_____________________________________________

BUSINESS LICENSE PROBLEM AREAS ____________________________________________________________

March 11, 2020 Danny C. Crowe Crowe LaFave, LLC 500 Taylor Street, Suite 202 Columbia, South Carolina 29201 Phone: (803) 724-5728 Fax: (803) 724-5730 danny@crowelafave.com

The information provided here is for informational and educational purposes and current as of the date of publication. The information is not a substitute for legal advice and does not necessarily reflect the opinion or policy position of the Municipal Association of South Carolina. Consult your attorney for advice concerning specific situations.

Real Estate

Sales

b) Broker Sales: Commissions received by real estate brokers constitute gross income for license purposes. If commissions are divided with other brokers or salesmen, as frequently occurs, only the amount retained by a broker is considered income to him.

Brokers-In-Charge

Business licenses must be charged to the broker-in-charge. Notwithstanding any other provision of law, the governing body of a county or municipality may not impose a license, occupation, or professional tax or fee upon real estate licensees, except upon the broker-in- charge at the place where the real estate licensee shall maintain a principal or branch office. The license, occupation, or professional tax or fee shall permit the broker-in-charge and the broker's affiliated associate brokers, salespersons, and property managers to engage in all of the brokerage activities described in Chapter 57 of Title 40 without further licensing or taxing, other than the state licenses issued pursuant to Chapter 57 of Title 40 or pursuant to other provisions of law. No license, occupation, or professional tax or fee shall be required of the affiliated associate brokers, salespersons or property managers of a broker-in-charge for such gross receipts upon which a license, occupation or professional tax or fee has already been paid. Section 6-1-315.

Brokered transactions of real property in counties or municipalities, other than those in which the broker-in-charge maintains a principal or branch office, create a nexus for imposition of a license, occupation, or professional tax or fee only with respect to gross receipts derived from transactions of property located in that county or municipality. Section 6-1-315.

1

SECTION 6-1-315. Limitation on imposition or increase of business license and real estate professional and auctioneer fees.

(A) By ordinance adopted by a positive majority vote, a local governing body may impose a business license tax or increase the rate of a business license tax, authorized by Sections 4-9-30(12) and 5-7-30.

(8)(1) Notwithstanding any other provision of law, the governing body of a county or municipality may not impose a license, occupation, or professional tax or fee upon real estate licensees, except upon the broker-in-charge at the place where the real estate licensee shall maintain a principal or branch office. The license, occupation, or professional tax or fee shall permit the broker-in-charge and the broker's affiliated associate brokers, salespersons, and property managers to engage in all of the brokerage activities described in Chapter 57 of Title 40 without further licensing or taxing, other than the state licenses issued pursuant to Chapter 57 of Title 40 or pursuant to other provisions of law. No license, occupation, or professional tax or fee shall be required of the affiliated associate brokers, salespersons, or property managers of a broker­in-charge for such gross receipts upon which a license, occupation, or professional tax or fee has already been paid.

(2) Brokered transactions of real property in counties or municipalities other than those in which the broker-in-charge maintains a principal or branch office create a nexus for imposition of a license, occupation, or professional tax or fee only with respect to gross receipts derived from transactions of property located in that county or municipality.

(3) Notwithstanding any other provision of law, the governing body of a county or municipality may not impose a license, occupation, or professional tax or fee upon the gross proceeds of an auctioneer licensed under Chapter 6 of Title 40 for the first three auctions conducted by the auctioneer in the county or municipality, unless the auctioneer maintains a principal or branch office in the county or municipality.

HISTORY: 1997 Act No. 138, Section 7; 2008 Act No. 412, Section 1, eff June 25, 2008.

Effect of Amendment

The 2008 amendment designated subsection (A) and added subsection (B) relating to real estate professionals and auctioneers.

2

Title 40 - Professions and Occupations

CHAPTER 57

Real Estate Brokers , Brokers-in-Charge, Salespersons, and Property Managers

SECTION 40-57-30. Definitions.

