Lexington vs. Richland: Comparing the Cost of Doing Business

By Ron Aiken
News Editor

The numbers don’t lie, and they’re only getting worse.

From measurables such as property taxes, sales taxes and business licenses to immeasurables such as perceptions about a more business-friendly environment, the lack of a multi-layered bureaucracy and the speed with which decisions are made, it’s cheaper and, in some cases, more attractive to do business in Lexington County than Richland County.

That fact concerns many who have businesses in Richland County, especially given the recent approval of a penny tax for transportation that raises the sales tax to 8 percent in Richland County, 10 percent on prepared foods compared to 7 percent on each in Lexington County. Couple that information with Lexington County’s recent high-profile economic successes – the recent relocation of S&P 500-member SCANA to Cayce and the landing of mammoth online retailer Amazon in West Columbia – those still firmly planted in Richland County soil are wondering if the county isn’t stifling growth rather than nurturing it.

Former South Carolina Secretary of Commerce Joe Taylor does business in Richland County – among other holdings, his office is downtown and he owns a property in Five Points he renovated from the inside out to make it attractive to investors when it had been in poor condition before. In short, he wants to see the city and county succeed, but wonders if they aren’t making it too difficult for those who want to do so with higher taxes, higher costs and enough layers of permitting red tape to negotiate to drive a small business owner crazy.

I was looking at an opportunity in West Columbia, was speaking to the contact person there and got an answer that day, Taylor said. Everything I needed, zoning, permitting, was all answered in one day. For my building in Five Points, the city of Columbia tried to help me out by getting the people I needed to talk to in one room. It was seven people. They thought they were being helpful, but it was anything but.

All I heard that day was what I couldn’t do. In West Columbia and across the river, all I heard was, ‘What can we do? It was night and day, and I don’t see any reason why you won’t see growth in this region over the next decade go crazy across the river for those same reasons.

The city and county should be responding to the tremendous growth in Lexington County by making it easier and cheaper to locate a business here, but it’s just the opposite. How many times can we redevelop Main Street before we realize that people like SCANA are leaving it for reasons other than street-scaping?

Before passage of the penny tax earlier this month, Columbia already was taxing at a higher rate than Lexington County on prepared foods thanks to the 2 percent local-option hospitality tax in effect  downtown, in Forest Acres, Arcadia Lakes, Blythewood and unincorporated Richland County. While that difference may or may not have made a large impact on individual consumer dining choices, it has been a determining factor for those who schedule large events and will continue to be so going forward as the tax in Richland County rises to 10 percent compared to 7 percent in Lexington County.

For many years we had our annual dinner at Embassy Suites that we do for about 300 people, said Greg Pinner, executive director of the West Metro Chamber of Commerce. The last time it came to do it, the old Radisson, which is now the DoubleTree by Hilton Hotel, is in our chamber and put in a bid. The bid was absolutely identical to the Embassy Suites except for the 2-percent tax. It honestly came down to that 2 percent.

And I can tell you that even the Greater Columbia Chamber of Commerce had a big luncheon that they moved across the river to the Brookland Baptist Church Conference Center. They may say it’s about inclusion, but I can tell you they saved 2 percent right off the bat on food costs. When you’re planning big events and it just went up and you’re looking at 7 percent compared to 10 percent now, that’s a huge factor to consider.

In 2010 the South Carolina Department of Commerce prepared a tax burden analysis of the Midlands for use by economic development professionals that compared tax rates among local counties and municipalities. Among its findings:

• In a six-county region, Richland County has the highest sales tax and taxes on prepared foods (Sumter county also taxes at 8 percent on sales and 10 percent on prepared foods). Newberry, Lexington, Fairfield, Kershaw and Calhoun Counties all tax both at 7 percent. With an additional 1% sales tax, Richland County businesses will be disadvantaged compared to businesses in five of the six neighboring counties, the study said.

• Columbia-area businesses already have higher property-tax burdens than other South Carolina metropolitan areas. Comparing Central Business Districts, the Columbia millage rate is 484.3 compared to 308.5 for Greenville and 260.1 for Charleston. That means property taxes on a $2 million property would be $52,022 in Columbia, $37,020 in Greenville and $28,372 in Charleston.

• Columbia’s millage rate of 484.3 is higher than Lexington (468.9), Cayce (321.3), West Columbia (330.8), Irmo (380.3) and unincorporated Lexington (402.5) and Richland (418.4) counties.

• Retail, restaurant and manufacturing business licenses are more expensive in Columbia than in West Columbia, Lexington, Cayce and Irmo, and unincorporated Lexington County does not charge any business license fees.

