Democratic gubernatorial candidate Mike Ross proposed a gradual elimination of the state sales and use tax on partial replacement and repairs of machinery used in manufacturing at meeting in Arkadelphia today.
In a speech provided by his campaign to Talk Business, Ross said it was one of several targeted taxes he would propose to help job creation in Arkansas.
“To help boost manufacturing in this state, I want to gradually phase out the state’s sales and use tax on partial replacement and repair of machinery used in manufacturing. This tax unfairly punishes manufacturing plants already in Arkansas, because state law currently exempts new plants and plant expansions,” Ross told leaders at the Southwest Arkansas Industry Conference.
“Completely exempting partial replacements and repairs of manufacturing machinery and equipment from the state’s sales and use tax will encourage our current manufacturers to upgrade their facilities so they can modernize, remain competitive and continue to grow and hire more workers. This tax cut will also make us more competitive with our surrounding states, many of which have already done the same,” Ross added.
The referenced tax is currently a levy of 6.5% for partial replacements and repairs of machinery and equipment on existing manufacturers. The state legislature passed a law earlier this year that will lower the rate to 4.875% in FY 2015. For companies that utilize it, they will receive a refund on the costs of the equipment as well as the labor paid to install or repair it.
For every percentage point of reduction, it cost the state $7-9 million, according to figures provided by the Department of Finance and Administration.
Ross, who is mirroring Gov. Mike Beebe’s gradual elimination of the sales tax on groceries with this effort, said the cost to fully phase out the rest of the tax would cost about $40 million. He did not set a timeline for completion of the gradual phase-out, but his campaign clarified it would be paid for by surplus funds and economic growth “as the state can afford to do so.”
A constitutional amendment for an 1/8th cent conservation tax would not be affected by the tax reduction Ross proposes, so the manufacturing tax break could only be cut as low as .625 percent.
“By gradually phasing out the sales and use tax on manufacturing repairs and replacements just like we did on the grocery tax, we will also ensure this tax cut doesn’t disrupt our state’s balanced budget,” Ross said. “This is one of many examples of the type of tax cuts I will be introducing throughout the campaign that are bipartisan, fiscally responsible and target job creation.”
Ross also outlined other areas he expected to center his economic development and job creation policies around. They include: education and career training; entrepreneurship; innovation; infrastructure; growth; government reform; and tax relief. He also reiterated his plan to ask Democratic Lt. Gov. candidate John Burkhalter to head an economic development cabinet to coordinate job creation efforts.
Ross faces the winner of a Republican primary between Asa Hutchinson, Curtis Coleman and Rep. Debra Hobbs (R-Rogers).
Asa Hutchinson, the likely Republican challenger to Ross, tells Talk Business that Ross’ plan is very general, has no time frame, and is not as broad as his approach to job creation.
Hutchinson has suggested a gradual phase-out of the state individual income tax, but has not flushed out details of his proposal. In the most recently concluded state fiscal year, individual income taxes accounted for $3.144 billion in tax collections, roughly 50.6% of all gross general revenues.
“He set an aspirational goal, that’s pretty much what I’ve said. I’ve just done that on state income tax,” said Hutchinson. “The whole object is job creation. And he [Ross] has chosen a narrow exemption to help industry in job creation. I believe the better approach is across the board, individual income tax reduction.”
Hutchinson said that he feels Ross’ plan would help manufacturers, but it would not help other industries, such as tourism, retail, or the knowledge-based sector.
“They’re not benefitting from that. With the individual income tax, everyone would benefit from it,” Hutchinson said. “He’s chosen one path to job creation and I’ve chosen another.”
A bill enacted in the most recent legislative session, Act 1459, reduces each individual income tax bracket in Arkansas by 0.1% beginning partially in FY 2014 and in larger measure in FY 2015 and beyond. The cost estimate for the 0.1% reduction is $2.5 million in the first year of the phase-out and $30.4 million in the second year, and $55.7 million in the third year.
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