SC Business License Tax Reform Could Impact Your Business

We don’t often see politicians unanimously agree on anything, so it’s noteworthy when they do. In this case, what they've agreed upon is SC business license tax reform, and it has the potential to directly impact your South Carolina business. 

At the end of February, 104 SC state representatives of both parties voted to reform South Carolina’s business license tax laws. H.4431, or the Business License Tax (BLT) Reform Act, unanimously passed the SC House and now awaits action in the Senate.

SC’s business license tax model has always been a bit unique and challenging for the state’s businesses. While it’s not unusual for a state or locality to impose some sort of annual tax or fee on business entities, SC businesses have traditionally been required to maintain licenses and remit taxes to multiple governments, even if their impact within that jurisdiction was limited. In some cases, businesses have been asked to maintain licenses and remit taxes based on a single delivery, installation, or service call to a certain location. Compliance cost is, therefore, high. 

In addition, taxation is based on gross revenue and tends to “pyramid” as the tax is imposed at multiple stages of the production process. Particularly for low-margin operations, this can be incredibly burdensome.

Just how burdensome are we talking? In a study conducted by Russel Sobel, an economist at The Citadel, it was determined that a business serving all towns within a short drive of Charleston would require 31 business licenses, each levying the tax using different business classes and rate structures. That’s an extremely difficult road to travel.

H.4431 would overhaul SC’s business license tax system completely. Among other changes, the bill would:

• Provide a deduction for revenue earned from engaging in business in another jurisdiction where business license tax is paid. This would address the multiple taxation issue;
• Establish a web portal for registering and paying all business license taxes across the state; 
• Establish a standard due date of April 30;
• Provide a standard business license tax classification schedule to be used by all jurisdictions (localities could vote to add subclassifications in some instances);
• Require all localities to accept a standard, state-provided business license tax application; and 
• Create a delivery license for companies that only deliver into a jurisdiction, capped at no more than $100 annually; 
• Tax businesses based on their net income instead of gross revenue, potentially allowing business owners to owe fewer taxes.

The goal is to streamline and simplify the entire process. Not surprisingly, the bill has gathered the support of business organizations across the state.

Experts agree that businesses that would be impacted the most would be small companies composed of 5 to 10 employees who dedicate a significant amount of time during the year to make sure they comply with each municipality’s business license tax laws. 

Note that Bill H.4431 does not limit a local government’s ability to set rates. 

If you conduct business in SC, this is definitely one to watch as it progresses through the Senate. For updates, continue to check our blog.