A group of Colorado Springs manufacturers say that if the city waived a use tax on big ticket equipment items it would serve as an incentive to attract and retain business, especially manufacturers that spend millions each year on heavy equipment.
Some say the use tax is a double burden because businesses are already taxed annually on personal property.
“It is a disincentive to put on manufacturers in Colorado Springs,” said Dan Malinaric, chairman of the Colorado Springs Regional Economic Development Corp. local industry council.
In Colorado Springs, a 2.5 percent use tax is levied on the purchase, lease or rental of tangible personal property — furniture, fixtures, equipment and operating supplies. It’s the same as the city’s sales tax.
Sales taxes are paid directly to the seller, who pays the city. Use tax is paid directly to the city. For example, if a business buys equipment from an out-of-state company and pays no city sales tax, but the company is using the equipment in Colorado Springs, it must pay the city use tax.
Tom Neppl, CEO of Springs Fabrication, just spent $2.5 million on a vertical lathe and a tube laser, equipment that will help process product more efficiently. His tax bill to the city was about $60,000.
“That is money I could have invested in something else,” Neppl said. “The best type of companies invest in capital equipment, yet, those are the ones we turn around and tax.”
Waiving that tax could be an incentive to draw more manufacturing companies to the city and county, he said. In the last decade, El Paso County lost more than 50 percent of its manufacturing jobs.
“If we eliminate that tax, it doesn’t mean the flood gates are going to open,” Neppl said. “It just takes another barrier out of the way.”
Neppl was part of a panel discussion during a recent Manufacturing Forum, hosted by the Colorado Springs Regional Economic Development Corp. and Pikes Peak Community College. Manufacturers raised issues including training a future work force and attracting and retaining manufacturing businesses to Colorado Springs and El Paso County.
The city already has an alternative rate of tax on machinery or equipment, said Bob Cope, Colorado Springs Business Development analyst. Companies that invest more than $5 million in a calendar year on manufacturing machinery or equipment can pay less in use tax, on a sliding scale. Purchases of $5 to $7.5 million require only 2 percent tax. On purchases of $20 million in a year, the tax is returned to the company as an incentive.
“At least we have that in place,” Cope said.
This year, the city expects to collect $118.5 million in both sales and use taxes, a 2.5 percent gain over 2010 but still below 2007 — a peak collection year. The combined sales and use tax makes up about 52.6 percent of the city’s general fund budget.
“The Mayor said he would like to do away with that tax,” said Dave White, EDC executive vice president of marketing. “It’s hard to do in this down economy.”
To date, the city has collected $5.1 million in use tax. Of that, there is no way to know how much was collected on large equipment used by manufacturers, said Karen Garcia, Colorado Springs sales tax manager.
The tax code allows for exemptions, she said, meaning a tax on equipment for manufacturing could be waived. The City Council has the authority to make an exemption.
Colorado Springs Mayor Steve Bach could not be reached for comment.
Dave Csintyan, president and CEO of the Greater Colorado Springs Chamber of Commerce, said the issue is on the Mayor’s radar.
“He’s got such a difficult balance between predictable revenue and not growing government,” Csintyan said. “Ultimately, we will have an honest discussion about that tax.”
The EDC plans to pursue the use tax issue at its next Manufacturing Forum, expected to be in January.
“We want a group to specifically address the equipment tax,” said Jennifer Taylor, EDC vice president of local industry. “We intend to bring a working group together to figure out what are the action steps.”
The forum also expects to have focus groups discuss training and local economic barriers to attracting and retaining manufacturers in Colorado Springs and El Paso County.
“I’ve felt for years that businesses were looked at by the city as revenue and not as job creators,” said Neppl, who this year was appointed the Greater Colorado Springs Chamber of Commerce Board. “I feel growing good jobs is better in the long run than collecting tax from a few manufacturers.”