For purposes of this chapter :

ARTICLE 1

General Provisions

(1) "Agent" means one authorized and empowered by a written agency agreement to perform actions for a client. A real estate brokerage firm is the agent of a buyer, seller, landlord, or tenant, and the real estate brokerage firm's "associated licensees" are its subagents.

(2) "Associated licensee" means a licensee affiliated with and under the supervision of a broker-in-charge or property manager-in-charge.

(3) "Broker" means an associated licensee who has met the experience and education requirements and has passed the examination for a broker license and who, for a fee, salary, commission, referral fee, or other valuable consideration, or who, with the intent or expectation of receiving compensation:

(a) negotiates or attempts to negotiate the listing, sale, purchase, exchange, lease, or other disposition of real estate or the improvements to the real estate;

(b) auctions or offers to auction real estate in accordance with Section 40-6-250;

(c) for a fee or valuable consideration solicits a referral;

(d) offers services as a real estate consultant, counselor, or transaction manager;

(e) offers to act as a subagent of a real estate brokerage firm representing a client in a real estate transaction; or

(f) advertises or otherwise represents to the public as being engaged in any of the foregoing activities .

(4) "Broker-in-charge" means a broker designated to have responsibility over the actions of all associated licensees and also has the responsibility and control over and liability for a real estate trust account.

(14) "Licensee" means an individual currently licensed under this chapter .

(18) "Office" means the office location where a broker-in-charge or a property manager-in-charge is licensed to conduct real estate business.

(20) "Property manager" means an associated licensee who meets educational requirements and passes the examination for a property manager license, and who will for a fee, salary, commission, other valuable consideration or with the intent or expectation of receiving compensation:

(a) negotiates or attempts to negotiate the rental or leasing of real estate or improvements to the real estate;

(b) lists or offers to list and provide a service in connection with the leasing or rental of real estate or improvements to the real estate; or

(c) advertises or otherwise represents to the public as being engaged in an activity in subitems (a) and (b).

(21) "Property manager-in-charge" means a property manager who is designated as having the responsibility over the actions of associated licensees and also the responsibility and control over and liability for real estate trust accounts .

3

(26) "Salesperson" means an associated licensee who:

(a) meets experience and education requirements;

(b) passes an examination for a salesperson license ; and

(c) engages in or participates in an activity enumerated in item (3) for a fee, salary, commission, or other valuable consideration, or with the intent or expectation of receiving compensation .

(28) "Subagent" means an agent of an agent. An "associated licensee" is a subagent of the real estate brokerage firm if the firm is an agent of a buyer, seller, landlord, or tenant.

4

Insurance Agents

Payment of license taxes by insurance companies does not exempt independent agents or brokers from license taxes. Employees of insurance companies who sell insurance are exempt. Hay v. Leonard, 212 SC 81, 46 S.E.2d 653 (1948).

The tax on the insurance companies is on the privilege of insuring risks in the municipality . The tax on the independent agents is on the privilege of selling insurance and handling claims. These are two different business activities conducted by two different entities. Whether the agent sells for one or a number of companies does not determine whether he is subject to the tax. The test is whether he is an employee or an independent agent. An employee ' s paycheck would include payroll deductions for income taxes and Social Security. The independent agent or broker would receive a commission that would be his gross income for business license purposes.

Independent insurance agents sometimes argue that they should not pay a business license tax because the company pays a tax on the gross premiums. They contend this would be double taxation because their commissions are paid from gross premiums . This is a misconception.

Some points to consider in support of taxation of agents:

• Agents are in business, just like other people who contract to perform a service. They contract with insurance companies to sell policies.

28

• • It is unfair to tax other businesses and exempt agents. Other businesses must carry a heavier burden to support the city budget when a class of business is exempt from the tax. Other types of agents and brokers are taxed.

• • Tax payments by insurance companies do not come from the commission income received by agents for the sale of policies. The companies do not pay license taxes for agents .