• Business license fee revenue per private-sector worker amounts to an average of $228 per worker in Columbia, $205 per worker in Cayce, $195 per worker in West Columbia and $105 per worked in Forest Acres.

• Business licensing fee structure in Columbia is unique in the Midlands and clearly needs modernization. With over 100 types of business codes and over 60 types of rates, the Columbia rate tables are based on arcane, patchwork ordinances that have grown more complex as the structure has evolved. There is no conversion of business classifications to modern NAICS Codes that are used by most municipalities, thus complicating the process of categorizing businesses for fair taxation.

All of the above is music to the ears of economic development professionals across the river, especially Donna Smith, who has been been working in the field for the past 16 years, 14 in Lexington and the past two as economic development director for the city of West Columbia.

One of the first things people talk to me about when they’re considering us or Columbia is that, according to them, we’re a lot cheaper, Smith said. With cheaper taxes here than downtown, another benefit is proximity for those who want to be close to downtown. I can see the skyline of Columbia from my office and be at the State House in three minutes.

Smith said another comment she hears again and again is ease of permitting and licensing in West Columbia and Lexington County.

I’m not trying to knock Richland County or Columbia, but businesses that have dealt with them tell me about the difficulties they face in trying to get simple questions answered in a timely fashion. When we have a business coming in, we’ll find out in advance what they need and have that person or people at the table waiting. On more than one occasion we’ve gone through things with a client and had them say, ‘This is it? This was so easy!’ To our minds, it should be. If you want to be here, we want to have you.

Rebecca Rhodes is the city manager for the City of Cayce and says she also hears the sentiment being repeated.

I’m hearing from a lot of people looking this way, and they tell me it’s cheaper to do business here and it’s easier to get through the process, Rhodes said. We’re easier to deal with than the City of Columbia. They’re a lot larger and have a lot more
going on.

My planning department is four people. I don’t have to check with someone three buildings away; I can literally yell over the partition and it gets done. There are a lot of benefits to that. When you want to develop, time is money, and we recognize that and expedite things.

State Rep. Kirkman Finlay is no stranger to doing business in both counties, having owned and operated numerous restaurant locations in each for decades. From dealing with taxes to licensing to insurance and more, he feels frustrated that the county he lives in, works in and represents isn’t as attractive to new development or more friendly to existing business.

The problem is twofold, Finlay said. It comes down to the amount of regulation and the speed with which permits are granted. In other words, not only are there more regulations on this side of the river, it’s that they’re willing to move more quickly on the other side.

For instance, we opened a restaurant, Mrs. B’s Southern Kitchen in West Columbia. We applied for a sign permit and the guy signed it that day. That day. By comparison, you start doing things like sales taxes for your mobile food truck, and they’re just all over the place. You have to do one for three different locales. It’s incredibly difficult.

Finlay said those who don’t think the increased tax rate voters recently approved will affect new business are only fooling themselves.

Businesses make decisions based on tax policy, he said. Amazon is a perfect example of that. We like to debate whether that’s true or not, but I don’t think that can be debated anymore.

Amazon, which recently announced the hiring of an additional 3,000 seasonal employees, has been an immediate boon to Lexington County in terms of jobs, high-profile exposure and overall economic impact.

Amazon has been amazing not just for jobs it has created here but also for how it impacts other commercial jobs, because the people that work there go out to eat for lunch, they shop locally and you have a real trickle-down effect. Plus, businesses want to locate near them, whether it’s a related businesses or a service industry.

Amazon has had nothing but an amazingly positive effect on Lexington County as a whole. We’ve seen all the positive things we were expecting come true and then some. They’ve fulfilled every expectation.

For Amazon, the feeling is mutual.

We are excited to be a part of the South Carolina business community, both (at the Lexington County location)and our newly opened site in Spartanburg, said Amazon spokesperson Kelly Cheeseman. We’re proud to have brought jobs and investment to the area and we continue to hire.

Our fulfillment centers in South Carolina allow us to better serve our customers.

Better serving its customers also was a key reason energy giant SCANA moved to property in Cayce it had owned for years and abandoned its Main Street headquarters in 2009.

As we approached the end of our lease at the Palmetto Center, we evaluated our options from both a cost and operational efficiency perspective, said Eric Boomhower, SCANA manager for public affairs. We had more than 1,000 employees working at multiple locations throughout Columbia. We decided that building a corporate campus on land which our company already owned would allow us to consolidate employees into one area, increasing the efficiency of our operations.

