The following op-ed, written by our director of policy Michael Melendez, was published today by The Salt Lake Tribune.
You’ve heard it before: Utah is consistently one of the best states to do business. We’ve ranked #1 in Rich States, Poor States for twelve years straight, and were #1 in Forbes from 2014-2016. On and on the awards pile up. But are we truly business friendly—or just not as bad as other states?
Hidden behind the shiny veneer of awards and platitudes lie a number of policies showing that Utah isn’t as business friendly as it could and should be.
The Tangible Personal Property Tax is a good example. Utah levies an annual property tax on business supplies and equipment that were already taxed when purchased. Business owners who buy equipment, machinery, or furniture are compelled to keep track of every item each year so they can be taxed at different rates depending on when they purchased it. This particular tax has a very high compliance cost, troubling business owners around the beehive state with many hours worth of micro-managing forms, invasive audits, and more.
And then there is the new discussion over sales tax reform. Fortunately, the initial proposal that would have taxed business to business transactions was quickly taken off the table, as it would have created a disaster by pyramiding the tax. For example, hiring a company for a service could have had multiple layers of taxes as that company involved subcontractors whose work was also taxed at each step, compounding the tax burden.
This problem goes straight to an important talking point in tax policy that elected officials must remember: don’t tax business inputs—the processes and parts that are later incorporated into a final good or service for sale. Some policy makers talk about how the state tries to avoid taxing business inputs, but this is only true for a small portion of companies that have sales tax exemptions. It would be much more fair and economically beneficial if Utah actually stopped taxing business inputs for all businesses.
Sometimes we forget that business owners aren’t merely taxed—they also must wade through the red tape created by government regulatory schemes. Remember when the government had to be brought along, kicking and screaming, in order to eventually accommodate Uber and Lyft? Innovative companies repeatedly struggle to find a home in Utah’s marketplace. Tesla fought for years to simply sell their cars here, and some cities in Utah still do everything they can to criminalize having an Airbnb.
More recently, the Salt Lake Airport has come after a car-sharing company called Turo. Several people were ticketed and faced jail time for simply trying to share their vehicles at the airport. Government regulators and officials need to adopt the mantra: “Don’t Fear Peer-to-Peer.” These services have been treated with a presumption of regulation; instead, we need a presumption of innovation.
Free markets should be free for a reason. Local and state governments, however, often throw up all kinds of obstacles in the way of a small business through licensure, permits, steep fees, and nit picking code enforcement. A broad claim of being business friendly soon falls apart when you see where the rubber meets the bureaucratic road.
Some business owners feel that the government is on the opposing team in the marketplace arena, rather than remaining a neutral referee ensuring a fair playing field. Whether it be by giving tax incentives to their competition or even directly competing against their business in the form of a taxpayer funded enterprise, government can too often become a big player in whether or not a business succeeds.
It’s not all bad news, of course; in some ways Utah’s policy makers get it right. We are number one on many rankings for some compelling reasons. There are also positive developments that don’t get factored into these scores. For instance, Riverton eliminated business license fees last year; Salt Lake City has been able to work things out with e-scooter companies like Bird and Lime; and the state is in the process of establishing a regulatory sandbox for the financial tech sector. We can praise some good steps while pointing out the distance that still remains to be traveled.
Perhaps it’s time we better live up to the accolades for being the best for business and see what great ideas entrepreneurs will dream up next to improve our society and fill important needs. Government should stick to being the neutral referee and stop playing the game.