Commissioners Authorize Tax On Heavy Equipment Rentals

Could a 1.2 percent tax be a problem for equipment rental dealers? Right now it’s isolated to Catawba County, NC, but what if it catches on and migrates around the state and beyond.

In the early days of stimulus funded recovery construction, equipment rental could be the only choice for a number of contractors. While 1.2 percent doesn’t sound like much, it could add up if the contractor is renting several machines for weeks or even months.

No question that the county and state need to increase revenue, but is this the best way of doing it? I don’t have an answer but do have some questions. For example, will the contractor get credit for this rental tax on state and local income tax? Would the rental yard get tax credits?

Companies in the business of renting heavy equipment will have the option of charging customers a 1.2 percent gross receipts tax instead of paying property taxes on that equipment beginning July 1, 2009, passing the tax onto the customer or paying it themselves.

The Catawba County Board of Commissioners authorized the increase after finance director Rodney Miller assured them they were not adding another tax on residents.

“We are not implementing a tax today. We’re authorizing a gross receipts tax if a business opts to collect it.”

Regardless of which option companies decide on, Miller told commissioners they are looking at a decrease in property tax revenues.

“Currently, these companies pay about $22,000 in property taxes on that equipment, but we don’t know if all that equipment is short-term rental,” he said. “So we are looking at a possible $22,000 shortfall, and I would assume we will see some loss because the companies are going to choose whatever option is more advantageous to them.”

Commissioner Lynn Lail asked if the tax would be on receipts for the rental of such equipment.

“And only on the short-term rentals,” Miller said.

Short-term rentals are defined as leases lasting for periods less than one year.

“My only concern is as the rental companies do their billing, they put an item on those bills stating it is a 1.2 percent state tax,” commissioner Glenn Barger said.

Miller said all companies would be required to identify the tax as state-mandated.

Miller said the bill, passed during the state 2008 legislative session, was aimed at reducing taxes for businesses, which pay property taxes on rental equipment.

“The state is giving those businesses a choice as to which option would better benefit them,” Miller said.

The companies can request to opt out of paying the property taxes on the equipment and charge customers the receipt tax, which would then go back to the county as reimbursement for lost property tax revenue.

Miller said one company has already contacted the finance office, reporting they intend to keep paying property taxes to the county.

Details of the heavy equipment gross receipts tax in lieu of property tax:

  • allows companies in the business of short-term rentals of heavy equipment to opt out of paying property taxes on that equipment in exchange for levying a 1.2 percent gross receipts tax as a means for local governments to recoup some of the lost property tax money
  • companies choose to either pay property taxes on the equipment or charge the receipt tax, but must notify county finance department if they wish to opt out of paying property taxes
  • in addition to the 1.2 percent tax authorized by the counties, municipalities can authorize an extra 0.8 percent receipt tax, affecting those companies within municipalities in a county
  • Hickory and Conover counties have authorized such taxes in those cities
  • county officials have identified seven companies that could be affected by this legislation
  • four of the seven are located in Hickory and one is in Conover
  • these companies together pay $22,000 in annual property taxes to the county

If nothing else, legislative action like this makes it very obvious that our economy is in dire straits. The county and state need the tax revenue; the rental store owners need some relief from taxes; the contractors renting the equipment need to be competitive on their bids. Stories from around the country say that bidding is really tight and tough. 1.2 percent could be the difference between winning or losing the bid. What’s the answer?

Greg Sitek

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