Published: May 21, 2008 12:42 am            

Reducing, eliminating state inventory tax is another ‘tax swap’

During Gov. Haley Barbour's first term as governor, one of the most hotly-contested political issues in state government was the proposed "tax swap" backed by former Lt. Gov. Amy Tuck.

The intent of that failed legislation was simple — cut the state's 7 percent sales tax on groceries in half while swapping that tax cut for a substantial increase in the state's cigarette tax. Given the fact that Mississippi's 7 percent sales tax on food was charging our poorest-in-the-nation citizenry the nation's highest sales tax in the nation on food, that legislation seemed to make sense.

The fact that Mississippi's cigarette tax at 18 cents per pack is the third lowest in the nation contributed to the argument — particularly when Mississippi can't pay for the public health care costs we're already incurring.

But municipal governments said they be irreparably harmed by cutting grocery taxes and that lost revenues would have to be replaced by increased taxes — presumably property taxes — and that opposition coupled with tobacco lobbyists in lock step with Barbour doomed the "tax swap" to the policy scrap heap.

Cigarette taxes in Mississippi remain obscenely low while sales taxes on food remain obscenely high. Barbour addressed the issue during his 2007 re-election bid by pledging to appoint a tax study commission to formulate a comprehensive approach to tax reform - hinting that he might budge on a cigarette tax hike if there were tax cuts in other areas.

Barbour was re-elected and indeed appointed his tax study commission - a group now in deliberations prior to an August deadline for bringing forth a report to the taxpayers.

One of the proposals that are gaining political steam right now — particularly with the lobbyists — is a reduction or elimination of the state's inventory tax. Inventory tax is an annual ad valorem tax on business inventories (and also on other personal property such as business furniture, fixtures and equipment). The inventory tax is 15 percent of a county's millage rate based on a taxpayer's assessed values. The millage rates vary by county.

In 2005-2006, inventory taxes generated $142 million in total revenues, including $49.25 million for support of K-12 public school districts and $3.48 million for the state's community colleges, according to the State Tax Commission's 2006 Annual Report.

Business groups like the Mississippi Economic Council and the Mississippi Manufacturers Association say inventory taxes put the state at a competitive disadvantage and are disruptive to economic development. They point out that only 11 states still levy inventory taxes — and perhaps most effectively, they argue that inventory taxes are a form of possible double or triple taxation.

How? The "widget" in inventory is first taxed as inventory, then used as a basis for a privilege tax license (the more "widgets" you have, the more you pay) and then in some case is subject to standard seven percent sales tax.

All of those arguments are good, solid business arguments. But as was the case when the state was debating cutting the sales tax on food and hiking the cigarette tax, the proposal to reduce or eliminate the state's inventory tax is first and foremost a tax swap.

It all depends on whose ox is getting gored. If the inventory tax is eliminated, county and municipal governments and public school districts will be forced to make up $142 million in lost revenue from other taxpayers. What's the most likely source? Property taxes. And who will pay them? You will, of course, if you own property. You'll pay it in higher real estate taxes, higher car tags and the like.

At the end of the day, cutting inventory taxes might well be a good-for-business idea. But the taxes cut from the business sector will definitely come out of another taxpayer's hide.

Guess whose hide that will be.



Contact Sid Salter at (601) 961-7084 or e-mail ssalter@clarionledger.com. Visit his blog at clarionledger.com.

        

• Click to discuss this story with other readers on our forums.