South Carolina businesses have historically been subject to business license taxes on their gross income that vary widely from jurisdiction to jurisdiction. The South Carolina Business License Tax Standardization Act (the “Act”) was enacted in 2020, but the effective date was generally delayed until January 1, 2022. The Act should greatly simplify the previous complex and burdensome state business license tax regime. The Act creates uniformity by establishing a formal appeals process for taxpayers, setting one standard 12-month filing period (May 1st to April 30th), requiring one standard application established by the Director of the South Carolina Revenue and Fiscal Affairs Office (RFA), requiring RFA to establish one standard class schedule by Dec. 31st of every odd year, and establishing a payment portal businesses can voluntarily use to pay any business license taxes owed. Importantly, the Act, subject to the approval of a business, preserves formal or informal agreements regarding business license taxes previously entered into between a business and a taxing jurisdiction and specifically authorizes taxpayers and taxing jurisdictions to enter into formal or informal agreements regarding the calculation of business license taxes.
The Act contains new definitions of gross income for certain businesses. For example, a manufacturer’s gross income will be the lesser of (1) gross income collected from business done at the location, (2) the amount of income allocated and apportioned to that location by the business for purposes of the business’s state income tax return, or (3) the amount of expenses attributable to the location as a cost center of doing business. Businesses will need to evaluate any existing agreements they have with a taxing jurisdiction, consider the revised definitions of gross income, and determine whether to continue their existing agreement, enter into a new agreement, or utilize the default provisions of the Act.
Businesses should also be on alert for communications from third-party entities contacting businesses about business license taxes owed to local taxing jurisdictions. If you receive such a communication, businesses should contact a tax attorney and be careful about what information to share with the third parties. Effective as of September 30, 2020, these third parties are prohibited from assessing business license taxes, requiring a business to remit confidential business license tax data, or stating that a business is required to provide information to the third-party entity. Taxing jurisdictions are also prohibited from sharing or disclosing any information related to a business license tax application with any third-party entity other than to acknowledge whether or not a business has paid the taxing jurisdiction’s business license tax for a relevant year. These provisions went into effect immediately when Governor Henry McMaster signed the legislation to prevent aggressive third-party entities from harassing businesses about potential business license tax liabilities.
Importantly, a private cause of action is created under the new law where a taxpayer can sue a taxing jurisdiction or a third-party entity for any violations to (1) stop the violation and/or (2) recover actual monetary loss from such a violation or receive $500 in damages for each violation (whichever is greater). If a court finds the defendant “willfully” or “knowingly” violated the law, the Court can increase damages to an amount equal to no more than three times the actual monetary loss resulting from such violation.
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