Thanks to new business tax legislation allegedly designed to help small-business owners by reclassifying many local businesses, short-term rental owners could face higher costs when operating their businesses.
The change in the law, which is simply referred to as Act 176 in South Carolina, requires a “standardization” of the business license process that required the reclassification of just under 40 percent of all small businesses in the Hilton Head area. The change will likely be a good one for dining venues, which will have lower business license fees, but will increase the number of other types of small businesses paying additional taxes and fees on their licenses by about 300 percent (from 2,000 people currently paying these taxes and fees to 8,000 when the reclassification process is fully implemented) by 2022.
Dru Brown, managing partner of a vacation-home rental agency on Hilton Head Island, warned, “Right now, single-property owners do not have to pay the tax, and they will have to pay the tax going into next year.” He added, “That, coupled with the fact that there is a small increase in the actual percentage, [means] it will be about a 7 percent increase in the actual cost. So…that is something that homeowners will have to factor in.”
Hilton Head Revenue Services supervisor April Akins reported that the change in the licensing process had resulted in a “shortfall of about $340,000,” which is why the legislation included a 7.2 percent tax increase across all business classes. She said this would keep Hilton Head “revenue-neutral.”
Although Brown emphasized that the cost of the new tax classes could mean that rentals in Hilton Head would be higher in 2022 than they have been in the past, the town Council Chamber said in a public statement that the change will be a good thing. “We are very proud,” the statement said, in part. “Any time that we can see a great piece of legislation like this cross the finish line where our municipality has been protected and our businesses have been simplified…it is a good day.”
For real estate investors considering investing in short-term rentals, this change in tax law demonstrates how important it is to have clear insight into not just current regulations, but also future ones before you buy.