RVIA Economic Impact Study

The Recreation Vehicle Industry Association commissioned an Economic Impact Study on the RV industry, released on June 7, 2016. The study found that the RV industry contributes about $49.7 billion in economic output or 0.28 percent of the Gross Domestic Product. Through its production and distribution linkages, the industry impacts firms in 426 of the 440 sectors of the United States economy.

Nationwide, the industry is responsible for 216,170 jobs, both directly and inderectly, creating an economic impact of $37.5 billion. The full study results, along with each individual state and congressional district's economic impact is available on the website by clicking here .

Manufacturing Taxes Could Hurt Competitiveness in Certain States

Wed Apr 11, 2018
Author: RV News Staff

152347203166785.pngState sales tax bases are both too narrow and too broad, says the Tax Foundation. States provide exemptions for many final consumption products, such as groceries and prescription drugs, and do not tax services in a notable way, both working to narrow their tax bases. Sales taxes ideally should apply to all final consumption. At the same time, states don’t always provide the necessary exemptions for business inputs, which should be exempted from the sales tax, making their tax bases overly broad, the foundation states.

Taxing inputs in a sales tax leads to “tax pyramiding,” according to the foundation. Throughout the production cycle, the tax can be assessed multiple times. This leads to higher prices for consumers, fewer job opportunities for workers, or limits the business’s ability to expand, the foundation states. If too many business inputs are taxed, a state’s sales tax could actually start to function as a gross receipts tax.

One of the many business inputs states tax in their sales tax bases is manufacturing machinery.

Many states correctly exempt this business input, but there are several notable inclusions, according to the foundation. The “manufacturing machinery” category in its State Business Tax Climate Index involves taxing either machinery or parts or both. Alabama, Hawaii, Louisiana, Mississippi, Nevada, New Mexico, South Dakota, and the District of Columbia tax manufacturing machinery at least some of the time, the foundation states. "... The sales tax bases in Hawaii, New Mexico, and South Dakota are incredibly broad, so it’s not surprising that they would tax these types of transactions. Kentucky and North Dakota do not tax manufacturing machinery, but do tax manufacturing machinery parts," the foundation states.

In Louisiana, the tax is temporary and will go to a 0 percent rate as of July, unless changes are made, according to the foundation, which added. "Hopefully, the Louisiana legislature allows that sales tax to phase out."

States should continue to exempt business inputs from their sales tax to improve their competitiveness, and help ensure lower prices for their residents, the foundation states. Manufacturing machinery is just one of many business inputs that states incorrectly include in their sale tax bases, it continues.

Meanwhile, West Virginia lawmakers are considering a constitutional amendment that would roll back property taxes on machinery and equipment.

The Tax Foundation reports localities in West Virginia have long relied heavily on business tangible personal property taxes. These are taxes on machinery, equipment, furniture, fixtures, inventory—really, any sort of property that can be touched and moved. Such taxes are not rare, despite a widespread recognition that such taxes stand in the way of economic growth. What’s unusual is just how important they are in West Virginia, where nearly a third of all property tax collections are derived from tangible personal property, according to the foundation. This year, Governor Jim Justice (R) is pushing a constitutional amendment to chip away at that reliance. The resolutions are being carried by House Speaker Tim Armstead (R) and Senate President Mitch Carmichael (R) in their respective chambers.

Tangible personal property taxes reduce capital investment by making it costlier to invest and particularly to put new and more productive equipment into service, the foundation states. In addition to the actual tax burden, moreover, tangible personal property taxes impose substantial compliance and administration costs because the tax levy is “taxpayer active,” according to the foundation. "This means that businesses must fill out forms identifying all their personal property subject to taxation and detailing relevant attributes including, but not limited to, a physical description, the year of purchase, the purchase price, and any identifying information (e.g., serial numbers). The tax is to be remitted upon the depreciated value of each article of personal property."

All tangible personal property taxes impose considerable burdens, but one constituent element of West Virginia’s tax particularly stands out: the tax on business inventory, according to the foundation.

"Inventory taxes are highly distortionary because they force companies to make decisions about production that are not entirely based on economic principles but rather on how to pay the least amount of tax on goods produced. They violate widely held principles of sound tax policy: they are not transparent, for instance, and they are highly nonneutral, falling much more heavily on select industries like manufacturers," the foundation states.

"Inventory taxes can create strong incentives for companies to locate inventory in states where they can avoid these harmful taxes. They also impose high compliance costs for businesses, which are required to track and value their inventory for reporting and tax remittance purposes. West Virginia is one of only ten states which still taxes most inventory."

In 1999, the Commission on Fair Taxation proposed eliminating tangible personal property taxes and the business franchise tax, identifying both as barriers to the state’s economic growth. In 2006, the Tax Modernization Project made an identical recommendation. Little came of either proposal, according to the Tax Foundation.

"The difficulty in tackling the issue is obvious when observing the unequal reliance across the state. About 10.9 percent of property tax collections in Morgan County (in the northeast of the state) are derived from personal property; on the other hand, in Doddridge County (toward the northwest), that percentage is 78.5 percent. Similarly wide variations are evident at the municipal level. Statewide, about 32.8 percent of all property tax collections are attributable to the personal property tax," the foundation states.

"Clearly, a proposal that holds Morgan County harmless isn’t going to cut it for Doddridge County, and a solution that preserves Doddridge County’s revenue streams would likely result in anomalously high tax burdens in Morgan County. In nine counties, personal property taxes account for less than 20 percent of all property tax collections. In seven counties it’s more than 50 percent."

Because of this difficult reality, proposals to repeal tangible personal property taxes haven’t gone anywhere, according to the foundation. This year, however, Gov. Justice and legislative leaders have a different proposal—more modest and, thus, more workable.

"The Just Cut Taxes and Win (JCTAW) Amendment would phase down the assessed value of tangible industrial machinery, equipment, and inventory personal property between 2020 and 2026, from its current 60 percent assessment ratio to 0 percent by fiscal year 2027. The state would make up the difference to localities, maxing out at $140 million a year in transfers by fiscal year 2027," the foundation states.

"Localities are made whole; the state is not. The constitutional amendment, if adopted, would represent a tax cut, beginning at $20 million a year and increasing by another $20 million each year until maxing out at $140 million, enough to cover the full elimination of property taxes on industrial machinery, equipment, and inventory."

The proposed amendment doesn’t eliminate tangible personal property taxes altogether, which the Tax Foundation believes should be the long-term goal. "It does, however, take an important step in the right direction, phasing out these destructive taxes where they hit the hardest," the foundation states.