Legislature removes three-year life component of levies on inputs to manufacturing production
It’s been a long, hard road. It’s been more than 30 years since the Utah Legislature initially exempted sales and use tax on inputs on production for manufacturers and more than 20 years since it made a subtle change to the tax that caused the picking of winners and losers in the taxation arena.
But you have to go back further than that to see the start of the exemption designed to spur economic activity in the manufacturing industry and create and implement a tax policy that encourages growth and economic stability.
In 1985, Utah lawmakers made an important decision to strengthen Utah’s economy and business climate by passing legislation to exempt purchases of manufacturing machinery and equipment from state and local sales taxes for new or expanding companies.
In 1995, the Utah Legislature expanded the exemption to include normal operating replacements of machinery and equipment. These purchases would be exempt under a three-year phase-in with 100 percent of the exemption available in fiscal year 1998-1999. This created a couple of problems, though. First, it allowed for the exemption of equipment and parts that lasted longer than three years —a number the Legislature ultimately picked based on the fiscal impact of the bill in 1995. Secondly, it became a challenge for a manufacturing company to determine whether an item purchased would last three years under normal operating conditions or if it should be taxed.
When it comes to economic growth, taxes really do matter. The way we tax seriously affects the long-term decisions that businesses make. If we want to create jobs, we need to accentuate capital accumulation, investment and productivity.
That’s where jobs come from; there is no other place. A good job is much more important than any bundle of government social welfare-type programs that you could put together.
All Utahns have benefited from Utah’s strong economy and positive business climate. The following is a sampling of the reasons the complete removal of sales and use tax on manufacturing inputs is a good idea and will benefit the state of Utah:
• Economic disincentives discourage job creation.
• Utah now will remain competitive among other states.
• Utah is commonly recognized as a No. 1 state in the country in which to do business. It’s very difficult to get to No. 1. It’s even harder to stay at No. 1.
• Taxes influence business decisions.
• Manufacturing firms are much more stable as a general rule than other businesses.
• The manufacturing industry provides a greater multiplier effect on other state industries.
• Manufacturing has the single largest payroll of any business sector in the state.
Thanks to the Utah Legislature and specifically to Senate President Wayne Niederhauser, Rep. Brad Wilson and Sen. Stuart Adams for their vision behind not taxing inputs to production. This simple move will create thousands of manufacturing jobs from existing manufacturing firms already here in the state, as well as create more than $500 million in economic output over the next half decade. That’s economic development grown right here within the state — from our existing companies who have driven the economy for generations and will continue to do so through sound, solid, fiscal tax policy that creates, encourages and promotes economic development.
Utah is the greatest place to do business and the Utah Legislature just added one more significant reason it will continue to be “the place” to do business.
Todd R. Bingham is the president and CEO of the 113-year-old Utah Manufacturers Association. Prior to UMA, he was the president of the Utah Mining Association and has been involved in the association business for more than 23 years. He is a registered lobbyist representing business and industry in the areas of public policy and governmental affairs.