Could Conway include a wholesaler’s out-of-city sales in its business license tax base?

Plain-English summary

The Attorney General concluded in 2005 that Conway could calculate a wholesaler’s business license tax on more than sales made inside city limits. Under the ordinance Conway supplied, the city could include total gross income from the business, except income from business done wholly outside Conway on which a license tax had been paid to another municipality or county and which was fully reported to Conway. The answer assumed the wholesaler maintained a warehouse or mercantile establishment for wholesale distribution within city limits, the condition in state law for imposing the tax.

The AG distinguished two questions: whether the wholesaler had enough in-city activity to be taxed at all, and how to measure gross income once that threshold was met. He said a 1989 AG opinion addressed the first question. He treated the state Supreme Court decisions in Triplett and Eli Witt as controlling the income-base question. He did not make factual findings about the business in the request.

Currency note

This opinion was issued in 2005. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Did Conway have to limit the tax base to income from transactions completed inside city limits?
No. The AG said the ordinance could include broader gross income from a qualifying business with a city location, subject to its specified outside-business exception.

Could the city tax a wholesaler that merely delivered goods there without a local establishment?
The opinion quoted the statutory condition requiring an in-city warehouse or mercantile establishment for wholesale distribution. Its answer assumed that condition was met.

What if another local government already taxed income from wholly outside Conway?
The Conway ordinance described in the opinion excepted that income if it was fully reported to Conway. The AG found that approach consistent with the state Supreme Court’s analysis.

Background and statutory framework

The opinion read S.C. Code Ann. § 5-7-30 with the municipal ordinance and the Supreme Court’s license-tax cases. The AG stressed that the 1989 opinion addressed the threshold of doing business within a municipality, not the allocation of a qualifying business’s income.

Citations and references

• S.C. Code Ann. § 5-7-30: wholesaler establishment condition and municipal license tax authority.
• Triplett v. City ofChester and Eli WittCompanyv. City of West Columbia: state Supreme Court cases discussed in the source, with spacing as extracted from the PDF.

Official title

That requested clarification of S.C. Code Ann. § 5-7-30 and our opinion, Op. S.C. Atty. Gen. Op. No. 89-144, dated October 13, 1989.

Requester

Mr. Steven E. Thomas, City Administrator, City of Conway

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/march-4-2005/
• Original PDF: https://www.scag.gov/wp-content/uploads/2011/03/05march-4Thomas.pdf

Original opinion text

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The State of South Carolina

OFFICE OF THE ATTORNEY GENERAL
lliNRv McMAsTER.

March 4, 2005

AlTORNEV GENERAL

Mr. Steven E. Thomas
City Administrator, City of Conway
Post Office Drawer 1075
Conway, South Carolina 29528
Dear Mr. Thomas:
This opinion follows in response to a letter dated January 31 , 2005. In your letter you requested clarification of S.C. Code Ann. § 5-7-30 and our opinion, Op. S. C. Atty. Gen. Op. No. 89114, dated October 13, 1989. Specifically, your inquiry is as follows:
[i]f a wholesaler establishes a place of business within a particular municipality, does the wholesaler pay to the municipality a business license fee based upon the gross income for business generated just within the corporate limits of that municipality or is the business license fee for that location based upon the total gross income received by the wholesaler from all sources to include business done outside of the corporate limits of that municipality?

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Law I Analysis

The relevant portion of S.C. Code Ann. § 5-7-30 provides as follows:
[e Jach municipality of the State .. . may ... levy a business license tax on gross income, but a wholesaler delivering goods to retailers in a municipality is not subject to the business license tax unless he maintains within the corporate limits of the municipality a warehouse or mercantile establishment for the distribution of wholesale goods. By way of background, we note that our Supreme Court addressed the application of a municipality's business license tax in Triplett v. City ofChester, 209 S.C. 455, 40 S.E.2d 684, 685 (1946). There, the Court noted that in imposing a business license tax, "[i]t is the privilege ofdoing business within the municipality that is sought to be taxed." In Triplett, the taxpayer was a general contractor who resided in Chester, where he maintained an office and stored his equipment. All contracting work, however, was performed outside the city limits.

