The International Warehouse Logistics Association (IWLA) released details of research it commissioned to discover details about how states tax warehouse services. It revealed that only five states impose a service/sales tax on the warehouse-based distribution industry where the tax focuses on the majority of services provided inside that state or exclude interstate commerce.
"Imposing a warehouse sales/service tax is asking distribution companies to pack up and leave for a neighboring state where such provisions do not exist," says IWLA President & CEO Joel D. Anderson. "The pending April 1 tax in Minnesota would make the state unique—in a bad way. The state budget isolates the logistics industry for a services/sales tax, giving great incentive for Minnesota companies to leave for the more friendly environments of Wisconsin and Iowa."
The legislature in Minnesota passed a revenue budget that singles out the warehousing business sector: A 6.5-percent services tax will go in effect April 1, 2014. IWLA members in the state strongly oppose this legislation. They cite its effect as giving an advantage to warehousing operators in bordering states. This means that the logistics industry—and the jobs it creates—will be more likely to leave the state.
"Warehousing businesses must have lean operations to survive,” Anderson said. “When states single out one business sector and impose taxes on it, business owners will reassess the cost of doing business in that state. Warehouse-based third-party logistics businesses are no exception to this cardinal rule."
The KMPG report’s findings sheds light on where Minnesota's tax policy stands compared with other states:
- Of the 50 state tax structures examined, only Hawaii, Mississippi, New Mexico, South Dakota and West Virginia impose a service/sales tax on the warehouse-based distribution industry.
- Hawaii, New Mexico, South Dakota and West Virginia impose general sales/services tax on the price of all domestic services. Mississippi imposes a sales tax on the sale of public warehousing but provides an exemption for goods stored in interstate transit and for perishable goods.
- Minnesota's new public warehousing sales tax, beginning April 1, 2014, will assess a sales tax on public warehousing and also exempt from such tax agricultural, refrigerated, electronic, self-storage and motor and recreational vehicles.
Minnesota is the only state to specifically target public warehousing for a sales/services tax; the other states tax the majority of services provided inside that state. Only one state bordering Minnesota—South Dakota—has comparable services/sales taxes on all domestic retail transactions.
"KPMG's research reveals that the tax yield and the tax facts purported by the Minnesota Tax Commission were clearly in error, leading the legislators to mistakenly enact a warehouse services/sales tax," Anderson said. He predicts severe consequences for the 72,865 people working in the state's transportation and warehousing employment sectors and to the small and large Minnesota businesses that rely on the in-state warehouse industry.
"It is time for legislators, now that they have accurate facts before them, to repeal the tax and look to the greater good of Minnesota's job creation and economic health," Anderson said.