, thereby making the business license tax a critical revenue source. 

What is the model business license ordinance?

The Association advises cities and towns to repeal your existing business license ordinance and replace it with Association’s new model ordinance. The law creates numerous, specific requirements of municipalities that collect the tax, and attorneys have carefully vetted the model ordinance to comply with all of them. This focus on compliance makes the new model ordinance different from past model ordinances, which only provided suggestions on best business license practices.

Because of all of these important changes, municipalities should not revise their current business license ordinance. Instead, every city and town with a business license tax needs to repeal current ordinance and adopt the 2022 model ordinance.

In an effort to track the transition process across all municipalities, and because of the new format and many changes to the ordinance, the Association is releasing a copy of the model ordinance to each city or town on request.

After your city or town has completed the license year transition and started the rebalancing process, contact Melissa Harrill at mharrill@masc.sc for a copy of the new model ordinance.

How can standardizing business license practices and adopting the model ordinance among all cities make the renewal process easier for businesses?

 

The passage of Act 176 means that South Carolina's cities and towns are now required to standardize their business license practices before January 1, 2022.

For years, many municipalities have been working voluntarily toward standardization to improve the ease of the licensing process for businesses, with a standard license year and due date, standard application, and a standard class schedule, as found in the model business license ordinance.

The new law means these steps are now mandatory for every municipality.

What can cities do to standardize their business license renewal practices right now?

 

Cities that haven’t adopted the model business license ordinance should transition to using it as soon as possible. This standardizes license periods and due dates, which makes doing business across multiple cities easier.

Cities should encourage business owners or operators who do business in multiple cities and towns to use the standardized business license application that helps avoid the hassle of filling out a different application for every jurisdiction where the business operates.