The House of Representatives gave third and final reading approval to H.4431 (Reps. Jordan, Fry, Rose, Atkinson and others), the “South Carolina Business License Tax Standardization Act” on Thursday, Feb. 27. The House approved the measure on its second reading on Wednesday by a vote of 104-0.
An amendment was added on the House floor stating a charitable organization shall be exempt from the business license tax on its gross income unless it is deemed a business subject to a business license tax on all or part of its gross income as provided by the bill.
The bill now goes to the Senate for consideration.
The business community has long argued that South Carolina’s current system is complex, costly and lacks transparency. In South Carolina, 231 municipalities and nine counties have a business license tax, which creates confusion and adds costs to small businesses trying to comply. While most states assess flat license fees, South Carolina business tax laws allow cities to assess the tax based on a business’ gross receipts instead of net income. Filing in multiple jurisdictions has also created problems.
After five years of discussions, stakeholders are finalizing a compromise agreement. Businesses will still pay based on gross receipts. However, businesses operating in multiple jurisdictions will pay the tax based on the gross income within that jurisdiction, but the tax must be reduced by the amount of the gross income tax in other counties or municipalities. Each taxing jurisdiction must accept a standard business license application as established by the state Revenue and Fiscal Affairs Office (RFA).
The South Carolina Municipal Association will transfer the business license portal it has developed to the state RFA Office, which will oversee the standardized portal through a contract with the vendor. Businesses will renew their license annually by May 1 through the portal based on the gross income for the calendar year. Businesses not wanting to utilize the portal may file in person, by telephone or by mail. The portal offering will be subject to the availability of funding to the RFA.
Private third-party entities are prohibited from assessing or collecting taxes and are restricted from accessing business financial information. The bill also provides a mechanism for appeals, and the taxpayer may request a hearing before the Administrative Law Court.
The bill would take effect Jan. 1, 2021.