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Act 176 Defines ‘Gross Income’ for Business Licensing

The SC Business License Tax Standardization Act of 2020, or Act 176, standardizes many aspects of local business license tax administration, including the definition of “gross income.” Cities, towns and counties use a business’s reported gross income as the base on which they calculate a business’ license tax. Before the new law, exactly what constituted gross income varied by jurisdiction, creating confusion among businesses and local governments. With the passage of Act 176, the definition of gross income will be uniform across the state.

Effective January 1, 2022, SC Code Section 6-1-400 (e)(1) will specifically define the term “gross income” for any city, town or county that levies a business license tax. For most businesses, gross income “means the gross receipts or gross revenue of a business, received or accrued, for one calendar or fiscal year collected or to be collected from business done within a taxing jurisdiction.” 

Definitions for most businesses 
For a business located within a city or town, the license tax will be based on the entirety of its gross income, with the tax paid to the municipality in which it resides. The business may deduct from its gross income any income on which it pays a license tax to another jurisdiction. 

For a business not located within the city where it does business, the license tax will be based upon and paid only on the income it earns from work that takes place within that city.

The law also allows businesses to deduct other types of funds from their reported gross income. Examples include “taxes collected for a governmental entity, escrow funds, or funds that are the property of a third party.” 

Businesses with unique definitions 
There are several industries in the state for whom longstanding definitions of “gross income” are unique and included within Act 176:

  • Real estate agents and brokers have a unique definition of gross income. 
  • Insurance companies, manufacturers and telecommunications companies all have their own definition of gross income as well. 
These industries’ gross income definitions were previously found in various sections of state law and local ordinances. Act 176 consolidates them into one section of state law for easy reference.

Verifying gross income 
Occasionally, a business’s reported gross income must be verified by a taxing jurisdiction. Perhaps the business’s gross income is higher than in previous years. Maybe the business is not claiming all of the deductions allowed under the law. In those cases and others, Act 176 allows the city, town or county to inspect a business’s records to ensure the accuracy of its reported gross income. According to Act 176, taxing jurisdictions may review “returns and reports filed with the Internal Revenue Service, the South Carolina Department of Revenue, the South Carolina Department of Insurance, or other governmental agencies.”

Among the many changes Act 176 makes to business license tax administration, standardizing the definition of “gross income” is one of the most important. The law’s definition of “gross income” will reduce confusion among businesses and local governments and help make doing business in South Carolina easier.

Learn more about Act 176 and what steps your municipality should take to reach compliance.