Montana Viewpoint


January 5, 2009

One of the campaign promises made by Montana Republicans in the 2008 campaign was to eliminate the “Business Equipment” tax. It’s not the wisest thing to do, but that’s never stopped a politician.

The Business Equipment tax is applied to those items that are used daily by businesses both large and small in pursuit of profit. The equipment ranges from cash registers to bulldozers and includes everything that is not nailed down, and some that is, like all the plumbing of oil refineries. It has been around for a long, long time, and in the past twenty years has been cussed, lowered, limited, and gutshot. The rationale for getting rid of it is the same one that has always been used to lower it; business will thrive.

Let me dwell on the word “rationale” for a moment. Property taxes have been around since the dawn of civilization (which couldn’t have happened without taxes, by the way). There is a logical rationale for their existence, just as there is one for their demise. I am here to tell you that using a logical argument about taxes to convince unbelievers is as effective as using logic to talk a lover out of leaving when the bags are packed and the taxi’s waiting. Politics, like love, is not a fertile field for logical argument. The arguments may be logical, but the decisions are made on an emotional level.

We tax things because we use the money collectively to make our collective lives better. It doesn’t really matter what we tax; heck, we’re just trying to raise some money, but we do like to make a symmetrical connection between what’s taxed and what it’s spent on because it’s—well, logical. The gas tax goes for highways, the cigarette tax goes for healthcare, you get the picture; but when taxes are collected for more generalized services, like providing government, the symmetrical argument gets very murky indeed.

In the recent history of taxation, property taxes have been dedicated to local governments. When property taxes are cut by the legislature, local governments have to take one for the team. In the course of lowering the business equipment tax the legislature has made attempts to reimburse local governments for the loss of revenue; but then, under the assumption that the reduction in tax will lead to more business equipment being bought which will even things out by bringing in more property taxes, the legislature phases out the reimbursement. That increased growth in business equipment hasn’t happened yet; but hope springs eternal, doesn’t it?

There is a valid argument that lowering the tax on small businesses will make life better for them; but it won’t make life equally better for them because they don’t all have the same amount of taxable business equipment. A machine shop has lots of taxable stuff, a clothing store has a couple of computers, which used to be called cash registers. There is also an argument that big business will prosper, but it’s bunkum because taxes are a far, far smaller percentage of their cost of doing business. They do like to work the issue, though.

Cases in point; in 1989 the tax rate was cut about 25% to attract a canola oil company to Butte. They never came, but it has cost Montana taxpayers some $18 million a year since just to offer the subsidy. In 2005 the business equipment tax rate on wind generators was cut in half at the request of wind generation companies. The argument was that it would spur development in wind power, and lo, immediately after the tax was lowered giant wind farms sprang to life in Judith Gap and Glasgow! Unfortunately, cutting the tax had nothing to do with the creation of the wind farms because they were already a done deal with contracts signed, ground broken, you name it; and the Legislature knew it. They bought the argument that lower taxes would generate wind farms, when it was actually the other way around; the wind farms generated lower taxes.

When property tax rates are lowered the biggest beneficiaries have been large companies headquartered out of state, such as Louisiana Pacific, Conoco, and the BNSF railroad. Recently the voters in Frenchtown voted to increase their taxes to improve their school. By sheer coincidence the $19 million they agreed to tax themselves was almost the same dollar amount the Frenchtown School District lost from tax cuts enjoyed by the local Smurfit Stone linerboard plant.

Since 1989 the business equipment tax has been cut by close to 70% with no appreciable growth in the rate of purchase of new business equipment or demonstrable growth in jobs. If the Legislature wants to help somebody, help the little guy by eliminating the tax on a portion of their taxable equipment. At least small businesses know where the buck stops; but the big guys can take care of themselves, even if they can’t figure out how to do it without asking for taxpayer charity and bailouts.

Jim Elliott