Each municipality and county in South Carolina (a taxing jurisdiction) is authorized to impose a business license tax based on the gross income of a business that operates within its borders. Businesses operating in South Carolina have been faced with registration requirements, filing deadlines, and rate classes that vary on by taxing jurisdiction. The South Carolina Business License Tax Standardization Act (the Act) was signed into law by the Governor on September 30, 2020, and seeks to simplify the burdens of complying with business license tax requirements. The majority of the provisions in the Act are effective on January 1, 2022, while certain provisions related to the use of third parties to assist in the administration of business license taxes are effective on September 30, 2020.
The Act requires taxing jurisdictions to accept a standardized application for a business license (the Director of the Revenue and Fiscal Affairs Office will establish and provide the form). In addition, an online filing portal will be available to file all applications. The licensing periods and filing deadlines are standardized, with a May 1 – April 30 licensing period and a May 1st deadline for renewal. Rate classes are also standardized, although taxing jurisdictions have the ability to provide for unique subclassifications (rates applicable to each class will still be set by each taxing jurisdiction, but are subject to overall revenue caps based on 2020 tax collections). A grandfathering provision will give effect to any special agreements entered into between a taxing jurisdiction and a business that was in existence before the effective date of the Act. Future agreements that vary from the standardized provisions are also authorized under the Act.
The Act also provides standardized definitions and exemptions that will apply when calculating business license taxes. Specified charitable organizations will be exempt from business license taxes (except for unrelated business income). The definition of “gross income” has been refined and taxing jurisdictions can now only include income earned outside of the taxing jurisdiction if the business is domiciled in the taxing jurisdiction.
The Act limits the ability of taxing jurisdictions to utilize third parties in the administration of business license taxes. While taxing jurisdictions have utilized third parties to assist in the administration of business license taxes, including audits of businesses, third parties will now generally only be permitted to assist in collecting business license taxes that are delinquent. This is a welcome change for businesses, who have been confronted with third parties in the past seeking to make license tax assessments, and then being compensated on a contingent fee basis for the amount of the assessments.
The Act, which is the result of years of reform efforts, will greatly simplify the compliance burden for businesses and eliminates some of the uncertainties that were present in existing business license ordinances. Large businesses will still be able to negotiate incentive structures and should actively seek to do so when locating or expanding in a taxing jurisdiction.