While Act 176 created a standard business license rate class schedule that all cities and towns must use, it also contains three subsections that provide cities and towns flexibility to use their business license tax to address a variety of economic development scenarios.
Creating subclasses
SC Code Section 6-1-400(g)(2) allows a city, town or county to deviate from the standard rate class schedule and create subclassifications of businesses “based upon the particularized considerations as needed for economic stimulus or the enhanced or disproportionate demands by specific business[es]” on municipal services.
For example, in a coastal city where tourists create higher service demands than permanent residents, that city could create a standalone classification for tourist-related industries and apply a unique tax rate to the classification. The same holds true if a town wanted to incentivize certain types of industries to locate within its borders.
Grandfathered agreements
Though Act 176 standardizes business licensing across the state, it recognizes that cities and towns have made local decisions for years to address local circumstances that might contradict provisions found in the new law. SC Code Section 6-1-400(h)(1) preserves special business license agreements that cities and towns may have in place prior to Act 176’s effective date of January 1, 2022.
Any ordinance, formal or informal agreement, flat fee or unique calculation of any business’s license tax enacted before January 1, 2022, will be unaffected by the new law. This provision ensures continuity for both the local business and the city as the new law goes into effect.
Changing the calculation of the tax
SC Code Section 6-1-400(h)(2) affirms a jurisdiction’s authority to continue to address unique circumstances through their business license tax systems. The law states that a city or town may deviate from the standard rate class schedule in the future with an “ordinance passed for economic stimulus, an annual flat fee, or any formal or informal agreement … regarding the calculation of business license taxes.”
More information on standardization
While Act 176 ensured local leaders’ authority to continue to attract business and address unique economic circumstances, the law is primarily aimed at mainge doing business easier in cities and towns by standardizing the licensing process. With Act 176’s compliance deadline of January 1, 2022, approaching, cities and towns now need to be well on the way to achieving standardization. The Municipal Association’s standardization webpage outlines a seven-step process for following the law and standardizing business license practices.
Look out for the October 2021 issue of Uptown coming out next month, which will include a special section on business licensing, with numerous articles explaining specifics of complying with the new law.