Exemption of New Business Equipment and Machinery from Property Tax

The proposed exemption of business machinery and equipment from ad valorem property taxes is an essential tool to attracting new business start-up companies. The long range trend in manufacturing has been towards automation and a consequent reduction of labor costs per unit of output. It is the means by which American industry can remain competitive with labor intensive plants of the comparatively low wages of competitor nations. New business starts have a difficult time reaching profitability when saddled with property taxes that are unavoidably high due to the costliness of the equipment they must use to compete.

Automated equipment is not cheap to buy. The cost of the machinery and equipment can easily surpass the cost of the building that houses it. The intricate nature of automated mechanisms require exacting tolerances for accurate operation. The computerized operating systems that control the machines are highly specialized and much more costly than mass-produced personal computers. Installing machinery in a plant, training of operators and maintenance employees, and replacing parts subject to wear all are more costly than required of earlier manufacturing equipment. Simply put, it is a new day. The property tax of yore, that time prior to automation, is simply an outmoded levy when applied to modern manufacturing equipment. It is time to drop it.

Surely, economic development will produce other tax revenues from sales and income taxes that more than replace the lost revenue. However, if industrial businesses are paying less property taxes, then residential and commercial property will pay more. The state government will see a net gain in revenue. Local units, mainly counties and cities will get less revenue. The counties and cities are creatures of the state, and as such should be held-harmless from any loss of tax revenue they experience as a result of exemption of business machinery and equipment from property taxes. The state should restart programs of sharing tax revenues with local units to be sure that the lifting of one tax burden does not impose another.