Four Alternatives to the Warehouse Tax

The latest tax proposal to balance the $2.2 billion budget shortfall is receiving a cool reception. The tax hike under consideration would extend the sales tax to commercial warehouses. The tax affects companies that not only store but distribute goods.

This tax was a component of Gov. Wolf’s budget proposal, which included $1 billion in higher taxes. It had not been discussed publicly since February. According the governor’s estimates, the tax would generate $153 million per year.

Fortunately, many lawmakers understand the tax would hurt warehousing and transportation businesses. For one, many warehousing contracts are long-term deals. Businesses simply can’t pass on the 6 percent tax, forcing them to absorb the costs.

Additionally, such a tax would make Pennsylvania less competitive with warehouses in New Jersey, New York and Ohio. Only five states tax commercial storage. A study commissioned by the International Warehouse Logistics Association found raising taxes on these business could kill 9,000 jobs in Lehigh Valley alone.

This idea of singling out one industry to bear the brunt of a tax increase isn’t new. Last year, Gov. Wolf and lawmakers enacted a 40 percent tax on e-cigarettes, causing around 100 vape shops to close.

Here's the good news. There are numerous solutions that could easily replace the $150 million raised by another tax increase:

  1. Tap shadow budget surpluses. As of today, the Treasurer is reporting $9.2 billion in the state's various accounts. The current budget agreement reportedly includes using just $300 million of these funds. Lawmakers could easily increase this amount to cover revenue from a tax hike.
  2. Reduce subsidies for horse racing prizes. The state sends approximately $250 million in slot machine revenue to the horse racing industry each year. Is this really a priority for state government?
  3. Make Gov. Wolf's spending freezes permanent. The governor has already put $188 million of optional spending into budgetary reserve. Instead of restoring this spending, lawamkers can accept Gov. Wolf's plan to reduce spending and avoid raising taxes.
  4. Enact liquor reform. Additional liquor reforms appear to be on the table in negotiations, but it is unclear how far lawmakers will go. Total privatization could raise potentially $1 billion. Less robust reforms could raise anywhere from $1 million to $329 million.

With all of these options on the table, lawmakers can not justify killing jobs with higher taxes.