CALL IT THE be-careful-what-you-wish-for bill.
For years, businesses have complained about business licenses. They don’t like the taxes that 220 S.C. cities and eight counties charge for the licenses. But their primary, and quite reasonable, objection has been the hassle: separate forms to fill out in every jurisdiction, with different deadlines and different bookkeeping requirements everywhere they do business.
The protests come primarily from builders and electricians and security companies and other entities that don’t have a physical presence everywhere they have customers, but the issue has made it to the top of the agenda for the state’s premier business lobbying group, the S.C. Chamber of Commerce.
So at lawmakers’ urging, business leaders have been working for two years with the S.C. Municipal Association to devise a single form, filled out once and filed in a single place by a single deadline. And city officials thought they were nearly there — until Feb. 2. That’s when Rep. Bill Sandifer, the powerful chairman of the House Labor, Commerce and Industry Committee, suddenly filed a bill that did all that — and much, much more.
Of course there’s a lot in the bill that strips power from local governments, which is what first attracted my interest. But it’s what the bill does for some businesses — and by extension to others — that could cause significant heartburn.
Business license taxes are calculated based on a business’ revenue, and H.3650 exempts 25 percent of the revenue collected outside the location “where the business maintains its principal business license.”
So an electrician whose customers are all inside the city of Columbia would pay a tax on all of his income. But his competitor just across the river in West Columbia who also does business in Columbia would have to pay taxes on just 75 percent of his Columbia income.
Nor does the discount apply only to itinerant businesses. So while Villa Tronco in downtown Columbia would pay a business license tax on 100 percent of its sales, the Olive Garden would only have to pay the tax on … well, that’s not entirely clear, but certainly well short of 100 percent.
One reading of the bill suggests it would have to pay the tax on 100 percent of the revenue in one of its eight S.C. locations; another suggests it would pay just 75 percent statewide, since its headquarters is in Florida. (Mr. Sandifer did not return my phone call to discuss this bill.)
That provision also would give Wal-Mart a 25 percent tax advantage over all those Mom-and-Pop retailers it’s already undercutting.
You think that sounds bad for the very businesses that have been demanding business license tax relief? It gets worse. The bill allows — I would actually say encourages — cities and counties to raise their tax rate in order to make up for the income they lose by giving the discounts.
So not only will it put Wal-Mart and the Olive Garden and that West Columbia plumber at a greater competitive advantage, and lower their taxes, it will almost certainly produce an immediate tax increase on their one-location competitors.
“Representative Sandifer said we’re not capping your ability to raise the tax; you just have to raise it enough to cover the exemptions,” the S.C. Municipal Association’s Reba Campbell told me. “Well, nobody wants to do that.”
Some cities say they’d have to raise everybody’s rates by 75 percent or more in order to collect the same amount of money as they do under the current law.
That’s because the 25-percent big-business preference is just one of the exemptions. The other biggie is insurance: Life, accident and health insurance companies that pay the state insurance premium tax would be exempted from local business license taxes. Which is the Legislature’s favorite way to grant tax relief: Don’t lower state taxes, which would give the Legislature less money to spend; lower taxes that local governments charge.
The bill also gives special tax breaks to businesses that get their money from the taxpayers: It exempts all income that subcontractors receive from general contractors with a government contract. And it exempts 25 percent of revenue day-care centers receive from the S.C. Child Development Program or the DSS voucher program, which gives them an advantage over day-care centers that don’t receive government funding.
Several other exemptions, some involving manufacturers, are just too complicated for me to figure out. None of the exemptions, Ms. Campbell said, came up in two years of negotiations with the business community.
The bill sailed through Mr. Sandifer’s subcommittee and committee, although it did stall out for a week as his staff worked on the amendments he offered — some to make it worse, some to make it less bad. It could come up for debate as early as Tuesday, although I would hope the cities would have enough friends in the House (it only takes five) to boot the bill to the bottom of the lengthy calendar and slow it down for a week or two.
And that might give them enough time to make sure small-business owners know what their friends in the State House want to do to them. Because I’m sure all the big businesses already know what’s being done for them.
Ms. Scoppe writes editorials and columns for The State. Reach her at firstname.lastname@example.org or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.