• • There is no double taxation. The taxes are levied on two different businesses. For example: manufacturers, wholesalers and retailers may be subject to license taxes on gross income from the sales of the same goods because each activity is a separate business . Neither the goods nor the sales transactions are the subjects of the tax .

• • The tax is due for the privilege of doing business. While it is measured by gross income, it is not an income tax or a premium tax.

Insurance Brokers

The South Carolina General Assembly, to ensure consistency with the federal Nonadmitted and Reinsurance Reform Act of 2010, ratified Act 283 on June 28, 2012, amending SC Code§§ 38-7-16 and 38-45-10 through 38-45-195. The Act establishes a blended broker's premium tax rate of 6 percent , comprised of a 4-percent state broker's

5

premium tax and a 2- percent municipal broker's premium tax. A municipality may not impose on brokers of nonadmitted insurance in South Carolina an additional license tax based upon a percentage of premiums, as was the practice prior to the passage of these federal and state laws.

Pursuant to SC Code Ann. §§ 38-45-10 and 38-45-60, the Municipal Association of South Carolina may, by agreement with a municipality, be designated the municipal agent for purposes of administration of the municipal broker's premium tax. The South Carolina Department of Insurance is required to collect the broker's premium tax and distribute to municipalities the municipal portion of the tax . As the municipal agent, the Association distributes the funds to the municipalities.

6

Outside Income Included

A business located in a municipality or county that does business beyond the boundaries of the taxing entity may be subject to a business license tax computed on all income on which a tax has not been paid to another municipality or county. The state Supreme Court confirmed the right to base the license tax on total income in Triplett v. City of Chester , 209 SC 455 , 40 S.E. 2d 684 (1946); and Eli Witt Co. v. City of West Columbia, 309 SC 555, 425 S.E.2d 16 (1992) .

In the Triplett case, the Court said that a municipal corporation's right to impose a business license tax on a corporation for business conducted within the city limits , although part of the business was carried on outside the municipality, was generally recognized . The controversy arose over levying a license upon a general contractor whose business was constructing highway and railroad bridges in various parts of South Carolina and in other states. He had never done any actual construction work in the City of Chester. He established a central office in a building owned by him in the city . The Court said :

13

The administrative and executive work, an indispensable phase ofrespondent's business , was conducted in the office established , maintained and operated in the City ... This portion of his business enjoyed all the advantages afforded by the municipal government of Chester to any other business conducted within its corporate limits . We cannot dissociate the managerial features of the business which were conducted within the City, along with the storing of equipment, from the manual execution of the work which was done without the City . All are essential functions of the general contracting business in which respondent is engaged.

Exclusion of gross income on which a license is paid to some other municipality or county avoids multiple taxation. The state Supreme Court deemed the exclusion to be reasonable in Eli Witt Co. v. City of West Columbia, cited above. The case involved wholesale distribution of goods from a warehouse in the city to stores outside the city . Allowing credits for taxes paid elsewhere does not violate the constitutional requirement for equal protection .

Some ordinances provide for different rates on income produced from out-of-city activities and collected through an in-city office . In the absence of such a provision , the license inspector cannot give different treatment.

7

Wholesalers

Wholesalers are exempt from municipal license taxes unless they maintain warehouses or distribution establishments within the municipality. SC Code Sec. 5-7-30. A wholesale transaction involves a sale to someone who will resell the property . It does not include a sale to a user or consumer. SC Code Sec. 12-36-120 .

8

SECTION 12-36-110. Sale at retail; retail sale.

Sale at retail and retail sale mean all sales of tangible personal property except those defined as wholesale sales. The quantity or sales price of goods sold is immaterial in determining if a sale is at retail.