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The Supreme Court noted that "[i]t frequently happens that there is a business located within a municipality that does not do all of its business within the corporate limits of such town or city." Id. Citation was made by the Triplett Court to its earlier decision in Crosswell & Co., Inc. v. The Town ofBishopville, 172 S.C. 26, 172 S.E. 698 (1934), a case in which the Court had held that the Town of Bishopville could validly tax pursuant to its business license tax a wholesale grocery business located in Sumter even though the only business done at Bishopville consisted of the delivery of merchandise into the Town by trucks sent once or twice each week for a period of two years. In the Court's view, "[t ]he right of a municipal corporation to impose a tax of this kind upon a corporation or business conducted within the city limits, although a portion of the business is carried on or the transaction is factually completed outside such municipality is generally recognized." Id. at 686. Thus, the Court in Triplett concluded as follows:
[w]e find no reasonable justification for a construction ofthis ordinance which would make the liability for the payment of a license contingent upon all of the functions of the taxpayer's business being performed within the City of Chester. It was not contemplated that the various phases of a business should be segregated and only that part taxed which was actually carried on within the corporate limits. The tax was imposed for the privilege of maintaining and conducting a place of business within that municipality and it was intended that the business should be considered as a whole. The gross income or volume of such business is merely made the basis on which the tax is graduated. 40 S.E.2d. at 687. And, in Eli WittCompanyv. City of West Columbia, 309 S.C. 555, 425S.E.2d16 (1992), the Court examined the question ofwhether the City ofWest Columbia's business license ordinance was constitutional. Witt, a wholesale distributor, which owned and operated a warehouse in West Columbia, challenged the constitutionality of the West Columbia ordinance on the basis of Equal Protection and Due Process. The wholesaler contended that the Ordinance's definition of "gross income" was arbitrary. "Gross income" was defined by the West Columbia ordinance as the total revenue of business received or accrued for one calendar year, collected or to be collected by a business within the city, excepting therefrom income done from business wholly outside the city, on which a license tax is paid to some other municipality.... 309 S.C. at 557-558. Witt argued that "the tax should be limited to income earned within the City," basing its Equal Protection contention upon the fact that "it is not taxed by any other municipality and, therefore is treated differently than a business which is taxed by another municipality in that Eli Witt cannot deduct income from sales made outside the City." 309 S.C. at 557.

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The Court noted that "Eli Witt concedes that a business license tax is imposed for the privilege of maintaining and conducting a place of business within the municipality." Id. No violation of the Equal Protection Clause occurred by virtue of enforcement of the Ordinance, concluded the Court, because the Ordinance's classification bore a reasonable relation to the legislative purpose, the members ofthe class were treated alike under similar circumstances, and the classification rested upon some reasonable basis. Id., citing Medlock v. S. C. State Family Farm Dev. Auth., 279 S.C. 316, 306 S.E.2d 605 (1983). The Court stated:

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[a]n ordinance violates the equal protection clause if it is arbitrary and there is no hypothesis to support the classification ... . Obviously, the City classifies a business which already pays a similar tax to another city differently. This classification, however, is not arbitrary, as all businesses which pay another city a similar tax are treated alike and allowed a deduction from their gross receipts. Conversely, all businesses which do not pay another city a similar tax are not allowed any deductions. These classifications are reasonably related to the purpose of avoiding duplicative taxation. Therefore, this ordinance does not violate the equal protection clause.

Id. at 559.
Citing Triplett, supra in support of its conclusion, the Eli Witt Court distinguished Southern Bell Tel. and Tel. Co v. City of Sptg., 285 S.C. 495, 331 S.E.2d 333 (1985), which had been relied upon by Witt to support its argument. In the Witt Court's view, Southern Bell was inapplicable. The Court noted that
[i]n Southern Bell, this Court held there is no rational basis for including intrastate calls in gross income for license tax purposes. This Court merely held intra-state phone calls should not be included in gross income for license tax purposes. The holding in Southern Bell is limited to the facts of that particular case.

