We’ve all heard from countless politicians that “small businesses are the backbone of the American economy.” But do they practice what they preach? Our current Utah tax code doesn’t seem to reflect that.
When a Utah business buys new equipment, machinery or office furniture, it doesn’t just pay tax on those items at the point of sale. Utah law also requires businesses to pay an annual property tax on these items.
This means counting up and taxing every desk, chair, computer, machine, phone and other common items year after year. And if the government doesn’t think a business did it quite right, it will probably be audited.
The process of paying this onerous tax is not simple. Consider a leather-working business owned by a man named Kent in Southern Utah. What started out as a hobby became a small home business, where Kent purchased equipment with money from his full-time job.
Before too long the county notified Kent that he needed to pay the tangible personal property tax. He went to the county tax office where they quizzed him about the value of his sewing machine, his computer and his hand tools. They even insisted on knowing the value of his supplies, including needles and thread.
But it didn’t end there.
Like many small business owners, Kent learned that he was expected to be knowledgeable of the many different depreciation categories and tables so he could be taxed accordingly. He was told that it’s the business owner’s responsibility to know exactly when they bought each piece of equipment and its appropriate depreciation.
Like Kent, I own a business — and I have experienced firsthand the compliance cost this burdensome tax requires. It’s difficult to convey the tremendous hassle and loss of valuable time that we small business owners feel. This is because the tangible personal property tax is an “active” tax, requiring us to perform extra work to calculate and pay it, rather than a “passive” tax, like most property taxes, where the government simply sends a notice of what it believes the owner owes.
Often the amount of tax revenue generated from auditing one business is less than the cost it took to collect the tax in the first place. And don’t forget those businesses that are small enough to be exempt from this annual tax on business supplies but are still expected to fill out a form, submit it or be fined.
I have seen firsthand the annoyance and compliance burden this unfair tax creates. Like other entrepreneurs, I want to focus my time on growing my business to better serve my customers. Having to identity and update a list of all the items we purchase is ridiculous — especially for a state that touts itself as being “best for business.”
To be better for business, Utah should join the seven states that don’t require this duplicative tax on most small businesses. Instead of counting up tables and chairs, we business owners should be allowed to focus on producing the best product for our customers.
One idea that can be pursued is to exempt all property of an insignificant value, for example $2,000 and below. Business owners like Kent wouldn’t have to worry about counting needles, thread and other inconsequential property. At my business, we could stop having to count up and determine the value of our desks, chairs, computers and phones.3 comments on this story
Utah tries to do a lot to promote the business climate and provide for more equity in the tax code. The reduction or elimination of this tax on small business would be a great step forward to attract more entrepreneurs to Utah. And this would leave more time and energy for building my business in ways that truly benefits others and the state of Utah itself. This tax is a useless distraction from what really matters and what really provides value.
Taxation should be simple and transparent. The annual tax on business supplies is neither. As the discussions on tax reform for everyday Utahns and large corporations move forward, let’s make sure we don’t forget small businesses.