(1) The terms include:

(a) sales of building materials to construction contractors, builders, or landowners for resale or use in the form of real estate;

(b) sales of tangible personal property to manufacturers, processors, com pounders, quarry operators, or mine operators, which are used or consumed by them, and do not become an ingredient or component part of the tangible personal property manufactured, processed, or compounded for sale;

(c) the withdrawal, use, or consumption of tangible personal property by anyone who purchases it at wholesale, except:

(i) withdrawal of tangible personal property previously withdrawn and taxed by such business or person;

(ii) tangible personal property which becomes an ingredient or component part of tangible personal property manufactured or compounded for sale;

(iii) tangible personal property used directly in manufacturing, compounding, or processing tangible personal property for sale;

(iv) materials, containers, cores, labels, sacks, or bags used incident to the sale and delivery of tangible personal property;

(v) a motor vehicle operated with a dealer, transporter, or manufacturer, or education license plate and used in accordance with the provisions of Section 56-3-2320 or 56-3-2330;

(d) the use within this State of tangible personal property by its manufacturer as building materials in the performance of a construction contract. The manufacturer must pay the sales tax based on the fair market value at the time and place where used or consumed;

(e) sales to contractors for use in the performance of construction contracts;

(f) [Reserved];

(g) sales of tangible personal property, other than cigarettes and soft drinks in closed containers, to vendors who sell the property through vending machines. The vendors are deemed to be the users or consumers of the property;

(h) sales of prepared meals, or unprepared food products used to prepare meals, to hospitals, infirmaries, sanitariums, nursing homes, and similar institutions, educational institutions, boarding houses, and transportation companies, if furnished as part of the service rendered. These institutions and companies are deemed to be the users or consumers of the property;

9

(i) sales of drugs, prosthetic devices, and other supplies to hospitals, infirmaries, sanitariums, nursing homes, and similar institutions, medical doctors, dentists, optometrists, and veterinarians, if furnished to their patients as a part of the service rendered. These institutions, companies, and professionals are deemed to be the users or consumers of the property;

U) sales, not otherwise exempted, when reimbursed or paid in whole or in part by Medicare or Medicaid. However, only the net amount reimbursed by Medicare and Medicaid is subject to the tax, if the vendor is prohibited by law from charging the purchaser the difference between the retail sale and the amount reimbursed;

(k) sales of all local telecommunications services by local exchange companies (LECs) to customer owned coin-operated telephone (COCOT) providers, as those terms are defined by the South Carolina Public Service department. The COCOT providers that purchase these services in order to provide payphone services to their customers are considered to be the users and consumers of the services, and are not subject to sales tax for their subsequent sale of local telecommunications services to their COCOT customers;

(I) sales of tangible personal property to veterinarians . The veterinarians are deemed to be the users or consumers of the property whether used in the rendering of professional services or sold outright as part of the veterinarian practice and not furnished as a part of professional services rendered.

(2) The terms do not include sales of tangible personal property to a manufacturer or construction contractor when the tangible personal property is subsequently processed, partially or completely fabricated, or manufactured in this State by the manufacturer or contractor, for use in the performance of a construction contract if the property is transported to, assembled, installed, or erected at a job site outside the State and thereafter used solely outside the State.

HISTORY: 1990 Act No. 612, Part 11, Section 74A; 1993 Act No. 164, Part 11, Section 105E; 1994 Act No. 497, Part II, Sections 70D, 120; 1994 Act No. 516, Section 15; 1996 Act No. 431, Section 5; 1997 Act No. 46, Section 1.

SECTION 12-36-120. "Wholesale sale" and "sale at wholesale".

"Wholesale sale" and "sale at wholesale" mean a sale of:

(1) tangible personal property to licensed retail merchants, jobbers, dealers, or wholesalers for resale , and do not include sales to users or consumers not for resale;

(2) tangible personal property to a manufacturer or compounder as an ingredient or component part of the tangible personal property or products manufactured or compounded for sale;

(3) tangible personal property used directly in manufacturing, compounding, or processing tangible personal property into products for sale;

(4) materials, containers, cores, labels, sacks, or bags used incident to the sale and delivery of tangible personal property, or used by manufacturers, processors, and compounders in shipping tangible personal property;

(5) food or drink products to licensed retail merchants for use as ingredients in preparing ready­to-eat food or drink sold at retail. These products include cooking oil used as an ingredient.

