Flat-rate business license would likely help big businesses most

If talk of reforming Columbia’s business license fee policy turns into action, big businesses could benefit inordinately compared to smaller businesses, critics say, while the city risks losing some $9 million annually in income.

Charging businesses a flat fee of $100 a year for a license, a suggestion raised recently by one City Council member, would mean nearly half the city’s licensed businesses could end up paying more than their current fees. On the other hand, more than 5,800 out of nearly 9,900 businesses currently pay more than $100 for a one-year business license and would benefit.

“You’re not helping the small businesses as much as you’re helping the big businesses,” said Councilman Moe Baddourah, who is seeking relief for small businesses in the face of looming water, sewer and utility rate hikes – but not necessarily through the flat fee proposal.

Talks of business license reform surfaced last month after City Council signaled its intent to raise water and sewer rates and utility franchise fees in the next budget year – costs that amount to greater burdens for local businesses, Baddourah, a small-business owner, lamented.

He asked that council consider reducing license fees for small businesses to offset the additional taxes. His request, though, gave way to a discussion among council members of broader business license reform.

Councilman Cameron Runyan, chairman of the council Finance, Audit and Budget committee, called Columbia’s business license policy – a complex fee schedule based in part on business type, income and location – “onerous.”, Business license fees paid to the city range from $11 to $300,000 each year, according to the city’s business license administrator, Roger Myers.

In the 2014 budget year, business licenses brought the city $10.1 million in revenue, comprising about 8 percent of the year’s $123.6 million general fund.

“It does not make up a large part of our budget ... but it’s an enormous burden to commerce and to business,” Runyan said at a recent budget committee meeting.

Runyan proposed that city staff and council consider phasing in a cut to business license fees over five years, with the end result a $100 flat annual license fee for all businesses. Should City Council adopt such a proposal, annual collections from those fees could plummet from more than $10 million to less than $1 million in five years, not accounting for growth, city collection data show.

But there’s a “fairness issue” to consider with a proposal like that, said Scott Slatton, the legislative and public policy advocate for the Municipal Association of South Carolina.

“It isn’t fair for a large, multinational corporation to pay the same flat fee that a small business on Main Street does,” Slatton said.

More than 7,800 of the city’s 9,987 licensed businesses report $500,000 or less in annual gross income, according to figures provided by Myers. On average, those businesses paid a $191 annual license fee.

License fees are calculated according to a number of factors, including the type of business, the amount of gross income earned inside the city each year and whether a business is physically located inside the city limits or outside the city limits but does business in the city.

For example, a retail bakery located and selling in Columbia is charged a base fee of $24.20 for its first $10,000 of gross annual receipts, plus an additional $1.20 for every $1,000 in additional gross receipts.

Most S.C. cities and counties – except Lexington County, locally – charge the fees in exchange for city and county services. The arrangement allows the governments, in part, to decide where businesses, and what kind of businesses, may open and, sometimes, how they conduct themselves.

Business license policies are a burdensome issue statewide, said state Rep. Rick Quinn, R-Lexington. Quinn is the primary sponsor of legislation that, if passed, would overhaul counties’ and municipalities’ business license laws by capping fees at $100 statewide. He spoke to City Council’s budget committee recently, advocating a “fair, transparent and easy to comply with” business license law statewide.

Complicated, inconsistent and sometimes expensive business license policies are a detriment to entrepreneurial spirit, Quinn said.

He noted that various cities and counties charge different rates, which can be confusing to businesses that operate across multiple boundaries. There are also fairness issues with fees for subcontractors, for example, and the fact that fees are generally calculated based on income without taking into account a business’ operating expenses, he said.

All of those factors are hindrances to a regionally competitive business environment, Quinn said.

There are changes that could stand to be made to business license policies around the state, Slatton said. But, he said, a $100 flat rate is not one of those changes.

In addition to the unbalanced effect on large and small businesses, there’s the issue of the possible dramatic reduction of the money the license fees provide local governments, he said. On average among municipalities in the state, Slatton said, business license fees account for between 20 and 50 percent of their general fund revenues.

Baddourah said he doesn’t know yet whether the $100 flat fee is a good idea or a bad idea for Columbia. But he does know it would save big businesses a lot more money than it would save small businesses, he said, and that’s not the kind of reform he’s asking for.

Talks among city leaders will continue, but, in any case, no reforms are likely to take effect for the next budget year, which begins July 1.

This story was originally published May 3, 2015 at 9:56 PM with the headline "Flat-rate business license would likely help big businesses most."