15 Feb Legislators who campaign on “less government” seek to build a new bureaucracy
I will never forget, during my four years in the SC House, how hard with others I tried to sunset if not repeal special sales tax exemptions, at the time amounting to about 37% of the state budget that was “given away” every year to special interest lobbyists. Senator Tom Davis has worked on this, but has like the rest of us who tried, realized how difficult it is to back a gift that over time became an entitlement to special interests.
As I wrote last week, it appears the SC House is in a mad rush to transfer local government responsibilities to a new state controlled process that is vulnerable to special interest lobbyist influence thereby leaving local governments again hanging in the lurch without control of our financial destiny.
The proposed bill was rushed through The Executive Committee of the House Labor Commerce and Industry Committee and the next day railroaded through the full Committee with lots of concessions to special interests and no engagement of local governments that will be effected. The bill is likely be reported to the full House TODAY and, after the required 24 hour waiting period, it can be brought to a quick vote of the full House.
And guess what? According to Legislative Council, which writes the final bill, a copy of the bill, as amended by the Committee, is not even available to the public, to the affected parties or the news media before it is reported. That’s right, its a fast moving train that has many considerations for special interests and is likely to make a huge unintended hit on small business, could force increased taxes, intended and unintended, on small businesses and property owners and we are not able to get a copy until it is under consideration by the full House today. Passage of the measure could cut deeply into our City budget forcing serious cuts into core services including public safety.
IF NOTHING ELSE, THE TRAIN SHOULD BE SLOWED DOWN UNTIL THE NEWS MEDIA, HE PUBLIC AND ESPECIALLY THE AFFECTED PARTIES - LOCAL GOVERNMENTS, SMALL BUSINESSES AND ANALYSTS HAVE HAD A CHANCE TO REVIEW AND COMMENT.
Since I do not have access to the bill, I am (below) providing the best possible summary presented by the SC Municipal Association.
That said, let me give a little background, explain what I know about the implications.
First, the State restricts property taxes (created by Act 388) which has put an extra burden on businesses, rental properties and second homes and capped property taxes.
Second, the State restricts the uses of accommodations and hospitality taxes.
Third, the State collects other fees that, contrary to the agreement between the state and local governments when the fees were imposed, are only funded to local governments at a rate of about 70% (with the state keeping 30%)
Fourth, the only revenues over which a city has control is its business licenses which accounts to close to a third of our annual budget. In some cities, like Myrtle Beaufort, I am led to understand that the business license fees generate over half of the operating budget.
Three years ago the SC House considered a measure requiring consistent business licensing classifications and to cap business licenses at $100 per business. We agreed with the need for consistent classifications, but strongly opposed the cap that would have required any small business to pay the same business license as large retailers like Walmart.
Fortunately, the measure did not pass but the SC Municipal Association along with the SC Chamber of Commerce (which primarily represents larger businesses) went to work on a measure that would be fair and equitable. They worked for two years and were close to an agreement on what seemed to work for all.
But all of a sudden a few weeks ago, a new measure promoted by larger businesses and special interest lobbyists emerged and represents few of the agreed upon elements of the collaborative effort. That is the measure about which I am writing.
H3650, the S.C. Business License Tax Standardization Act
- Exempts 25 percent of a business’ income that is collected outside of the municipality where the business maintains its principle place of business.
- Imagine Walmart with its headquarters in Arkansas paying a business license tax on only 75 percent of its income when the small business owner struggling to compete with the industry giant is paying on 100 percent. Furthermore, consider that the if the local government has to make up for this lost revenue, it will be small businesses that could have to pay yet even higher business licenses thereby subsidizing the larger businesses. Not Fair to small businesses!
- Imagine a restaurant with locations in three cities. The owner pays the tax to City A on 100 percent of his income earned from the restaurant in City A. However, he exempts 25 percent of the income earned on the two restaurants located in City B when calculating the tax owed to City B. At the same time, his competitor pays the municipal business license tax on 100 percent of his income earned because all three of his restaurants are located in the same city. Not Fair to small businesses!
- Exempts from municipal business license taxes 100 percent of life, accident and health insurance premiums. So who do you think makes up the lost revenues? Small businesses. Not Fair!
- Bars cities from charging a business that is not physically located in the city a higher tax rate than a business physically located in a city. So the local small businesses subsidize their larger competitors who happen to benefit from city services but pay less. Not Fair!
- Exempts from municipal business license taxes 100 percent of fire insurance premiums collected inside a city unless the risk is located in the city. And how is the portion of our current business licenses going to be covered. Local small businesses. Not Fair!
- Exempts from municipal business license taxes 25 percent of a business’ income collected from the South Carolina Child Development Program or the South Carolina Department of Social Services SC Voucher Program. At the same time, other day care providers pay on 100 percent of their income. Not Fair to smaller day care and other small social service providers. Not Fair!
- Allows manufacturers to pay the municipal business license tax on the LESSER of income collected from business done at the location OR the amount of income allocated to that location according to its state income tax return OR the expenses attributable to the location as a cost center of the business. Lost revenue a big hit to small businesses. Not Fair!
- Restricts cities from charging more than a $100 filing fee for a new business license at the point of issuance. When the business license is renewed, a tax is paid on the businesses’ income from the preceding calendar year or 12-month fiscal year. This means a new business will not pay a business license tax on a full 12 months of income until the third license year. Not Fair, though the city of Beaufort already has an equitable discount to new business and an equitable discount for longevity in the City!
- Validates “any special ordinance or formal or informal agreement” between a municipality and business entered into before January 1, 2019, regarding rate classes or the calculation of the municipal business license tax. These agreements are deemed to be valid with the approval of the business, not the local government. “Circumstantial evidence” may be used by the business to prove the existence of an agreement. So the fox is in the hen house! Not Fair!
Secretary of State will have the following responsibilities:
- Promulgates regulations related to the Standardized Business License Class Schedule, the Business License Tax Portal and the Business License Class Schedule Board. This is a totally new function for the Secretary of State’s office, will take time to implement, will charge a processing fee for what we already do. And who will pay to set up and maintain this services? Small businesses. Not Fair and redundant lacking common sense!
- Determines the information included on the standardized business license application that cities must accept. We have a system that works, have already implemented standardized classifications and services on line to those paying business licenses. Waster
- Updates the Standardized Business License Class Schedule every other year in consultation with a nine-member Business License Class Schedule board that includes only one member representing cities. Authority remains with city councils to set rates based on the Standardized Business License Class Schedule. Councils may grant, by a positive majority vote of the council, special rates to certain business subclassifications for economic stimulus or disproportionate demands placed on municipal services or infrastructure.
- Develops and manages a portal for businesses to calculate, report and pay business license taxes online. Only the municipality may audit income or tax reported through the portal. This data may not be used by the Secretary of State, the Municipal Association or any other party for “statewide analytics.” Neither the Secretary of State nor the Municipal Association may audit a business using information available through the portal. Businesses may also pay the city by telephone, mail or in person.
- Prevents the Municipal Association or any other non-governmental entity from collecting insurance premiums or telecommunications taxes on the cities’ behalf.
- Prevents the Municipal Association or any other non-governmental entity from distributing to cities the municipal portion of the brokers premium tax collected by the Department of Insurance which will distribute the tax to the cities.
- Exempts from municipal business license taxes 100 percent of life, accident and health insurance premiums.
Exempts from municipal business license taxes 100 percent of fire insurance premiums collected inside of a city unless the risk is located in the city.