If the owner of a construction company purchases a $25,000 forklift, he pays about $1,500 in sales taxes. If a farmer purchases a $25,000 tractor, he pays no sales tax, thanks to tax exemptions granted by the Legislature to save a once-crippled agricultural industry.
But with farming now profitable, is taxing one kind of business and exempting another really fair?Not according to economist Lawrence C. Walters, who recommended to the governor's Tax Review Commission that it eliminate sales-tax exemptions for farmers' pesticides and for most farm equipment.
Additional revenue to the state? About $2.5 million, although Walters said it is not so much a revenue issue as it is a fairness issue. "Fairness would suggest we treat people the same way, that we treat similar situations similarly," he said.
Walters, a Brigham Young University economist, has been hired by the commission to look at a variety of sales-tax exemptions granted by the Legislature over the years in an attempt to identify those that have outlived their usefulness.
Walters' recommendations did not sit well with rural lawmakers who attended the Friday afternoon meeting in the state Capitol. "I don't know about tax fairness," said Rep. Evan Olsen, R-Young Ward and a dairy farmer, "but I do know the farmers in my area are struggling."
Evans predicted that a sales tax on farm equipment would prompt most farmers in rural northern Utah to buy their equipment from Idaho merchants, which do not charge sales tax on farm equipment.
Evans also suggested the reason most Utah farms look shabby is because the profit margin is so small that few farmers can afford to paint barns and fences.
But Walters maintained sales taxes, when amortized over the life of the equipment, would become a very small part of farming costs and that "tax obligations in general play a relatively small part in the overall profitability of farms. And the sales-tax exemptions considered here are certainly not as large as other tax obligations, such as property tax and income tax."
Charging sales taxes for farm equipment would raise about $2 million in revenue to the state and counties.
Tax on pesticides
An additional $500,000 in sales- tax revenue would come from taxing pesticides.
Eliminating the exemption for pesticides would hit fruit and grain farmers the hardest, while dairy and livestock farmers would hardly be affected at all. Most other Western states tax pesticides, and only Idaho and Utah do not tax farm equipment.
Roadside fruit stands
Walters also addressed the issue of roadside fruit and vegetable vendors. Currently, producers who sell their own fresh produce do not have to collect sales taxes. But many so-called roadside stands have become semi-permanent grocery stores, offering everything from bread and milk to candy and produce from California, little or none of it actually produced by the farmer.
Walters recommended that vendors of produce with "more or less permanent retail outlets" be required to collect sales tax. It would not affect local farmers with "truly occasional and incidental sales" but would force bigger operators to play by the same rules as grocery stores.
Tax Commissioner Roger Tew agreed, saying many roadside produce stands have become permanent, offering produce from regions far removed from the local farm. "It's a whole lot different than a farmer selling potatoes out of the back of a pickup truck," he said.
Walters' proposals were generally well-received by members of the Tax Review Commission, which makes recommendations to Gov. Mike Leavitt on whether to eliminate various sales-tax exemptions. Members of the legislative Revenue and Taxation Committee were also invited to attend, but they were much less enthusiastic about Walters' recommendations.
"Farming is not like other industries," said Sen. Leonard Blackham, R-Moroni and a turkey farmer.