Id. at 559.
In previous opinions, we have recognized, consistent with the above-referenced authorities,

that
[t ]he prevailing case law holds that a gross receipts or gross income tax, such as that authorized by Section 5-7-30, CODE OF LAWS OF SOUTH CAROLINA, 1976, can be imposed by a municipality upon the gross receipts of a business collected within the municipality, but earned both within and without the taxing municipality. See, e.g., Dravo Corp. v. Tacoma, 496 P.2d 504; Stork Diaper Service, Inc. v. Richmond, 173 S.E.2d 859; Suburban Title & Investment Corp. v. District of Columbia, 124 F.2d 286; Food Center of St. Louis, Inc. v. Village of Warson Woods, 277 S.W.2d

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573; New Yorker Magazine, Inc. v. Gorosa, 144 N.E.2d 367 ('all receipts paid at home office for sale of advertising space in nationally circulated magazine were subject to gross receipts tax levied by municipality in which home office was located, without allocation as to source of payment); 16 McQUILLIN MUNICIPAL CORPORATIONS§ 44.190 (1972 revised vol.).

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Your apparent concern is our 1989 opinion, Op. S.C. Atty. Gen., Op. No. 89-114 (October 13, 1989). In that opinion, we addressed the issue of whether the delivery of goods to retailers by a wholesaler into a municipality sufficiently constitutes "doing business" for purposes of that municipality's imposing a business license tax upon the wholesaler. We referenced§ 5-7-30 and noted that"[ a] wholesaler who delivers goods to a retailer within a municipality is not subject to the business license tax of the municipality unless he maintains within the municipality a warehouse or mercantile establishment for the distribution of wholesale goods." As to the issue of"[ w]hether a person who delivers goods to users or consumers is liable for payment of the tax," we stated that resolution of this issue "is dependent upon all facts surrounding the delivery." In addition, we stated that
[w]hile our statute does not now contain the words "doing business", the same is necessarily implied. If there is no income from business within the municipality, there is no tax. (See Southern Bell Tel. and Tel. Co. v. City ofSpartanburg, 285 S.C. 495, 331 S.E.2d 333 (1985).) In Pee Dee Chair Co. v. City of Camden, 165 S.C. 86, 162 S.E. 771 (1934),

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our Court held that company that manufactured and sold chairs in Darlington and made one delivery without charge to a furniture store in Camden was not subject to the business license tax of the City of Camden. In Crosswell & Co. v. Town ofBishopville, 172 S.C. 26, 172 S.E. 698 (1934),

a wholesale grocer who for two years sent a truck once or twice a week to deliver
~merchandise to retailers within Bishopville was held liable for the payment of the town's business license tax. It is thus evidence that the imposition of the tax is generally governed by the frequency of the deliveries.

CONCLUSION:
(a)
An isolated delivery of goods into a municipality and in the absence of other business activities within the municipality would not subject the persons making the delivery to the business license tax of the of the municipality....

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(b)
Frequent deliveries of goods into a municipality would subject the person making the deliveries to the business license tax of the municipality. (c) A wholesaler who delivers goods to a retailer within a municipality is not subject to the business license tax of the municipality unless he maintains within the municipality a warehouse or mercantile establishment for the distribution of wholesale goods.

