Over the past couple years, there has been a lot of discussion regarding tax reform. Federal income tax, internet sales tax, state property taxes and most recently the expansion of sales taxes to certain services. But what’s often missing in this discussion is tax reform that would help small and medium-sized businesses.
Policymakers and politicians like to talk about Utah’s entrepreneurial spirit, our booming economy and all the new businesses that are moving to Utah. Unfortunately, our current Utah tax code doesn’t seem to reflect a lot of these pontifications, specifically when it comes to local small businesses.
For example, Utah still has a pioneer-era tax on the books — an annual tax on business supplies, known as the Tangible Personal Property Tax, or TPP.
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 them to pay additional property taxes on these items every single year until the item depreciates past the point of value or is no longer utilized.
Complying with this tax isn’t exactly easy, especially for small businesses with limited resources. From desks and chairs to calculators and pencils, businesses must track each and every item of property, update their list with additions and disposals each year, and report their cost, including sales tax and installation. And if the government doesn’t think a business did it quite right, they’ll probably be audited.
That happened to me, for one of my businesses, just this year. After a comprehensive and invasive review of all the property we had in our possession — including simple furniture and computer equipment — the auditors said I needed to pay property tax for the wires that are inside the walls of my building.
They also made me pay property tax on the labor it cost me to install all of the video screens in my building. So I get to pay over and over every year for someone who installed a TV on my wall. You can imagine the frustration. Not only is this irritating for business owners, it’s also bad tax policy.
It's not just about the money we pay. Precious time and energy is wasted as business owners comply with this tax. For a large corporation, this may simply mean adding to the list of assignments for in-house accountants or hiring an outside firm to ensure compliance. For a smaller business owner, it presents a far greater challenge.
Take Momentum Recycling, for example. They recycle glass in Utah and Colorado. John Lair, their CEO, testified before a legislative committee that this tax is inequitable because businesses with a similar revenue profile in other industries don’t have to pay nearly as much as they do. Momentum Recycling has quite a bit of equipment used to process the glass and paid $32,000 in TPP taxes in 2016.
Mr. Lair testified that he had to lay off an employee and borrow money in order to pay tangible personal property taxes. He also mentioned that the tax is not enforced in a uniform manner in Utah. Some businesses pay, while others only pay when an auditor shows up. Some business owners have no idea that the TPP tax exists until they get audited.
Often times 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 tax but are still expected to fill out a form and submit it, or be fined.
Just last month, an interim legislative committee recommended a bill we’ve proposed that would exempt all property that has had sales tax already paid on it from tangible personal property taxes. This is a great step forward and when the Utah Legislature meets early next year this bill should be strongly considered.1 comment on this story
Small business owners and entrepreneurs should stop being forced to count and tally all of their equipment, but instead be allowed to flourish and grow. The small amount of revenue generated by this onerous tax does not justify the wasted time and effort to comply with it.
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 and medium-sized businesses.