Boost for Maryland manufacturers Exemption sought: Tax on materials used to produce items puts state at disadvantage.

April 02, 1997

HERE'S ONE WAY to restore Maryland's competitive search for jobs and give local manufacturers a well-deserved boost: End the senseless practice of taxing companies when they buy materials or equipment used to make their products.

Under a provision of the Senate income-tax cut bill championed by Sen. William H. Amoss of Harford County, six categories of supplies or equipment would be exempt from state sales tax if used directly in the manufacturing process. It would save these companies millions.

Right now, if a company buys a grinding wheel to help make widgets, the company pays sales tax on that grinding wheel if it expects the wheel to last for more than 12 months; if the wheel wears out in less than a year, there's no sales tax to be paid. But the firm has to guess at the time of purchase which scenario is likely to occur.

Also, if a company -- such as this newspaper -- buys manufacturing equipment and capitalizes that purchase over a number of years, it pays no sales tax. But if the equipment isn't so expensive that it requires a long-term write-off, a sales tax must be paid at time of purchase. It is a confusing and a costly headache for corporate accountants.

Nearly all of Maryland's regional competitors exempt these items from sales tax. This puts our state at a disadvantage in promoting Maryland as a prime site for manufacturing plants.

The Amoss proposal changes all that. It shields manufacturers from a sales tax that already is applied to their product when sold to the consumer, thus avoiding a form of double-taxation known as "pyramiding." Approving these tax exemptions would put Maryland on a competitive par with most other states.

These amendments have strong support, especially in the Senate's tax panel. A similar bill last year nearly passed but failed because of the high price tag. This year, a more thorough study indicates a far lower cost to the state Treasury ($39 million), and industry leaders think the actual number could be halved as the exemptions are phased in over four years.

This is a smart tax cut, the kind that could reap handsome rewards. It also is a sensible plan aimed at removing an illogical and counter-productive tax application from the state code.

Pub Date: 4/02/97

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