Thursday, June 10, 2021

Business License Standardization and Third-Party Collection Companies

Act 176, the SC Business License Tax Standardization Act, requires every local government with a business license tax across the state to administer the tax the same way beginning January 1, 2022. Compliance with the new law requires cities and towns to make several adjustments to their existing business license ordinances, schedules and practices.

The law also establishes rules and restrictions for third-party collection companies that identify businesses delinquent in paying their business license taxes and that also assist municipalities in collecting those taxes. Here are some basics of the law’s requirements for third-party collection companies:

Identifying businesses that owe a business license tax 
  • Written contract: Before a third-party company can begin work for a city, the city and the company must have a written contract in place. 
  • Initial contact: The company may search for and identify businesses that are operating without a business license. The company may contact those businesses to notify them that they owe the business license tax, and the company may provide the city’s license application relevant contact information to the businesses. 
  • After initial contact: Businesses may notify either the city or the third-party company in writing that the company may not contact that business again. When this occurs, Act 176 specifies that only the city may contact the business about the unpaid tax — not the third-party company. 
A third-party company may not be paid on a contingency fee or success basis for simply identifying and contacting businesses that owe a business license tax. 

Collection of delinquent business license taxes
The new law allows a third-party company to help a city collect business license taxes under these circumstances: 
  • the city has assessed on the delinquent business the license tax amount that is due, and
  • the business has not appealed the assessment. 
After the city has assessed a business for a delinquent business license tax, third-party companies may be paid by the city based on a percentage of delinquent taxes that they help the city collect. 

More resources 
The Municipal Association’s standardization webpage outlines a seven-step process for standardizing business license practices. Cities and towns can seek information on specific business license standardization questions by contacting their business license standardization liaison at the Association.

The City Quick Connect podcast has episodes that delve into many of the critical issues of business license standardization: 
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