Would Eliminating the Sales Tax on Manufacturers' Energy Increase Arizona’s Competitive Edge?
- Jan 14, 2014 | Gail Cole
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.”
Governor Brewer is not the first to consider eliminating or exempting sales tax on manufacturing to stimulate the business climate:
- California has created a “partial exemption from sales and use tax on certain manufacturing and research and development purchases.” It takes effect July 1, 2014.
- A new exemption from sales tax for certain machinery and equipment used in manufacturing takes effect in Florida on April 30, 2014.
- Florida expanded a sales tax exemption on electricity used for producing agricultural products, effective January 1, 2013.
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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