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Thus, the entire thrust of the 1989 Opinion, Op. No. 89-114, was to define the standard for determining the degree of activity within a municipality necessary to constitute "doing business" for purposes of a municipality levying a business license tax upon a wholesaler for such privilege. The opinion did not address the issue raised in Triplett and Witt- whether a wholesaler which is "doing business" within a municipality may be taxed as part of the business license for income from activities occurring outside the corporate limits. The opinion recognized that § 5-7-30 itselfrequires that a wholesaler must maintain ''within the corporate limits of the municipality a warehouse or mercantile establishment for the distribution of wholesale goods" in order for the municipality to impose any business licence tax. The Opinion did not conclude, however, that a business license tax may be imposed only on that portion of business activity conducted exclusively within the corporate limits of a municipality. Based upon the foregoing, it would appear that the Court's analysis in Eli Witt and Triplett are controlling. Clearly, the Court upheld the municipal ordinance in Eli Witt, which defined "gross income" for purposes of imposition of the business license tax as total revenue received during the calendar year, collected or to be collected by a business located within the city "excepting therefrom income done from business wholly outside of city, on which a license is paid to some other municipality...." 309 S.C. at 557, supra. The Municipal Association, in its Business License Handbook, recommends such a practice to municipalities, in drafting a legally valid business license ordinance. Therein, it is stated that "[m]unicipal ordinances usually provide for such an exemption [income received from activities in another county or municipality to which a business license tax is paid] to meet the test of reasonableness and avoid payment of two or more license fees calculated on the same income. This treatment was approved in Eli Witt Co. v. City of West Columbia, 309 S.C. 555, 425 S.E.2d 16 (1992)." Handbook, Id., at 15. As noted, such an approach has the approval of our Supreme Court. Moreover, it allows a municipality to receive sufficient revenue for the privilege of doing business in a municipality, while at the same time avoiding the situation in which a taxpayer is paying dual taxation. The Court's conclusion in Southern Bell, while troubling, has been limited by our Court in Eli Witt to the facts of that specific case. Too, the central issue in Southern Bell was the "gross disparity in the license tax rate imposed by the Spartanburg ordinance" when compared with the tax on "a textile mill or manufacturing plant with the same revenue as Southern Bell .... " 285 S.C. at 497. Thus, the Witt

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Court does not believe Southern Bell stands for the principle that a municipality may impose a business license tax only on that income resulting from activities which take place completely within the corporate limits of the municipality. Of course, as we stated in Op. No. 89-114, each situation depends upon the particular facts involved. Your letter indicates that the wholesaler has established "a place of business" in the municipality. Based upon this description, we presume that the wholesaler is engaging in substantial business activity from such location.

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Moreover, we have been provided a copy of Conway's Business License Ordinance. The Ordinance defines "gross income" similarly to the definition used by the Town of West Columbia in the Eli Witt case. Conway's definition of "gross proceeds" reads as follows: Sec. 1. ... D. "Gross Income" means the total revenue of a business, received or accrued, for one calendar year collected or to be collected by a business located within the City, excepting therefrom income from business done wholly outside of the City on which a license tax is paid to some other municipality or a county and fully reported to the City. The gross income for business license purposes shall conform to the gross income reported to the Internal Revenue Service, the South Carolina Tax Commission for income tax purposes, or the South Carolina Insurance Commission. In the case of broker or agents, gross income shall mean gross commissions retained.

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Conclusion
We stress that each situation depends upon its own facts and that this Office may not make factual determinations in an opinion. See, Op. S.C. Atty. Gen., December 12, 1983. Moreover, we assume for purposes of your inquiry that the business in question "maintains within the corporate limits of the municipality a warehouse or mercantile establishment for the distribution of wholesale goods" in accordance with § 5-7-30. With these caveats in mind, we also concur with the Municipal Association Handbook's statement that language such as that adopted in the Conway Ordinance in defining 'gross proceeds" for purposes of the Business License Tax has been approved by our Supreme Court in Witt. Such language permits Conway's inclusion as "gross income" all income generated by the business referenced in your letter, excepting "income from business done wholly outside the City on which a license tax is paid to some other municipality or a county and fully reported to the City." Moreover, we do not believe our 1989 opinion, Op. No. 89-114 conflicts with the application of Conway's Ordinance. The 1989 opinion sought to provide guidance as to how the minimum threshold of "doing business" is to be determined in order to apply a business license tax to a

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wholesaler in the first instance. The opinion did not seek to determine how income generated by the business is to be apportioned for purposes of levying the tax. In any event, like the Municipal Association, we deem the Supreme Court's decision in Witt to be controlling as to the apportionment issue. We are enclosing a copy of the Witt case for your guidance. If you have any specific questions in this area, it is suggested that you contact the Municipal Association.

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Very ' y yours,

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Assistant Deputy Attorney General

Enclosure

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