For those of you who read the reports of the town council meetings, you will have noticed that I routinely report that the town is in sound financial condition. Given that the town has chosen not to levy a real estate tax, I am often asked about the sources of the town’s revenue.
Technically the town has a zero millage rate on file with Charleston County. If we were to levy a tax, there are limits to the extent South Carolina municipalities may increase their property tax millage rate for “operating purposes.” In any one year, the increase above the previous year’s rate is limited to the average of the twelve (12) month consumer price indices for the most recent twelve (12) month period of the preceding calendar year.
It should be noted that the town’s bond ordinance allows it to issue up to four and a half million dollars ($4,500,000) of tax anticipation notes or bonds, the proceeds of which are to be exclusively used for the payment of expenses related to debris removal following a hurricane or other natural disaster. If we were to issue bonds following a natural disaster, it would not be unreasonable to anticipate that we would have to levy a real estate tax to service the debt. By state statute, council has the authority, by two-thirds vote, to suspend the millage rate limitation in order to recover from a catastrophic event such as a natural disaster.
The town has both unrestricted and restricted sources of revenue. There are three principal sources of unrestricted revenue.
Municipalities are authorized to levy a business license tax based on the gross receipts of businesses operating within their boundaries. A little more than one half (1/2) of the town’s 2018 unrestricted revenue is anticipated to come from the imposition of business license taxes. In turn, a little more than one half (1/2) of this amount will be collected by the town from companies doing business within the town limits. The balance will come from business license taxes levied on fire and casualty, and life, health and accident insurance premiums, collected by the Municipal Association and remitted to municipalities based on population.
Almost twenty-one percent (21%) of our unrestricted revenue is attributable to franchise fees collected from Berkeley Electric, Comcast and Bellsouth and to telecommunication taxes collected by the Municipal Association and remitted to the town.
In 2006, the state changed the traditional manner in which franchise agreements to cable service providers were handled. After 2006, cable providers such as Comcast, could opt into a statewide Certificate of Franchise Authority issued by the Office of the Secretary of State. While municipalities are permitted to charge cable providers a franchise fee, the state administers the franchise agreement.
Our third source of unrestricted revenue (about twenty percent (20%)) is the local option sales tax, a one-cent (1¢) tax levied on sales within counties in where voters approved the tax by referendum. Charleston County adopted the local option sales tax in 1999.
The remainder of our unrestricted revenue comes from a number of sources including (i) monies collected by the state and shared with municipalities (using various formulas, including population) under what is called Aid to Subdivisions, (ii) monies collected by the town from the issuance of building permits, (iii) a portion of the accommodation tax which goes into our general fund under a formula prescribed by state statute and (iv) alcohol tax.
It is obvious that the town places substantial reliance on the collection of business license taxes. While this has been a steady source of income for the town, we are cognizant of several vulnerabilities. Firstly, over the past several legislative sessions, amendments to the business licensing law have been introduced that would both exempt certain business from the obligation to pay the tax and change the manner in which the tax is collected. Had these amendments passed, the amount of business license revenue received by the town from the state would have been reduced by approximately one third (1/3). Secondly, about forty percent (40%) of the business licensing taxes collected directly by the town is attributable to new construction. As fewer lots are available to build on, the town’s revenue will be correspondingly reduced. Obviously, we need to plan for that eventuality.
The town also receives restricted revenues – meaning there are restrictions on how the money may be spent. Both the state and Charleston County impose a two percent (2%) local accommodations tax on short term rentals, and credits the municipality in which the tax is collected. As noted above, by statute, the town allocates the first twenty-five thousand dollars ($25,000) and five percent (5%) of the balance of accommodation tax monies it receives from the state to its general fund. Thirty percent (30%) of the balance is allocated to a promotion fund which must be used for advertising and the promotion of tourism and must be administered by a non-profit organization that has an ongoing tourism promotion program. In our case, that organization is the Charleston Area Convention and Visitors Bureau. Any remaining state funds and all accommodation tax received from the county, are allocated to a “Tourism-related Fund” and must spend on “tourism-related” matters. This year, a portion of those funds will be used to pay for expanded coverage of the beach patrol.
-Submitted by Ron Ciancio, Mayor, Town of Seabrook Island