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South CarolinaBusiness Licenses Officials Association

SPRING TRAINING INSTITUTEColumbia Conference Center

April 29, 2015Chapter 5 – Enforcement

Presented By:

Barbara Wooster – Town of Hilton HeadSusan Howell – City of GreerAl Johnson – City of Beaufort

THE HAND BOOK IS A WORKING TOOL FOR LICENSE

OFFICIALS TO INTERPRET AND ADMINISTER THEBUSINESS LICENSE ORDINANCE. IT IS ALSO A TRAININGTOOL FOR THE ELECTED OFFICIALS AND BUSINESS LICENSE

OFFICIALS AND A RESOURCE FOR LICENSE OFFICIALSPARTICIPATING IN THE SC BUSINESS LICENSING OFFICIALSCERTIFICATION PROGRAM.

THE HANDBOOK DOES NOT ADDRESS EVERY PROBLEMTHAT COULD ARISE, BUT IT DOES OFFER GUIDANCE INHOW TO DEAL WITH THE MOST FREQUENTLYENCOUNTERED ISSUES.

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At the entrance of the U.S. Supreme court is thestatue entitled, Authority of Law. The statue's sword

illustrates the enforcement power of the law.

Enforcement

Administrative and Field Inspectionare 2 types of Enforcement

Depending on personnel, municipalities offer varyingtypes of enforcement supported by the guidelines offeredwithin the business license handbook and yourmunicipalities business license ordinance. We must affordequal protection for all businesses.

Difficult Types of Enforcement License OfficialsCope with

Income Verification

Verification of Employees

Assessments

Audits

Regular Conduct

Ordinance Summons

Delinquent Penalties

Revocation of a license

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Income Verification

A city or county may levy a license tax based ontotal gross income without regard to other forms oftaxation and without regard to where the income isearned when the business is based within the cityor county.*exemption allowed for gross income reported toanother city or county.

How do we verify income

Request Federal or State Tax Returns at RenewalTime.

SC Retail Sales Report.

Audit.

Field Inspections.

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Additional Tools for Verifying Income

• Compare Quarterly Hospitality Tax submissionto Income claimed on Business License

• Review Building Permits against incomeclaimed on Business License

• Request copies of 1099’s

– Useful when verifying rental income

– Also useful to determine independent contractorcriteria

Easy and effective way to verify income formany businesses.

Request copies of other business licenses heldwith gross revenue amounts reported.

Request for Tax Returns at Renewal

Remember that somemunicipalities do not havethe ability or staff to request taxreturns at time of renewal

Check with your TownCouncil/Town Ordinance to be surethat they will approve the request

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SC State Retail Report

The SC Department of Revenue is authorized by SC CodeSec. 12-4310 to make available to a municipality or countysales tax records indicating gross receipts upon request ofthe appropriate official.

The report includes business name, location of business,owner name, NAICS, gross sales.

Shannon Attaway(803) 898-5037attawas@sctax.org

Issues with SC DOR Reports

• What information can we derive from SC Salesand Use Report?

• Is it accurate?

• Why are there differences in report andincome reported from businesses?

• What other records can we use to verify sales?

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Audits

License ordinances usually include a statement pointing outthat the municipality may audit the accounts of businesses orindividuals when the accuracy of the gross amount reported isin doubt.

There are no specific statutes giving this authority. It should bepart of your ordinance and included on the license application.

Auditing may be done to check on accounts expected to befraudulent or as a routine check on the accuracy of all licensereports.

Audit Criteria

IT IS IMPORTANT TO BE FAIR AND CONSISTENT WHENDETERMINING AUDIT CRITERIA OTHERWISE BUSINESSESMAY FEEL THEY ARE BEING ‘SINGLED OUT’

A SYSTEMATIC RANDOM PROCEDURE WILL WORK –BE SURE TO DOCUMENT THE PARAMETERS OF THECRITERIA TO PROTECT YOURSELF

BE SURE TO DEFINE AND KNOW THE PARAMETERSUSED TO DETERMINE AUDIT CRITERIA

Audit NotificationWhen an audit is deemed appropriate, the following steps aresuggested:

1. Notify the owner of the business and set a time to respond.2. Give a list of records to be inspected.3. Do not disturb normal business activity4. Be firm … Be polite5. Explain the purpose of the audit6. Let them know refusal to allow an audit is grounds for

prosecution.7. Inspect only those records necessary. Ex: tax returns only may

suffice for the audit.

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What are your options if noresponse?

