As the discussion continues over H3490 at the State House, the Association has done some research into the beginnings of the business license tax. It’s pretty interesting.
Did you know the origin of the municipal business license tax dates back to 1872? According to former University of South Carolina Law Professor William Quirk’s Law Review article, “Nature of a Business License Tax,” the foundation for the business license tax was laid when the General Assembly passed an act in 1872 to provide for a general license law.
That law was repealed the same year, but it opened the door for one of the first court cases that affirmed the notion that all businesses “. . . receive protection from the government [and] should contribute to its support."
Quirk points out that South Carolina’s 1895 Constitution (the one we still use today) makes two specific references to a business license tax. In the section that gave municipalities taxing authority, a license/privilege tax was granted to cities and towns so long as the tax was “. . . graduated so as to secure a just imposition of such a tax upon the classes subject thereto.”
This important sentence established today’s continued use of rate classes and why it’s so important they be updated regularly.
The original business license tax language has been removed from the Constitution, but through state law changes and state court cases since 1895, the legitimacy of the municipal business license tax has been affirmed many times.
Additionally, the courts have recognized that the business license tax “. . . is simply an authorization to engage in a business, not a substitute for property and income taxes” and they have established that the business license tax is related to the services provided by a city.