The current system of business licensing is overly complex, making it costly and burdensome for businesses to comply with (and for localities to enforce). A single small business that is a local service provider in a metro area like Charleston or Columbia would have to have as many as 70 different business licenses to serve the entire area. On the administrative side, local governments’ waste substantial resources (estimated at more than $20 million annually) in administering the system that could better be used for other more important local government services.
The licensing system has strayed from its original purpose—it does nothing to ensure the quality or legitimacy of a business, but rather exists simply as an administratively costly form of revenue for local governments. The high fees, record keeping burden, compliance costs, and need to maintain licenses in areas that may not even be served in a particular year are a substantial drain on the resources small businesses have to operate and grow as well.
Because business license fee taxes are based on gross revenue and do not exempt intermediate purchases, they result in double, triple or even higher levels of taxation when one business purchases goods or services from another to be utilized in the production of a final good. If a builder member sells a house for $150,000 he must pay a business license fee for the entire sale price on the home. Each sub-contractor (roofer, plumber, framer, electrician, painter, etc.) must also pay a business license fee for their gross revenues. Building supply companies, manufacturers, delivery companies and Realtors must also pay a business license fee on their gross revenues. In essence, each time the goods or services changes hands, it is subject to additional taxation. A $150,000 house has been taxed as if it were a $400,000+ project. This results in higher prices for consumers and reduced business revenue. In addition, the current system also harms consumers in a second way by lessening competition that would result in lower prices. Therefore, the current system results in a higher cost of living for South Carolina residents. In fact, a recent study on reforming S.C.’s system of business licensing by Dr. Russell Sobel states that the typical household in South Carolina bears an additional $500+ due to these fees.
The current system does not provide a clear and rational link between the fees charged and the public services the license actually provides that are not already covered through other forms of business taxation. The rate differentials across types of businesses are usually based on a census-defined business classification system that has no relation to the true costs or burdens. Because of this, the current system is overly selective and subject to political manipulation.
Local governments have no incentive to improve the system on their own; it must be done through state-level legislation, for which there is both historical precedent and a constitutional responsibility. Our neighboring states of North Carolina, Georgia and Florida have taken steps to substantially improve their systems by either eliminating business licensing or they only require the fees to be paid where the business is physically located and/or applying to no more than 100% of revenue. South Carolina and especially small business owners now find itself in a severe competitive disadvantage. The HBASC has worked with Rep. Todd Atwater and other elected officials concerned with this issue and small business owners to support a bill that will reform the business license process.
The HBASC supports bill H.4967 because we must move to a system in which each business must obtain only one license, in the area in which they file their state income tax return, that is then respected by other jurisdictions would result in substantial costs savings for both businesses and local governments, and promote entrepreneurship and competition in the state. A separate bill has been filed with the support of the Municipal Association of S.C. (H.5109) that does not address accountability, but rather provides an additional revenue stream for the Municipal Association to be paid by our members and other S.C. business owners.
Our past achievements have been based on your involvement. Our future triumphs teeter on your actions again.
Andy White, President