Act 176, the SC Business License Tax Standardization Act, was signed into law in September 2020. This law requires every local government with a business license tax to administer the tax in the same way across the state starting January 1, 2022. It also seeks to prevent cities and towns from receiving a revenue windfall in the first year of implementation as a result of the required changes.
To comply with Act 176, many cities and towns need to immediately begin making a number of adjustments to their current business license ordinances, schedules and practices.
First, each city and town should adjust its current business license year to the new license year, May 1 through April 30. In some cases, this will require shortening or lengthening the jurisdiction’s current license year.
Changing the license year requires action by city or town council. Once the license year is changed, cities and towns should alert their businesses of the change prior to and during the license renewal process.
Next, city and town staff must assign each of their business license records a correct 2017 North American Industry Classification System code, or NAICS code. Using six-digit numbers, NAICS bundles individual businesses into similar industry groups. Every business that applies for a local business license should list its NAICS code on the business license application.
Once city and town staff has assigned each of their license records a NAICS code, they should ensure each business is assigned to the correct, state-mandated rate class using the 2021 Class Schedule. The Municipal Association prepares the standard class schedule, which cities and towns can obtain by contacting their business license standardization liaison at the Association.
Cities and towns must also rebalance their business license tax rates to ensure revenue neutrality during the 2022 business license cycle. The Municipal Association suggests a specific format for the order of the data, which will help during this
rebalancing process. Staff should export all of their business license records into a Microsoft Excel spreadsheet. The purpose for exporting the records is to ensure the data within each of the records is accurate. In the process, 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?
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. The purpose of this “rebalancing” is to ensure the city or town does not collect more business license tax revenue in 2022 than it did in the 2020 license year. However, 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.
For cities and towns that haven’t regularly updated their class schedules, changes in rates for some individual businesses could be significant. Municipal Association staff are available to all cities and towns for assistance in rebalancing, which can pose challenges for those with outdated class schedules. To simplify the rebalancing process, the Association developed an Excel-based rebalancing template which reclassifies the businesses and assists with modeling rate options.
After rebalancing, cities and towns should repeal their existing business license ordinances and adopt new ordinances that comply with Act 176. The Municipal Association strongly suggests adopting its 2022 model business license ordinance that fully complies with the law.
Finally, by the end of 2021, cities and towns must set up an account with the state-mandated Local Business License Renewal Center, which allows businesses to renew their business licenses online with any city or town in the state. The SC Revenue and Fiscal Affairs Office hosts and manages the Renewal Center, with the Municipal Association of SC providing support.