The biggest benefit has been increased operational efficiency and a greater sense of unity among employees who were previously scattered across multiple work locations. We are optimistic that as the economy continues to turn around, Lexington County and the rest of our service territory here in South Carolina will realize positive business and industrial growth. We are well positioned to meet the need for reliable energy that will accompany that growth.

The move was a devastating loss for the downtown economy, leaving 450,000 square feet of prime commercial office space – roughly 10 percent of the total downtown office space – vacant to this day. The negative economic impact goes beyond the many now-defunct businesses that served the lunchtime needs of the SCANA crowd. An Aug. 13 story in The State newspaper reported that since SCANA moved in 2009, city parking garage income downtown has dropped $877,00, or 32 percent. In spite of that data, the story noted, the city was proudly touting the opening a new $11 million City Center parking garage at Sumter and Taylor streets.

In the six years of economic development efforts on the part of the city since SCANA’s move was announced, the best option on the table today according to published reports is student housing, a far cry from when the millions generated by SCANA once fueled not just a vibrant daytime Main Street and related businesses but also the city’s bus system, creating the very crisis that the recent penny tax was designed to correct. The irony that the same tax used to solve the problem created by SCANA’s departure is now is being pointed to as a further reason more businesses may shun Main Street in the future is hard to miss.

Proponents of the recent penny tax don’t see it as negatively affecting economic development; in fact, they argue that despite higher businesses costs, what makes Columbia a superior location already will only be enhanced by the amenities it will create.

Businesses have to take all their costs into consideration, and location can be a key, said Ike McLeese, president and CEO of the Greater Columbia Chamber of Commerce. If a business is dependent on research or technology it may need to be based near the university.

What is going on with the concentration of hi-tech and start-ups in Columbia is exciting. Organizations like EngenuitySC and USC’s Incubator and working with other groups such as the Navigating from Good to Great Foundation are creating better environments for knowledge-based businesses across our region.

With the passage of the penny sales tax we also have a mechanism for dealing with the infrastructure challenges in Richland County. We need to get out of the mentality of tripping over the county line every time we cross the river. We need to market our region – both Richland and Lexington counties – as ‘The New Southern Hot Spot.’

City of Columbia economic development director Jim Gambrell agrees.
Economic development is a team sport and a rising tide floats all boats, Gambrell told MidlandsBiz.com. It is unlikely that we will be able to attract a big manufacturing company to locate here in Columbia, but we do try to promote locations in Richland and Lexington, because we serve parts of these areas with our water and sewer systems. If the counties do well, then the City is going to benefit, too.

The City has to do something different. We don’t have cheap land or cheap labor. We have made huge strides over the past 15 years in creating a successful and viable downtown area where companies will want to locate their corporate headquarters, and we concentrate on companies in the ‘knowledge economy.’ That’s our job.

For the small business owner struggling to deal with licenses, taxes and regulations in Richland County, however, ambitious economic development projections and promises of development to come offer precious little comfort.

Whenever I have felt the influence of the city in my business at all it had never been positive, says Jackie Scott Howie, owner of Kicks Exceptional Shoes on Devine Street. I got in (one morning last week) and had two tax bills from Richland County on my desk, a letter from the City of Columbia that they needed to see my Business and Personal Property Tax Return to validate the totals I gave them for my business license renewal and a $2,000 bill payable to the Department of Unemployment because I had someone previously on my payroll collect unemployment (and this fee is calculated by
percentages, so since I had only three people employed full-time they viewed the claim as a third of the company applying).

The small business person is dying in this economy, and more government involvement is not going to make it any better. Now I have to charge more for sales tax. I am asking myself this morning why do I do this? I am already fighting department stores that get products shipped sooner and at better margins and online retailers that don’t charge sales tax. Why would anyone want to pay 8-percent more for something that they can order online in the comfort of their homes?

We just wrote the city of Columbia a billion-dollar check, and none of that money will do anything that will help my business. But yet I’m in charge of drawing people to my business to get it paid for.
It doesn’t make sense to me. I am tired, sad and worried.
She’s not the only one.

When you really start to look at the cost factors between the two counties, not only are people moving businesses to avoid higher property taxes and business license fees, but the other things is people are moving their homes, too, Finlay said. From shopping to schools to safety to property taxes, all of a sudden with so many things it’s hard to find reasons to stay.

For Richland County, the focus has to be to make it as easy as possible for people to do business, especially in tough economic times. Instead, their process is expensive, time-consuming and full of uncertainty. That’s not a recipe for success.

 

Ron Aiken is afreelance writer and editor based in Columbia, S.C. His award-winningjournalism has appeared in newspapers, magazines, websites and booksacross the country.