Revised business license tax rates are under review in Beaufort as part of a larger, statewide effort to simplify a licensing process described locally as a “nightmare.”
Initially, as the new system is rolled out, there will be “winners and losers” as business license fees are recalibrated, but the revenue the city collects won’t change, said Kathy Todd, the city’s finance director.
Examples of the types of businesses in Beaufort that will see higher license fees are hotels and motels and others in the accommodations sector, Todd said.
For example, a local hotel reporting $100,000 in gross annual income would see a $22.54 increase in its city business license tax to $191.80 in 2022.
That’s because the proposed tax rate per $1,000 of income over the initial $2,000 would increase from $1.34.26 to $156.80 under the proposed rate changes, Todd said.
Sixty-eight businesses across all industry classes will see increases of at least $500 in license taxes, Todd said. That’s about 3.1% of the total businesses licensed in the city.
Businesses that would see decreases include restaurants.
A fast-food restaurant reporting a gross income of $100,000 would see its 2022 business license renewal fee drop by $36.26 to $133.
That’s based on a proposed decrease in the per-$1,000 of income rate for food industry businesses from $134.26 to 98 cents.
For 51% of Beaufort’s licensed businesses — 1,142 businesses — license taxes would go down under the proposed changes. They would go up for 47%, or 1,046 of the businesses.
There will be no change in license renewal fees for construction businesses, based on new rates proposed in Beaufort, Todd said.
Todd adds that the increases might amount to only a few dollars in some cases. She also notes that the rate change calculations do not take into account growing incomes for businesses, which affects the total license fee.
Changes to the local business licensing structure come as a result of the S.C. Business License Standardization Act, which will make it easier to get and renew business licenses across the state, especially for businesses that operate in multiple counties. All municipalities will use the same online portal and have the same business license renewal deadlines.
To implement the new system cities and towns must rebalance business license tax rates to prevent a revenue windfall during the 2022 business license cycle. The Beaufort City Council has heard a report on the proposed ordinance change implementing the new rates but has yet to take action.
License fees include a base rate on the first $2,000 of income. Under the city’s proposal, the base rates in various industry sector classes, which are different, will not increase. But businesses can be moved to differing classes, based on the class schedule released annually by the North American Industry Classification System, which can lower or increase the base rates.
In addition, each $1,000 of income beyond the initial $2,000 also is taxed, and the per-$1,000-income rates also vary by industry classes.
It is the per-$1,000-of-income rates in each of the various industry sectors that the city is proposing to change.
With the new rates, Todd said, the city will take in an estimated $2.1 million in license tax revenue, which is not an increase. Therefore, the requirement for revenue neutrality would be met. But the estimate doesn’t preclude additional revenue from income growth, Todd said.
Beaufort Mayor Stephen Murray called the current licensing renewal system “a nightmare” because of the different deadlines and rates required by the various jurisdictions.
Some businesses, he said, have informed the city that they have employees whose only job is making sure companies comply with varying licensing rules in different jurisdictions. “I think we found a healthy balance,” Murray said.
Businesses raised concerns with legislators about the inconsistencies and complicated processes found among the local governments that collect business license taxes, according to the Municipal Association of South Carolina. Todd said Beaufort already is using the model recommended by MASC so the new system isn’t a big change.
Legislators came together with the business community and cities and towns to remedy these issues, MASC said. That process led to the General Assembly passing the Standardization Act in September 2020. All municipalities that levy a local business license tax must comply with the law by Jan. 1.
Ian Scott, president of the Beaufort Regional Chamber of Commerce, called complying with multiple jurisdictions “incredibly onerous” for businesses, especially those that operate across jurisdictions. The new system, he said, will result in huge “time-cost” savings to hundreds of businesses.