Targeted Tax Preferences are Unfair

Entrepreneurs drive employment and prosperity

Legislators are considering bills to expand tax preferences to a small number of businesses, exempting them from taxes that other, similarly situated businesses pay.

House Bills 5127 and 5128 would extend existing sales and use tax exemptions by 20 years and apply them to a limited number of businesses in a specific industry. These exemptions would only apply to data center companies — businesses that store websites for other companies and provide them with other information technology services — that spend $250 million or more on buildings and equipment. It would not apply to businesses in the same industry that have spent less.

If Michigan is going to assess sales and use taxes, it should not exempt small numbers of companies. Other businesses do not receive these kind of tax preferences, and thus the exemptions create an uneven playing field for businesses in the state.

Supporters of these favors argue that they are costless because large data centers will not locate in Michigan without them. But there are other factors that matter to these kind of businesses besides tax policy. For instance, companies in this industry also market their services based on proximity to population centers, likelihood of natural disasters, cost of living and the cost of electricity. And others pitch their customer service and responsiveness.

What matters to the big picture of Michigan’s economy is not whether lawmakers bend to companies that want tax preferences. It’s the thousands of entrepreneurs and business managers who are constantly responding to their business opportunities, their customers and their workers. That’s what drives employment and prosperity, and it’s more important than whether Michigan chases a small number of businesses that want to play by different rules. Good policy can encourage more job growth and less job loss with broad-based improvements to the business climate.

Michigan’s tax policies already include a number of selective preferences. Lawmakers should be skeptical about adding more.