Why is it More Expensive Here?

The high cost of doing business in Columbia

By Page Ivey

Photography by Jeff Amberg

Doing business in Columbia is more expensive than in other metropolitan areas of South Carolina. 

Some blame a tax policy that favors residents over companies; others say it is because the city has a larger percentage of land than most that it cannot tax — federal and state government offices, plus several in-town college campuses. 

The impact these higher taxes have on economic development is unclear. However, recent tax credits offered to developers of student-focused housing near the University of South Carolina campus could show a future with more negotiated taxes for all business types, not just large manufacturers.

“I don’t think good business decisions are ever made truly just on how much money you can give me or how much money I can save, because I think most businesses are going to look at things like the labor force, they’re going to look at the cost of doing business overall,” says Nancy Whitworth, executive director for economic development for the city of Greenville. “I might save on my taxes here, but is it going to cost me more to get my raw products here, or are my distribution costs going to be more?

“If you’re a retailer, you may save being in one location, but if no one comes to you at that location and your sales aren’t being generated at a level that is going to be sustainable, it isn’t going to make any difference whether you’re paying less … you’re not going to make it anyway.”

 

Columbia by the Numbers

In 2010, the state Commerce Department prepared a report showing comparable commercial property tax rates among the state’s largest cities. 

On a central business district property worth $2 million, a Columbia business would have paid about $52,000 in property taxes at the time of the report versus $37,000 in Greenville and about $28,000 in Charleston. 

Not all of that was on the city, however. Those tax totals include county, school and city levies. Greenville County’s millage (the amount of tax charged per $1,000 in value) was about 60 percent that of Richland County; and Charleston County’s millage was nearly half of Richland’s. Greenville and Charleston school taxes are also about the same percentages lower than in Columbia.

The city millage, however, was not that much different: 98.1 for Columbia, 89.9 for Greenville and 79.1 for Charleston.

When it is all added up, Columbia did have the highest total millage at 484.3. The town of Lexington was second with a total millage of 468.9.

The second part of the city tax equation is business license fees. There is no one method for assessing business license fees in South Carolina, but, by law, they have to be based on revenues, according to the Municipal Association of SC.

The Municipal Association helps cities develop categories for fees, but there is no requirement that cities adhere to any formula. In general, low profit-margin businesses, such as restaurants, tend to pay lower fees, while higher profit-margin businesses, such as professional service firms like doctors, lawyers and real estate tend to pay higher fees.

The Commerce Department report shows that Charleston, Greenville, Myrtle Beach, Spartanburg and Florence had higher business license fees across all categories for a comparison business with $1 million in annual gross receipts. 

For example, a retailer in the city of Columbia that grosses $1 million would pay a little more than $1,200 for its business license, according to the report. That compares with more than $1,800 for the same business in Greenville and almost $2,000 in Charleston. 

Wholesalers make out the best in Columbia with annual business license fees of just $655 for $1 million in gross receipts. That compares with more than $1,300 in Greenville and nearly $2,000 in Charleston.

The exceptions were fees for manufacturing operations in Florence and Spartanburg, which were either equal to or lower than Columbia’s fees.

 

Who’s Not Paying

Economic developers say South Carolina lawmakers have always favored residential property taxpayers over corporate. Commercial property is assessed at 6 percent of its value, as opposed to 4 percent for owner-occupied homes. Manufacturing property is assessed at 10.5 percent unless the company has worked out a fee-in-lieu of taxes or some other arrangement with the county or the state. 

Homeowners get other forms of property tax relief not given to businesses but then there are school taxes, which vary widely depending on district.

Columbia also faces a unique problem of being home to the state government and several colleges as well as other public buildings, hospitals and churches that don’t pay property taxes.

Cecil Hannibal, existing business manager and the newest addition to the city of Columbia’s economic development office, estimates that state government offices, colleges, city and county facilities as well as churches take up about 30 percent of the city’s commercial space and pay no taxes.

“But we can’t use that as an excuse,” he says. “We are looking at what others are doing. We are benchmarking ourselves against places like Austin, Texas and Raleigh, N.C., who have successfully overcome that problem.”

 

New Approaches

One new twist on an old economic development tool is offering tax breaks for nonmanufacturing concerns. New private apartment developments near the University of South Carolina were given a 10-year tax break recently by Richland County Council. The action essentially cuts the property tax bills in half for the apartments, which will be marketed to USC students.

Richland County Council set a minimum investment of $40 million and a tax bill that would exceed $750,000 as the tipping point for the incentive. At that point, the bill would be cut in half, saving the developers $375,000 a year, for 10 years.

The city of Columbia requested the county make the deal because South Carolina cities do not have the authority to negotiate tax breaks, only county and state government can do that.

Greenville’s Nancy Whitworth says sometimes such incentives are used to lure a game-changer to an area.

“I think you look at return on investment, but sometimes it has to do with what this is going to do, more than just the taxes it’s going to generate,” Nancy says. “Is this a project that could be catalytic and is going to cause other things to happen? There is a value there, and it’s a little bit harder to quantify that, but it’s certainly something that we look at.”

 

The Little Things

In Columbia, Cecil and Ryan Coleman, director of the economic development office, say old-fashioned, one-to-one business practices and listening to business needs are going to drive future economic development efforts.

“We have to get a little more creative,” Cecil says. “Capital cities are a lot more challenging.”

One of those creative ventures that recently wrapped up was the city’s façade program, which provided loans, some forgivable if certain standards were met, and grants to property owners to make improvements to the exterior of their buildings that faced Main and North Main Street. More than $200,000 was spent on the program that targeted the stretch of Main Street from Elmwood Avenue to Interstate 20.

“I think existing businesses are the backbone of any economic development strategy,” Ryan says. “That’s the cornerstone of our efforts, what can we do to help our existing businesses grow and be successful.”

Part of that involves simply helping businesses navigate the red tape, getting permits, paying fees and dealing with any special requirements, such as being in a historic district. 

“A lot of people don’t know how to navigate the government,” Cecil says.

If a business is planning to locate or expand inside the city, the economic development office will meet with them to create a plan with timelines and objectives. Workers from other areas of city government will be brought into the meetings so they are familiar with the companies when the applications come in.

“It’s really about doing the homework on the front end, so you don’t hit those hurdles down the road.” Ryan says.

“We’re working to change the perception that we’re not an easy place to do business. And we think it’s working. We’re hearing a lot more positive feedback.”

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