OP-ED: Inventory tax an unfair burden

S&A Beads storefront in Old Takoma, June, 2016, Photo by Bill Brown.

IMAGE: S & A Bead storefront on Laurel Avenue. Photo by Bill Brown.

OP-ED • LARRY J. SILVERMAN


About the author: Larry J. Silverman is the owner of S & A Bead, 6929 Laurel Avenue in the Old Takoma business district.


Seth Grimes’ One Takoma article “A tax break for Takoma Park businesses?” about the business personal property tax was full of interesting facts and questionable conclusions. Takoma Park imposes more taxes on businesses that operate within city limits than any other municipality in Montgomery County. Our city may hold the state record for taxing business inventory, tools and equipment.

What is the business personal property tax? Maryland law allows municipal governments and counties to impose a tax on almost every business asset not nailed to the ground. Assets such as carpenters’ tools, musician’s instruments, studio equipment, are all taxable at fair market value. (State law exempts banks, who have excellent lobbyists, from this tax, although their equipment is worth a great deal.) Also, and very important for retail stores like mine – we have owned S & A Beads for almost 30 years – the tax is imposed on the value of our commercial inventory.

The tax rate this year in Takoma Park for business personal property is 1.55 percent. The comparable rate for real estate is 0.585 percent

Most towns and counties forgo the tax altogether. Merchants in Silver Spring do not pay the inventory and equipment tax. Nor do businesses in Annapolis, city of Baltimore, Laurel and most other commercial centers. The city of Rockville exempts 82 percent of business property from the taxation. An Eastern Shore town exempts the first $100,000.

No regard to profits

The business tax represents a significant burden on small businesses like mine. The tax has to be paid without regard to the profitability of the business or its ability to pay. During the great recession in 2008-2009 my business lost money. At the same time we had more inventory than we wanted because no one was buying. The tax hit us very hard that year. But even in normal times the inventory/equipment tax is a real burden. Assume, for example, that a business person earns a profit of $50,000 with equipment and inventory of $165,000. The state INCOME TAX is about $2465 a year and the PERSONAL PROPERTY TAX is $2558. If the legislature were to more than double the tax rate on businesses there would be a revolt throughout the state. But this city accomplishes the same thing routinely.

Then there’s the issue of paperwork. The personal property tax requires a special form which is mostly unrelated to other tax forms, with its own depreciation rate. To my knowledge Turbo Tax and other such services do not deal with it. This is a substantial burden on especially small businesses.

S&A Beads.

S&A Beads inventory, December 2013, Photo by Bill Brown.

Seth says this is OK because the tax gives the city a chance to get money from large businesses that operate here. He lists five: Advanced Auto Parts pays the most, $24,400. This enhances my already high opinion of that store. The tax is high because their inventory is large, which is a good thing for consumers. This means that they are more likely to have the gadgets and widgets I might need to fix my 2009 Volvo. Why would the city want to discourage that? Others are Walgreens ($13,400), the old Radio Shack, a medical supply company and the TPSS Coop ($5500). Without the PPT, Seth argues, there would be no way for the city to realize revenues from these businesses. As he artfully states, the PPT is the only tax that the city “levies directly” on businesses. This is a misleading statement. Most commercial leases contain a “triple net” clause. This means among other things that increases in real estate tax are passed on directly to tenants. Businesses are already paying the real estate tax, whether they own the property or just lease it. Seth wants just wants another bite of the apple.

Some people have argued that a way to relieve small stores in Old Town is to repeal or reduce the inventory tax while keeping the equipment tax. This is a distinction without a difference when it comes to small business. Many businesses that support Takoma families have large investments in equipment: gyms, IT companies, equipment rental, music studios, art and print shops to name some obvious ones.

Many unaware

Corporations and limited liability companies must report their assets and pay the tax along with an additional $300 in order to get a business license. Many sole proprietorships, however, who are subject to this tax are unaware of it and do not pay it. Perhaps the city’s new environmental enforcement officer might earn his keep persecuting micro-enterprises. By the by, that new position will cost about $150,000. The PPT collects about $350,000. Could this be one way to reduce the business tax?

The real difference between Seth and me comes down to our differing views on the issue of economic development. He and many other former and current council members seem to believe that the purpose of economic development is to increase revenues to city government. I believe the purpose of economic development is to help families in this city care for themselves. So that the federal worker or retiree with a craft or computer business on the side, or the stay at home parent who uses tools, equipment and inventory to buy the groceries is not hit with a tax and a paperwork burden that detracts from the realization of their dreams. If the city would work to support the people, I believe the people will support the city.

Because so many of my customers are artists with micro-enterprises, I urge the city council to think seriously about how the city can help them thrive here. An arts district, based in part on tax incentives, should be an element of any economic development plan.

Sales help but no solution

For many years the store next to mine on Laurel Avenue was the much missed Now & Then, owned by Jude Garrett. After Christmas each year we would both run inventory tax sales, designed to reduce our taxable assets before the New Year. Jude was and is a brilliant retailer who understood the taste of Takoma residents. By January 1, her shop would be so empty that people would ask whether she was still in business. Our customers expect that our bins of beads and shelves of collectibles and gifts be well stocked 365 days a year. The year-end sale helped but did not solve the problem.

Finally, I want to assure our customers that we are working tirelessly to find ever better and ever newer inventory to attract your patronage and add beauty to your home and person. We will continue to do so despite the obstacles the city of Takoma Park puts in our way.

 

1 Comment on "OP-ED: Inventory tax an unfair burden"

  1. Is there anyone in town that likes the new code enforcement position or, as it’s known in my neighborhood, the grass gestapo?

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