Proposed bill could cap business license fees

STATE — South Carolina Rep. Rick Quinn (R-Lexington County) announced recently he’s filing new legislation to reform laws on business license fees and cap the amount cities and towns can charge. Quinn called the present system “grossly unfair and an outrageous assault on small business.”

Under the current system, cities and towns across South Carolina collect more than $300 million annually in business license fees. Every business pays a unique license fee based on a percentage of the gross income of that business. Quinn said calculating fees on the basis of gross income is killing businesses that are surviving on little or no profits.

“When you pay a license fee based on gross rather than net income,” Quinn said, “small businesses that are losing money or barely making ends meet are being forced to pay what amounts to a tax on their business expenses.”

And since the costs of state and federal taxes are included in the fee calculation, cities are literally taxing the money businesses use to pay taxes,” Quinn said.

Quinn said this is especially damaging to small start-up businesses that may need to operate a year or more before they see a profit.

“I’ve had numerous complaints from small businesses that operate on a very small profit margin,” Quinn said. “And yet their business license fee is based on their gross income, sometime 90 percent or more of which is needed to pay their bills.”

Quinn said some cities are now trying to collect fees from businesses that don’t even operate within city limits.

“I’ve had several reports of city tax collectors approaching businesses from other counties who deliver goods and services in their city and attempting to collect fees on the products and services delivered,” he said.

Also, Quinn said one of the most outrageous features of the present system is that cities and towns arbitrarily create multiple “classifications” for businesses, each with a different tax rate. The city of Columbia, for example, has 120 different classifications.

“This system empowers city revenue collectors to soak certain businesses and give favored treatment to others,” Quinn said. “The time has come for fundamental reform.”

The reform legislation Quinn is filing this week, called “The Business License Tax Reform Act,” will contain the following reforms:

All businesses will be treated equally in the calculation of business license fees. Multiple “classifications” with different rate structures would no longer be allowed.

The license fees assessed will no longer be based on gross income. License fees will be based on annual net earnings or profits of the businesses, a number that is readily available on business tax returns.

There will be a cap of no more than $100 annually for business license fees.

Quinn said he fully expects local governments will fight his proposed reform and claim they need the revenue to cover the cost of city government.

“My belief is city governments will do better financially if their businesses prosper, expand and hire more employees, who then become productive taxpayers,” Quinn said. “Soaking small businesses with regressive license fees kill jobs and undercuts economic development for the future.”

“Cities need to do a better job controlling their spending” Quinn said. “Today, cities all across South Carolina are increasing their spending faster than the growth of personal income for their citizens. That trend simply cannot continue.”