The business license tax is a critical source of revenue that many cities and towns use to fund the services they provide. Revenue from business licenses can comprise up to one-half of general fund revenues in some cities. Maintaining this valuable funding mechanism means that cities need to be committed to business-friendly practices. Cities also need to show they are willing to standardize business licensing practices across the state.
The Municipal Association of SC has pushed for standardization of business licensing for several years. The intensive work during the 2019/2020 session of the South Carolina General Assembly on H4431, the business license standardization bill, has brought the topic of standardization even further to the forefront.
A critical aspect of standardization, one which should be a goal for all municipalities, is the conversion of each city's business license ordinance to the North American Industry Classification System codes for business license assessments.
First established in 1997, NAICS codes are commonly-accepted identifiers of industries among governments and businesses in the United States, Mexico and Canada. All businesses use a NAICS number to help identify themselves when filing their state and federal tax returns. The NAICS codes are also used to divide businesses into similar classes within the Municipal Association's model business license ordinance.
Cities and towns that currently do not use NAICS codes to classify businesses within their business license ordinances are strongly encouraged to begin use of this system.
H4431 will require the conversion to a standardized class schedule to be revenue neutral for each city or town. Ensuring revenue neutrality of the business license tax after conversion to the standardized class schedule is similar in concept to the process cities go through during reassessment of property values every five years.
Find business license resources, including the model business license ordinance, online.