10

However, items used or consumed by licensed retail merchants to prepare ready-to-eat food or drink, such as hickory chips, barbecue briquettes , gas , or electricity are subject to tax.

HISTORY: 1990 Act No. 612, Part 11, Section 74A; 1992 Act No. 361, Section 16(A); 1996 Act No. 431, Section 6.

11

Charitable Activities

State law regulates charitable solicitations . It requires individuals have a municipal or county permit to solicit funds from motorists on streets. SC Code Sec. 5-27-910.

The Solicitation of Charitable Funds Act requires charitable organizations to annually register with the secretary of state, pay a $50 fee and submit annual reports. The attorney general enforces these provisions. SC Code Sec. 33-56-10, et seq. "A charitable organization" includes tax-exempt organizations under state and federal income tax laws.

The exempt purposes set forth in IRS Code Sec. 501(c) (3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. This Act does not preempt local regulation and does not exempt an organization from a business license.

Exemption from state or federal income taxes does not automatically entitle the activity to exemption from a business license. An exemption depends on the language in the business license ordinance . The ordinance may define charitable in more stringent terms than the income tax laws. However exemption under IRS Code Sec. 501(c) is sometimes considered as a factor in determining whether an organization is charitable.

21

The Model Business License Ordinance defines a "charitable organization" as an organization that is determined by the Internal Revenue Service to be exempt from federal income taxes under 26 U.S.C . section 501 (c)(3), (4), (6), (7), (8), (10) or (19) . The Model Ordinance further provides that a "charitable organization" or any for-profit affiliate of a "charitable organization" that reports income from for-profit activities or unrelated business income for federal income tax purposes to the Internal Revenue Service, shall be deemed a business subject to a business license tax on the part of its gross income from such for-profit activities or unrelated business mcome.

Most business license ordinances, as well as theModel Ordinance, provide that the charitable organization will be considered a business subject to the license tax unless the entire proceeds of a charitable organization are used for charitable (eleemosynary) purposes.

12

Freedom of Information Act

Business license applications should be treated as confidential. Licensees generally object to public disclosure of such information. Upon proper inquiry, the disclosure that a particular person has complied with the ordinance, paid the proper license tax and obtained a license is sufficient to satisfy the public's need to know and the Freedom of Information Act. The Act specifically provides that "information as to gross receipts contained in applications for business licenses" is considered "information of a personal nature" that may be exempted from disclosure . SC Code Sec. 30-4-40(a)(2) .

Any information requested for person-to-person commercial solicitation of handicapped people also is exempt from disclosure under FOIA. SC Code Sec. 30-4-40(a)(2).

FOIA does not provide a penalty for disclosing exempt records. However, many license ordinances contain a confidentiality provision that temoves discretion from the license official and limits release of information to those items required to be released by law. The governing body has ultimate responsibility for complying with FOIA. A request for information that is not clearly required to be released should be referred to council.

SC Code Sec. 6-1-120, as originally adopted in 1999, caused mass confusion by prohibiting release of any information provided by a business license taxpayer. This statute was amended in 2000 to provide for release of information in accordance with FOIA and specifically authorizes sharing of data between public officials or employees in the performance of their duties.

SC Code Sec. 6-1-120 prohibits disclosure to the public of financial information provided by a taxpayer. Publication of statistics classified to prevent the identification of particular reports, returns or applications and the information on them is not prohibited . For a knowing violation, Sec. 6-1-120 provides severe penalties of up to $1,000 or imprisonment for up to one year, or both. In

43

addition, a municipal or county officer or employee must be dismissed from office or position and is disqualified from holding a public office in this state for five years following conviction.

It is considered incorrect to disclose the amount of license tax paid by a business because gross income could be calculated using the license rate schedule. This position may have little meaning in view of the requirement in most license ordinances that the business license be posted in the place of business and the amount of tax paid is routinely entered on the license.

13

SECTION 30-4-20. Definitions.

