May 2013 | Commentary | Checking In

We Need Jobs…Let’s Raise Taxes?

Tags: 3PL, Warehousing, Economic Development, Manufacturing

Keith Biondo is the publisher of Inbound Logistics magazine.

Balancing a budget is an exercise in best judgment. Add politics to the equation, and logic flies right out the window.

One example: the Minnesota legislature is finalizing its $38-billion state budget, which includes a 6.5-percent sales tax on warehouse services. A wide-ranging tax hike on warehouses will have far-reaching implications. None good.

A warehouse tax will likely push distribution activity and jobs out of state. Ironically, some of that tax revenue will subsidize economic incentives to keep businesses in state. It's a circle of contradictions that leaves many bewildered.

Richard Murphy, CEO of Murphy Warehouse Company, a Minnesota-based 3PL, has been working the phones the past few weeks, seeking answers. But instead of answers, he's fielding questions from the very legislators who crafted the bill.

"What's most confusing is that no one knows what this bill entails, or how it will be applied," he says. "They don't have any idea what a modern warehouse does."

There's some consensus that the warehousing tax is aimed at product "storage"—perhaps targeting the state's mining industry, which has experienced a boon over the past few years. If true, why not exempt service providers that are "moving" inventory, adding value, facilitating B2B growth, and creating jobs?

No House Republicans voted for the measure. Republican Rep. Tim Kelly expressed concern that a tax on warehousing could prompt a manufacturer in his district, Red Wing Shoes, to move operations to Missouri. "If Red Wing puts their warehouse in Missouri, where do they expand their business? Where do they make more shoes?" he said. And where do they make more jobs?

The broader concern for our economy, however, is that Minnesota's misunderstanding of modern logistics processes kills economic growth by compounding cost increases at every supply chain touch—and that this idea will spread to other states.

But, we've traveled down this road before. In 2007, Inbound Logistics wrote about how the Michigan state legislature passed a six-percent service tax including warehousing.

At the time, the state's unemployment rate was the highest in the country. Ohio was laying out the red carpet to disenfranchised Michigan businesses. Fortunately, sanity prevailed and the bill was repealed within weeks after being signed by Democrat Governor Jennifer Granholm.

Yet Minnesota and other state lawmakers continuously craft stultifying new taxes directly impacting the ability of your 3PLs and warehouses to serve you.

There's no shortage of challenges facing the distribution and logistics sector without governments seeking to transform every transaction, and every inventory touch into cash that they can wisely spend on all those important government programs.