City of Charleston Business License Tax Changes Impact Owners of Residential Rental Units
The City of Charleston imposes a business license tax based on gross income on every person engaged or intending to engage in any calling, business, occupation or profession within the City of Charleston.
The term “business” means any activity engaged in with the object of gain, benefit or advantage, either directly or indirectly.
Prior to December 15, 2015, the City exempted from the Business License Tax persons leasing five or fewer rental units. This exemption is no longer available to property owners in the City of Charleston and now all owners of residential rental units are subject to the Business License Tax.
As noted above, the Business License Tax is imposed on gross income. No deduction for operating expenses or losses is permitted. Prior to the recent case of Olds v. City of Goose Creek, S.C. Ct. of Appeals Case No. 2014-002393 (November 16, 2016) it was generally assumed that for purposes of the Business License Tax the term gross income did not include the gross proceeds of sale if a parcel of real estate was sold. The Court of Appeals however, relying on a 1922 Supreme Court decision, found that the City of Goose Creek “intended the business license tax to apply to the total sales price of real property rather than merely the business gain.”
What this case and the December 15, 2015 revision to the City’s Business License Ordinance means to owners of rental real estate in the City of Charleston is that (i) rental of investment real estate, including residential real estate, is an activity that will subject the owner to the Business License Tax and (ii) the gross proceeds of sale from the sale of rental real estate will be deemed to be gross income for purposes of the Business License Tax. If the sale of the real property terminates the owners rental activities in the City of Charleston the gross proceeds of sale will not be taxed as the owner will not be required to obtain a business license in a subsequent year.
Failure to file for a business license or failure to report the gross proceeds of sale from the sale of rental real estate will subject the owner of rental property in the City of Charleston to delinquent license fees.
Please contact Scott Barnes at sbarnes@hsblawfirm.com or 843.722.3366 should you have any questions.
