To grow manufacturing jobs states should extend sales tax parity for purchases to computers and IT equipment used in the production process.
A wide array of economic studies points to the importance of IT in driving productivity. Yet, most states are still stuck in the old economy when it comes to their tax incentives for manufacturers. Most provide a sales tax exemption for manufacturers for equipment purchased in the manufacturing process, and some even provide tax credits for the purchase of manufacturing equipment. But few extend this exemption (or credit) to computer and other IT equipment used in the rest of the plant, even though from a competitiveness standpoint it can have an even bigger impact than a traditional piece of machinery. For example, under Washington state’s rules governing its manufacturing sales tax exemption , manufacturing computers qualify only if they “direct or control machinery or equipment that acts upon or interacts with tangible personal property” or “if they act upon or interact with an item of tangible personal property.” Many other states have similar restrictions. States should simply eliminate this requirement and allow any IT equipment, software or devices purchased by manufacturers to be exempt from state sales taxes.