Last week the Tax Foundation released report which provides a means for states to get away from a pernicious practice, one which many folks might be surprised to learn about. Most people think of property taxes as merely dealing with land and the structures on it, since that’s how it operates at the personal level. But it wasn’t always so, as personal property such as clothes and furniture also used to be taxed. When it comes to businesses, many states continue to tax such “tangible personal property” (TPP) today – namely equipment, machinery and inventory.
This counter-productive tax liability on equipment and machinery is incurred annually before the small business hires its first new worker, makes its first sale or even turns a profit. Unlike income taxation, TPP taxation is due regardless if the business has a good year or is slammed by a recession. Like all taxes on capital, TPP taxes are particularly destructive. They discourage business investment and growth, which in turn reduces productivity and jobs.
The Tax Foundation report notes that states are moving away from the tax, no doubt as they feel the pressures of tax competition. Arizona is one state moving to severely limit the impact of the tax should voters approve Prop. 116 on the November ballot. Prop. 116 would increase the exemption from just over $68,000 to about $2.4 million, or equal to the amount of annual earnings of 50 workers. Essentially, it would eliminate the tax on small businesses.
The driving force behind the proposition is Farrell Quinlan, Arizona State Director for the National Federation of Independent Business, and who also happens to be my brother. He recently described Prop. 116, the TPP tax, and how it impacts the economy in the following interview:
This is just one of many state level efforts to encourage economic growth by reducing taxes on capital, savings or investment, and I’m proud of my brother’s efforts to make it happen.