• If your ordinance allows, you may complete anassessment for the amount owed

• Depending upon the type of audit, if you haveexhausted all other avenues, you may have theability to place a lien(s) on property

Important items to remember whencompleting an assessment

• Must be based upon the best informationavailable to the Business License Inspector

• Be sure you have an appeal process in placeprior to assessing an account

• If applicable, have process in place for possible‘payment under protest’

TOOLS TO CALCULATE ASSESSMENT

• State sales tax report

• Comparable business/property in area

• Websites:

– Sales Fuel

– Manta

– Defense Spending.org

– VRBO Listings

– Homeaway

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LIENS ARE NOT SPECIFICALLY GRANTED BYTHE CURRENT MASC MODEL ORDINANCE

The Town of Hilton Head Island, based on earlierversions of the model ordinance, has authority inour Town Ordinance to lien after 60 days of non-

compliance on a business license

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NOW WHAT CAN WE DO?

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ARE THERE ANY OTHER OPTIONSAVAILABLE?

LIENSThough this is NOTSPECIFICALLY GRANTED BYSTATUTE, somemunicipalities may find thisuseful.

Be sure to exhaust all othercollection tools prior toconsidering placing liens.

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• CIVIL SUITS: ALTHOUGH UNUSUAL, THERE ARE CERTAINCIRCUMSTANCES WHERE A MUNICIPALITY MAY BRING A CIVILACTION AGAINST A TAXPAYER TO COLLECT A TAX

• WARRANTS: ALSO UNUSUAL, AS THIS WOULD BE A RESULT OF ACRIMINAL PROCEEDING AND CANNOT BE SERVED UPON A NONRESIDENT UNLESS COUNTERSIGNED BY A MAGISTRATE HAVINGJURISDICTION WHERE THE DEFENDANT RESIDES

FIELD INSPECTIONS

Field inspections are a useful way to obtain information and toverify license records.

A field inspection is a great way to improve public relations andit can provide an opportunity to answer questions, giveinformation, and let the business community know that thelicense ordinance is uniformly applied and enforced.

A field inspection also can determine whether more than onetype of business activity is conducted at the location.

Every retail business, including rooming houses and motels(unless 5 or less rooms in same building – owner lives onpremise) MUST have a retail license.

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PENALTIES

2 TYPES

CIVIL PENALTIES - 5% 10% 15% 20% .… late fees

CRIMINAL PENALTIES -

Civil Penalties

State Law does not specifically mention civil penalties for unpaidlicense taxes, but it is generally accepted that penalties may beimposed.

Delinquent fees are a form of civil penalty which are widely used.

Civil penalties that accrue monthly for unpaid business licensetaxes provide a strong incentive for prompt payment.

Criminal Penalties

Ordinance Summons:

A municipality may adopt an ordinance which authorizes eitherlaw enforcement OR a code enforcement officer to issue auniform ordinance summons for violation of the business licenseordinance.

The summons allows a magistrate or judge to determine thedisposition or outcome of the case.

The ordinance summons is useful because no arrest is made.

Maximum penalty = $500 and/or 30 Days in jail per violation.

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DENIAL or REVOCATION of LICENSE

Most license ordinances have some provision for denying orrevoking a license for cause.

Any business must be issued a license if they comply with theordinance and pay the proper fee for operating a lawfulbusiness.

We must follow the standards established by ordinance.

The power to deny or revoke a license for cause must beexercised for legally sufficient and specific reasons.

Revoking a license does not legally close a business.

State License Regulations

ContractorsA state license issued by LLR for contractors does not exempt acontractor from local licensing requirements, regardless of thecontract price or cost of construction.

Contractors

A business license should not be issued to a contractor who doesnot have the required state license. This helps enforce state lawsand protects the public from unqualified contractors to the extentpossible locally.

A state license is required for general contracting or mechanicalcontracting work costing more than $5,000.

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General Contractors

GENERAL CONTRACTOR INFO:SECTION 40-11-270. Licensee confined to limitations of license group;licenses in more than one classification; use of unlicensed subcontractors.

(A) A licensee is confined to the limitations of the licensee's license groupand license classifications or sub-classifications as provided in this chapter.

(B) An entity may apply for and be licensed in more than one classification orsub-classification if all qualifications for licensure prescribed by this chapterhave been met. An applicant may apply for a license in more than oneclassification or sub-classification on the same application form.

(C) Licensees may utilize the services of unlicensed subcontractors toperform work within the limitations of the licensee's license group andlicense classification or sub-classification; provided, the licensee providessupervision. The licensee is fully responsible for any violations of this chapterresulting from the actions of unlicensed subcontractors performing work forthe licensee.