(c) "Public record" includes all books, papers, maps, photographs, cards, tapes, recordings, or other documentary materials regardless of physical form or characteristics prepared, owned, used, in the possession of, or retained by a public body. Records such as income tax returns, medical records, hospital medical staff reports, scholastic records, adoption records, records related to registration, and circulation of library materials which contain names or other personally identifying details regarding the users of public, private, school, college, technical college, university, and state institutional libraries and library systems, supported in whole or in part by public funds or expending public funds, or records which reveal the identity of the library patron checking out or requesting an item from the library or using other library services, except nonidentifying administrative and statistical reports of registration and circulation, and other records which by law are required to be closed to the public are not considered to be made open to the public under the provisions of this act; nothing herein authorizes or requires the disclosure of those records where the public body, prior to January 20, 1987, by a favorable vote of three-fourths of the membership, taken after receipt of a written request, concluded that the public interest was best served by not disclosing them. Nothing herein authorizes or requires the disclosure of records of the Board of Financial Institutions pertaining to applications and surveys for charters and branches of banks and savings and loan associations or surveys and examinations of the institutions required to be made by law. Information relating to security plans and devices proposed, adopted, installed, or utilized by a public body, other than amounts expended for adoption, implementation, or installation of these plans and devices, is required to be closed to the public and is not considered to be made open to the public under the provisions of this act.

14

SECTION 30-4-40. Matters exempt from disclosure.

(a) A public body may but is not required to exempt from disclosure the following information:

(2) Information of a personal nature where the public disclosure thereof would constitute unreasonable invasion of personal privacy. Information of a personal nature shall include, but not be limited to, information as to gross receipts contained in applications for business licenses, information relating to public records which include the name, address, and telephone number or other such information of an individual or individuals who are handicapped or disabled when the information is requested for person-to-person commercial solicitation of handicapped persons solely by virtue of their handicap, and any audio recording of the final statements of a dying victim in a call to 911 emergency services. Any audio of the victim's statements must be redacted prior to the release of the recording unless the privacy interest is waived by the victim's next of kin. This provision must not be interpreted to restrict access by the public and press to information contained in public records.

15

SECTION 6-1-120. Confidentiality of county or municipal taxpayer information.

(A) Except in accordance with a proper judicial order or as otherwise provided by the Freedom of Information Act, it is unlawful for an officer or employee of a county or municipality, or the agent of such an officer or employee to divulge or make known in any manner the financial information, or other information indicative of units of goods or services sold, provided by a taxpayer included in a report, tax return, or application required to be filed by the taxpayer with that county or municipality pursuant to a county or municipal ordinance imposing a:

(1) tax authorized under Article 5 or Article 7;

(2) business license tax authorized under Section 4-9-30(12) or Section 5-7-30;

(3) fee the measure of which is:

(a) gross proceeds of sales of goods or services; or

(b) paid admissions to a place of amusement.

(B) Nothing in this section prohibits the:

(1) publication of statistics classified to prevent the identification of particular reports, returns, or applications and the information on them;

(2) inspection of reports, returns, or applications and the information included on them by an officer or employee of the county or municipality, or an agent retained by an officer or employee, in connection with audits of the taxpayer, appeals by the taxpayer, and collection efforts in connection with the tax or fee which is the subject of the return, report, or application;

(3) sharing of data between public officials or employees in the performance of their duties, including the specific sharing of data as provided in Article 8 of this chapter, the Fairness in Lodging Act.

(C) A person who knowingly violates the provisions of this section is guilty of a misdemeanor and, upon conviction, must be fined not more than one thousand dollars or imprisoned not more than one year, or both. In addition, if the person convicted is an officer or employee of the county or municipality, the offender must be dismissed from the office or position held and is disqualified from holding a public office in this State for five years following the conviction.

HISTORY: 1999 Act No. 111, Section 1; 2000 Act No. 269, Section 1; 2014 Act No. 261 (S.985), Section 2, eff June 9, 2014 .

Effect of Amendment

2014 Act No. 261, Section 2, in subsection (8)(3), inserted the reference to the Fairness in Lodging Act.

16