Day 18 - Expanding the sales tax exemption for business inputs
Exempting business inputs from sales taxes is one of a half a dozen or so basic tax policy principles that nearly all economists, liberal and conservative, accept. Earlier this year, we posted some reasons why exempting business inputs from sales taxes enjoys widespread support. Click [here] to read more.
This year, SB142 is a proposal to expand the existing sales tax exemption for business inputs to include mining equipment purchases. Oil and gas equipment will not be exempt. Currently, the input exemption includes telecommunications, semi-conductors, agriculture, and manufacturing.
Utah's economy benefits greatly from mining. According to the 2007 Economic Report to the Governor,
- average wages in Utah's mining and natural resources industries are 75% higher than the average Utah non-agricultural wage, even higher than the average wage in the IT industry.
- metals and minerals accounted for 50% of Utah's exports in 2006 and consistently account for more than 30% of Utah's exports year after year.
Some have argued that mining equipment should not be exempt because companies cannot move their mines to another state or country, unlike a manufacturer which can move its facility elsewhere. However, Utah's mining operations are owned by multi-state and multi-national companies which have several options when deciding where to invest their profits. They do not have to invest in Utah, but it is in Utah's best interests that they do.
Arizona, Colorado, Idaho, and Montana already exempt mining machinery and equipment from sales taxes.
This year, House Republicans have proposed a $300 million tax cut, and Senate Republicans have proposed a $150 million tax cut. Expanding the sales tax exemption for business inputs to include mining has a fiscal note of $7.4 million, plus a couple million in local impact. With state government revenues growing even more rapidly than the economy (click here to see our report on state government growth), now is an excellent time to expand the sales tax exemption for business inputs.
Disclaimer: Like all legislation, SB142 may eventually be modified, meaning that the above points may no longer be 100% relevant.