Beaufort: License changes would cost $1M annually

Staff reports

Local officials say proposals in the state legislature could cost Beaufort an estimated $1.1 million in annual business license revenue if passed, and they would have no choice but to raise property taxes, business license rates or create other fees to make up for the lost revenue.

The proposals would provide statewide uniform filing dates, business license applications, a definition of adjusted gross income, a uniform appeals process and a standard class schedule consisting of seven classifications across the state so that a business will be in the same class regardless of where they do business.

“As it stands now, business license laws and ordinances vary significantly across the state, and create considerable confusion and administrative costs for businesses,” wrote SC Rep. Shannon Erickson, R-Beaufort. “For example, there are different rate classes, different rates charged, different filing dates, different forms, different definitions of revenue and different applications across more than 250 municipalities. This does not send a ‘South Carolina is Business Friendly’ message.”

However, Beaufort City Manager Bill Prokop stressed that while Beaufort favors standardization of business license requirements, the city already has taken steps to standardize the business license process and to make it more business-friendly, he said.

For instance:

• Last fall, the city’s finance department rolled out an online payment system accessible to all business owners, allowing them to renew business licenses online and pay their bills.

• Several years ago, the city accepted and began using the business license application developed by the Municipal Association of South Carolina.

• The city adopted the North American Industry Classification System for classifying business categories for licensing.

“We have worked hard, and we have worked for quite a while, to standardize our business license program based on recommendations from the Municipal Association of South Carolina,” Prokop said.

“We have put forth a lot of effort to put business license renewals, hospitality and accommodations tax payments online to make it easier for businesses to do business with the city,” he said. 

“While we have been doing that, it seems the state has been looking for ways to restrict municipalities in terms of our revenue for daily operations.”

House Bill 3650 would change the method and collection of business license fees. The bill would prohibit municipalities from charging a higher rate to businesses physically located outside the city limits. It also would exempt 25 percent of a business’s income that is collected outside of the municipality where the company maintains its principle business. The bill, however, doesn’t define “principle business,” Prokop noted.

In Beaufort, those changes would affect companies such as big box retailers and car dealerships, the city says. A big box retailer headquartered outside of Beaufort – or outside South Carolina – would pay a business license tax on only 75 percent of its Beaufort income compared to locally-owned stores, which would have to pay on 100 percent of their local income, according to the city.

Erickson, however, is in favor of changing the way business licenses are handled, saying that more uniformity is needed because municipalities across the state collect revenues from business licensing in a variety of ways.

“I recognize that local governments may not trust the state handling local government funds. I share the concerns of our local governments to protect their ability to do their work and I do not wish to see the state divert local funds into state coffers to increase state spending,” she wrote. “However, I am confident the current legislation and safeguards will ensure that any business licensing taxes collected will properly be returned to the local governments.

“Further, I believe the current proposals on business license reform will actually increase revenues for local governments. Implementing uniformity across the state (making it easier to comply) will increase business license applications by encouraging applications from those businesses who currently fail to properly file for a license out of the confusion caused by the current landscape of inconsistent laws and ordinances.  A rise in business licenses would naturally result in more revenue to the cities.”

However, Kathy Todd, finance director for the city of Beaufort, said the proposed House bills would create the following estimated annual losses in revenue for Beaufort:

• $377,179 to $500,000 from the reduction of business license tax collected from business activity within the city from businesses whose primary location is located outside city limits;

• $110,000 from the reduction of business license tax collected from business income where the business maintains a principal place of operation outside the city limits;

• $251,245 from the reduction in insurance premium tax;

• And $111,576 to $150,000 from other provisions such as the $100 filing fee rebated the following year, the effect on accuracy of reporting telecommunications tax, brokers tax, etc.

“These proposed changes to the business license law, coupled with the state’s restrictions on local governments controlling their own property tax structure, handcuff us and other municipalities,” Prokop said.

“While we are limited in our ability to create revenue, we are seeing increased needs for expenditures such as police and fire service, maintaining our parks and open spaces, and creating new opportunities for economic development.”

A loss of this magnitude would leave city officials no choice but to raise property taxes, business license rates or to create other user fees such as a public safety fee or road maintenance fee; or to cut public safety and public works personnel or a combination of these measures, Todd said. 

“Assertions by our legislators that revenues would increase by their amendments aren’t supported by any credible analysis,” she said. “The city is confident that the current level of services would not be able to be maintained without an impact on our residents or those services if these changes to the business license process are adopted.”

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