Guest author: Sam Cassidy, President & CEO Colorado Association of Commerce & Industry
For many years, the Colorado Association of Commerce & Industry (CACI) has been asking the Colorado General Assembly to eliminate the business personal property tax (BPPT). Many employers believe this is the most inequitable, counterproductive tax in Colorado.
Business personal property is property--equipment, machinery, computers, etc.--that is not attached to real estate. It amounts to more than $480 million per year, and most of the burden falls on a handful of companies that heavily invest in machinery and equipment.
The BPPT most penalizes investments in those very industry sectors Colorado should be trying to recruit to, and retain in, Colorado -- information technology, telecommunications, and manufacturing.
The BPPT is viewed by CACI and many businesses as an egregious disincentive to investment in equipment and machinery that enables them to increase productivity in a global economy and, in turn, earn greater profits and thus pay higher wages to their employers.
Moreover, much of the new equipment required by many companies-small, medium, and large--across Colorado is increasingly expensive because it incorporates new information technology. Workers who use highly sophisticated, computerized equipment add value to a company's goods and services, which allows them to earn higher wages and attain a higher standard of living.
In October 1998, 27 local chambers of commerce from across the state came together in the first-ever Congress of Chambers. The top priority of the Congress of Chambers for the 1999 session of the Colorado General Assembly was business personal property tax relief and reform.
Major Colorado newspapers have also come out in support of BPPT relief and reform. The Denver Rocky Mountain News, on Dec. 8, 1998, editorialized that few taxes are "more counterproductive than this oddity." And The Pueblo Chieftain noted in an editorial: "We continue to champion cutting or even eliminating the personal property tax, the annual levy on business equipment. This tax clearly is a drag on the economy, not so apparent now but obvious in a downturn."
Governor Owens has even termed the BPPT the third layer in state and local governments' taxation of Colorado businesses. "The corporate personal property tax is a very unfair tax," he said.
The Economic Developers' Council of Colorado is actively supporting this bill and the Colorado Municipal League, and Colorado Counties, Inc. are "appreciative" of this approach.
Some people hold the view that BPPT relief only benefits large corporations. However, the BPPT is seen as a particularly burdensome on small firms, which lack the financial resources of major corporations, because it is a drag on profitability and investment. Most businesses in Colorado are small and medium-sized ones and small businesses are considered the bedrock of the Colorado economy.
The relative percentage of workers in Colorado engaged in manufacturing has dropped in recent years. CACI believes that this distressing trend is related in part to the investment disincentive of the business personal property tax. In 1970, manufacturing jobs accounted for 15.8 percent of total non-agricultural jobs in Colorado. By 1997, the proportion of manufacturing jobs had dropped to 10.3 percent.
Some policymakers, economic development professionals, and business leaders believe that the state's economy cannot survive on low-paying service-sector jobs. They argue that Colorado needs such primary jobs as manufacturing to keep the economy strong. They believe that the shrinking proportion of high-paying manufacturing jobs is a very disturbing trend for the state.
An economic development goal of Colorado and its communities should be to help Colorado companies create and retain high-paying jobs as well as to attract those types of firms to the state. CACI calls these jobs "primary jobs".
Data is scarce on the effect of the BPPT on the efforts of Colorado and its communities to attract and retain companies. Some anecdotal evidence, however, has emerged.
For example The Greater Colorado Springs Economic Development Corporation reported to CACI that 18 companies it was trying to recruit in the period 1993 to 1998 had chosen sites other than Colorado Springs and indicated that the BPPT was a negative factor that had influenced the firms' decisions.
Another example is in 1996, Colorado lost a $200 million expansion project by Eastman Kodak Company, which has a facility in Windsor. Kodak then-General Manager and Vice President John M. Saurer wrote to then-Gov. Roy Romer: "While many aspects of the total tax base in Colorado are positive, the one area that has very significant negative impact for highly capital intensive industries is the personal property tax. Colorado must support capital intensive manufacturing operations, such as Kodak's, if it hopes to attract and retain high-value, high paying jobs."
Across the U.S., the trend in the states has clearly been to remove the business personal property tax burden from companies, according to Scott Mackey, Chief Economist at the Denver-based National Conference of State Legislatures. States such as Iowa and Illinois have repealed all forms of personal property tax (personal, auto, and business). In addition, a number of other states have enacted corporate income tax credits for the business personal property tax that companies pay for machinery and equipment, said Mackey.
The ultimate elimination of this tax is the long-term objective of the 27 local chambers of commerce and CACI. This change, however, will almost certainly hinge on major, systematic reform of Colorado's tax system, and that change will need voter approval.
City and county governments, schools, and special taxing districts are, in some instances, heavily dependent on BPPT revenues to fund services that the business community considers essential infrastructure for commerce.
The challenge to Colorado will be, therefore, how to design a major tax reform package that eliminates the BPPT without decimating revenue streams to local governments and schools and which, of course, is appealing to voters who must approve the concept. That will take years to achieve. Meanwhile, we are presented with the opportunity to fashion some relief for taxpayers out of the TABOR surplus and the Business Community believes that is a priority for this Legislature.
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