Residential Builders

RESIDENTIAL BUILDER INFO:SECTION 40-59-220. Licenses and certificates of registration;application; qualifications; bonds; examinations; reciprocity.

(A) All residential builders must be licensed, and all residentialspecialty contractors must be registered, by the commission for aperiod established by the commission in regulation. Licensees andregistrants must pay an annual fee established by the departmentand based upon the department's costs in carrying out theprovisions of this chapter.

STUDY QUESTIONS

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WHEN CAN A SUMMONS BE ISSUED?

ANY PERSON VIOLATING ANY PROVISIONS OF THIS ORDINANCE SHALL BE DEEMEDGUILTY OF AN OFFENSE AND SHALL BE SUBJECT A FINE UP TO $500 ORIMPRISONMENT OF NOT MORE THAN 30 DAYS OR BOTH, UPON CONVICTION.

MOST COMMON EXAMPLES:

NO BUSINESS LICENSE – FAILURE TO REGISTER

NONPAYMENT OF H & A TAXES

DISPLAY & TRANSFER

INSPECTION & AUDITS

NONPAYMENT OF ALL OR ANY PART OF CORRECT LICENSE TAX – DELINQUENT

TAXES

WHEN CAN A BUSINESS LICENSE OFFICIAL REVOKE ABUSINESS LICENSE?

CHECK YOUR ORDINANCE

MISTAKENLY OR IMPROPERLY ISSUED OR ISSUED CONTRARY TO LAW

BREACHED ANY CONDITION UPON WHICH LICENSE WAS ISSUED

FAILED TO COMPLY WITH ANY PROVISIONS OF ORDINANCE

COMMITTED FRAUD, MISREPRESENTATION, EVASION OR SUPPRESSION IN AP.

CONVICTED OF AN OFFENSE UNDER A LAW OR ORDINANCE REGULATING

BUSINESS, DISHONEST CONDUCT, MORAL TURPITUDE, UNLAWFUL SALE OF

GOODS

ENGAGED IN UNLAWFUL ACTIVITY OR NUISANCE RELATED TO BUSINESS

DELINQUENT TAXES

WHAT ARE THE MAXIMUM CRIMINAL PENALTIESFOR VIOLATIONS?

The maximum penalties a court can impose for eachbusiness license ordinance violation is a fine of $500,imprisonment for 30 days or both for each separate

offense (each day in violation).

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WHEN CAN AN ASSESSMENT OF LICENSE TAXES BEMADE?

WHEN NO LICENSE IS OBTAINED

INFORMATION GIVEN IS INSUFFICIENT ORUNAVAILABLE

ONLY IF YOUR ORDINANCE AUTHORIZES THE LICENSEINSPECTOR

ORDINANCE SHOULD ALSO PROVIDE FOR AN APPEALMETHOD FOR THE ASSESSMENT

HOW CAN A BUSINESS BE CLOSED BY REVOCATIONOF THE BUSINESS LICENSE?

IT IS NOT LEGALLY PERMISSIBLE TO CLOSE A BUSINESS BY

REVOKING THE BUSINESS LICENSE ALONE

THE BUSINESS OWNER IS SUBJECT TO PROSECUTION

FOR A SEPARATE OFFENSE FOR EACH DAY OF OPERATION

WITHOUT A LICENSE

A DIFFERENT LEGAL ROUTE, SUCH AS PUBLIC NUISANCE

LAWS MUST BE USED TO PROHIBIT CONTINUED

OPERATION.

WHAT IS THE STATUTE OF LIMITATION FORCOLLECTION OF BUSINESS LICENSE TAXES?

With the 1988 amended SC Code Sec. 15-3-530 which reduced the applicable six-yearlimitation to three years, recovery ofdelinquent taxes by civil action is limited tothe taxes due for three years preceding thedate of filing the action

What does your ordinance allow? Not all municipalities follow the same

interpretation of three years preceding thedate of action

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WHAT IF THE TAXPAYER CONTESTS THELICENSE TAX?

TAXPAYERS MAY NOW BRING A DECLARATORYJUDGEMENT ACTION TESTING THE VALIDITY OF ABUSINESS LICENSE TAX WITHOUT FIRST PAYING THE TAX

TAXPAYERS SHOULD BE ADVISED THAT THE ONLY WAY TOAVOID A PENALTY IN THE EVENT THE TAX IS UPHELD IS TOPAY UNDER PROTEST

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