ARKADELPHIA — Democratic gubernatorial candidate Mike Ross on Thursday proposed gradually eliminating the state sales and use tax on partial replacement and repairs of machinery used in manufacturing.
Ross said the levy on manufacturers was one of several targeted tax cuts he would propose to help job creation in Arkansas.
“This tax unfairly punishes manufacturing plants already in Arkansas, because state law currently exempts new plants and plant expansions,” Ross said during a speech at the Southwest Arkansas Industry Conference.
He said a complete exemption would encourage current manufacturers to upgrade their facilities so they can modernize, remain competitive and continue to grow and hire more workers.
“This tax cut will also make us more competitive with our surrounding states, many of which have already done the same,” he added.
Ross’ campaign provided a copy of his speech to Arkansas News Bureau content partner TalkBusiness.
The manufactureres tax currently is 6.5 percent for partial replacements and repairs of machinery and equipment on existing manufacturers. The Legislature earlier this year passed a law that will lower the rate to 4.875 percent in fiscal 2015. Companies that utilize it will receive a refund on the costs of the equipment as well as the labor paid to install or repair it.
For every percentage point of reduction, it costs the state $7 million to $9 million, according to the state Department of Finance and Administration.
Ross’ proposal would mirror Gov. Mike Beebe’s gradual elimination of the sales tax on groceries.
The former 4th District congressman said the cost to fully phase out the rest of the manufacturers tax would cost about $40 million. He did not set a timeline for completion of the gradual phase-out, but his campaign later clarified the tax reduction would be paid for by surplus funds and economic growth “as the state can afford to do so.”
A constitutional amendment for an 1/8th cent conservation tax would not be affected by the tax reduction Ross proposes, so the manufacturing tax break could only be cut to as low as .625 percent.
“By gradually phasing out the sales and use tax on manufacturing repairs and replacements just like we did on the grocery tax, we will also ensure this tax cut doesn’t disrupt our state’s balanced budget,” Ross said. “This is one of many examples of the type of tax cuts I will be introducing throughout the campaign that are bipartisan, fiscally responsible and target job creation.”
Ross is the only Democrat to announce for governor. Three Republicans have announced their candidacies for the state’s top elective office — former Congressman and Homeland Security undersecretary Asa Hutchinson, businessman Curtis Coleman and state Rep. Debra Hobbs. Frank Gilbert, former mayor of Tull in Grant County, has also announced he will seek the Libertarian Party’s nomination for governor.
Beebe, a Democrat, is prevented by term limits from running for re-election in 2014.
Hutchinson said Ross’ plan is very general, has no time frame and is not as broad as his approach to job creation.
“He set an aspirational goal, that’s pretty much what I’ve said. I’ve just done that on state income tax,” Hutchinson said. “The whole object is job creation. And (Ross) has chosen a narrow exemption to help industry in job creation. I believe the better approach is across the board, individual income tax reduction.”
Hutchinson said Ross’ plan would help manufacturers but not other industries, such as tourism, retail or the knowledge-based sector.
“They’re not benefitting from that. With the individual income tax, everyone would benefit,” Hutchinson said. “He’s chosen one path to job creation and I’ve chosen another.”
Arkansas News Bureau business columnist Roby Brock contributed to this report.