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Would Eliminating the Sales Tax on Manufacturers' Energy Increase Arizona’s Competitive Edge?


 Hoover Dam creates power--energy that Arizona manufacturers may one day purchase without sales tax.

Governor Jan Brewer (R) of Arizona has called for an elimination of the sales tax on electricity used by manufacturers in the state.

In her State of the State address, she noted that “Arizona… is one of the few states that impose a sales tax on manufacturers for the power used to create their products.” The governor said this puts current manufacturers at a disadvantage and dissuades new manufacturers from setting up shop in Arizona. Therefore, she asked state lawmakers, “to send me legislation to eliminate this tax and increase Arizona’s competitive edge.”

Not alone

Governor Brewer is not the first to consider eliminating or exempting sales tax on manufacturing to stimulate the business climate:

Why?

It has been argued that sales tax, as a consumption tax, should only “fall on final consumption,” not business inputs. As explained in a recent Forbes article:

“When you tax business purchases, the tax becomes part of the cost of doing business, and companies try very hard to pass those costs on to consumers.” When consumers later pay sales tax on these products, “we are actually taxing a tax.”

Not everyone agrees, of course, which is why not all business inputs are exempt from tax. Yet if Governor Brewer gets her wish, manufacturers in Arizona may one day no longer pay sales tax on the energy they need to create their products. In this way, she hopes to support “her mission to make Arizona the most business-friendly state in the nation.”

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.