Many South Carolina cities and towns are wondering whether or not a municipality can franchise companies that provide internet-only services through fiber-optic cables or other wired means or require them to pay a business license. The law on this question has not been fully settled.
The Telecommunications Act of 1999, codified in part at SC Code Section 58-9-2200, limited the municipal franchise fees, consent fees and business license taxes that may be imposed on “telecommunications companies.” Telecommunications companies pay a statutorily fixed franchise fee ranging from $100 to $1,000, depending on the size of the municipality. Telecommunications companies also pay business license taxes at a statutorily fixed rate. The statewide business license taxes are collected for every municipality in the state by the Municipal Association through its Telecommunications Tax Program.
The fixed franchise fees and business license taxes, according to the law, are “in lieu of any permit fee, encroachment fee, degradation fee, or other fee assessed on a telecommunications provider for its occupation of or work within the public right of way.”
The open question is the degree to which internet-only companies fit within the Act’s definition of “telecommunications companies.” The Act was drafted in a very different time of internet services, when telecommunication services were typically provided through phone lines and included at least some traditional voice components. As such, internet-only providers using fiber-optic cables or other wired connections do not neatly fit within the statutory definitions.
Regardless of whether the limited franchise fees and business license taxes in the Act apply to internet-only companies, a municipality may still require a franchise agreement that regulates the terms and conditions of the company’s occupation of and work within the right-of-way.
At a minimum, municipalities in South Carolina should require internet-only companies who occupy the right of way to sign franchise agreements. These franchise agreements should regulate the place, time, and manner in which the companies may occupy and work within the municipality’s rights of way, and require that the company restore the right of way to its original condition after work is complete. The municipality may also charge the franchise fees and business license taxes permitted by the Act. Municipalities who wish to charge higher or different amounts should be sure to consult with their municipal attorney.
Learn more about state law on local taxes and fees in the Municipal Association’s Handbook for Municipal Officials in South Carolina online.