The ruling upholding Hilton Head Island's efforts to collect more in business license fees from laser manufacturer Kigre Inc. is not surprising given state law and the town's ordinance.
State law lists a business license tax on gross income as one of the ways local governments can raise money to provide services.
The local ordinance is clear that it applies to interstate sales that are not subject to taxes in other places.
The town's mistake was waiting until 2004 to try to get more than the minimum amount due under its ordinance from Kigre, which first applied for a business license in 1987. The company had been paying about $62 a year, noting that a levy on gross income did not apply because all of its sales were made outside the state. But the business license ordinance is unambiguous on the issue of interstate commerce.
The town also erred in not holding a hearing before Town Council when Kigre objected to paying $41,646 in 2006. Instead, the town filed a lawsuit in April 2006 asking for a declaratory judgment on Kigre's claims. The company countersued and paid the disputed amount under protest.
And if the Standard Industrial Code, which sets up the categories and their varying rates for business license fees, is outdated, then the town should look at alternatives.
Kigre officials indicate they plan to appeal the ruling by Beaufort County Master in Equity Marvin Dukes. They maintain the town does not have the right to tax gross income from sales outside the state. Tom Taylor, Kigre's attorney, says U.S. Supreme Court rulings require the town to apportion income on sales from manufactured goods sold outside the state.
Hilton Head has returned the money paid in protest. Town attorney Greg Alford said the town planned to determine what Kigre should have paid since 2007 and charge the company that amount. The company would take any dispute to Town Council, as should have happened before.
Those who oppose the business license fee and say it has a negative impact on business recruitment and retention on Hilton Head should work to change the law. The discussion should include the loss of revenue from this source and the potential impact on other sources of revenue, other taxpayers and town services,
The town has budgeted $7.4 million in business license fees for this fiscal year, about 23 percent of the town's $32 million operating budget. To help put that in perspective, property taxes collected on real estate, personal property and vehicles are budgeted at $11.7 million, or 36 percent of the $32 million operating budget.
If Town Council wants to repeal this ordinance, it can. If it wants to adjust the categories or rethink the rates at which it collects the fees, it can do that, too.
But as long as the current ordinance is on the books and deemed valid by the courts, it should be enforced.