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Equipment Rental More Taxing in Baldwin County

Thu October 11, 2007 - Southeast Edition
Kerry Lynn Kirby

A new tax going into effect Nov. 1 in Baldwin County will mean higher costs for contractors renting or leasing heavy equipment.

The new lease/rental tax — authorized by the state legislature earlier this year and adopted by the Baldwin County Commission on Sept. 4 — means a 4 percent levy on top of the state’s rental tax and any municipal rental tax on cranes, backhoes, rollers and other heavy equipment.

County officials say the tax will provide a needed “revenue stream” to help fund the county’s 10-year strategic plan to cope with the strains that rampant growth is putting on its infrastructure and services, from roads and schools to police protection and the number of judges.

“It’s kind of a progressive tax,” said Baldwin County Administrator Michael L. Thompson. “You help to pay for the additional infrastructure that’s needed based on the growth that’s taking place in your county.”

But for contractors it means yet another cost of doing business on top of already increasing costs, like new municipal impact fees and rising permitting fees, said Terry Stewart, owner of Visionary Home Builders in Gulf Shores.

“We’re having to cut our throats just to build an affordable house,” said Stewart, after learning of the new tax.

For example, he said, he rents cranes to lift and set his modular homes at a cost of $5,000 to $8,000, and tacking on a 4 percent tax is not insignificant when talking about a home in the 1,500-sq.-ft. range.

“We’re having to build so tight because of the market,” he said.

After a building boom, Stewart said, the county is actually in a “building recession,” and he is having to turn away subcontractors looking for work.

The county’s municipalities have started imposing impact fees, from a flat fee of $3,000 to $4,000 to a percentage of the building costs, depending on the city, on top of permitting fees that can run several thousand dollars, he said.

“All this will do is slow construction even more and hurt our economy,” Stewart said.

John L. Pope, vice president and sales manager of Pittman Tractor Company Inc. in Daphne, called the new tax “terrible” for equipment dealers and their customers.

“We’re not real pleased … and we’re sure nobody else is,” Pope said. “It’s going to have an impact on our rental business to some degree.”

While companies with smaller leasing operations, like Pittman, will be affected, the tax will hit bigger equipment dealers even harder, he said.

In addition to a bump in the overall rental cost, the new tax will mean more paperwork, Pope said.

“It will add extra work for us, no doubt about it,” he said.

Starting Nov. 1, it’s up to the rental business to collect the tax and, starting in December, to remit monthly payments to the county by the 20th of each month for the prior month’s transactions, according to Baldwin County Budget Director Ron Cink.

Taxing “leased tangible personal property” — heavy equipment rentals included — isn’t unique to Baldwin County, Thompson said.

According to the Alabama Department of Revenue’s online tax rate database, nine of Alabama’s 67 counties, including neighboring Mobile County, were imposing a tax on rented property as of Oct. 1. Numerous Alabama cities, including several in Baldwin and Mobile counties, also have a rental tax.

Thompson said they didn’t hear an outcry from “folks in that industry” when they were considering the lease/rental tax, which is budgeted to bring in $1 million in revenue this fiscal year and estimated to bring in $2 million to $4 million “once it’s fully operational.”

He said that while they were concerned about the size of the tax that Baldwin would impose, “the folks in that industry were actually supportive” of a small rental tax.

Thompson said he doesn’t think it will be a factor in slowing construction in the county, as the lease tax is “relatively minor” when spread over the cost of building a subdivision.

The tax applies to a wide variety of other rented items falling under the “general” category at the same 4 percent rate, though the leasing and rental of vehicles is taxed at a lesser 1.75 percent “auto” rate to make it equal to the sales tax on vehicles, he said.

The state of Alabama already imposes a 1.5 percent rental tax on “anything self-propelled with an operator,” according to Alabama Department of Revenue spokeswoman Carolyn Blackstock.

That would include construction equipment like bulldozers, cranes and front-end loaders, Blackstock said.

Things like generators, air compressors and scaffolding don’t get the discounted “automotive rate,” and thus pay a rental tax at the same 4 percent rates as the state’s general sales tax, she said.

According to the Alabama Department of Revenue database, the nine counties with rental taxes in effect now are: Calhoun (6 percent general, 2.25 percent auto), Chambers (3 percent general, 1.125 percent auto), Jackson (2 percent general, 0.75 percent auto), Madison (1.5 percent general, 0.75 percent auto), Mobile (1 percent general and auto), Russell (3 percent general, 1.5 percent auto), Shelby (3 percent general, 1.125 percent auto), St. Clair (2 percent general and auto) and Walker (3 percent general, 1 percent auto).

Mobile County’s 1 percent rental tax — the same as the county’s sales tax — applies to all rentals, including heavy equipment, said Mobile County Commission spokesman Peter Albrecht.

In Baldwin County, nine municipalities already have a rental tax in effect: Orange Beach (3 percent general, 1 percent auto), Summerdale (2 percent for both categories), Daphne (2.5 percent general, 1 percent auto), Robertsdale (2 percent general, 1 percent auto), Foley (2 percent general, 1 percent auto), Gulf Shores (3 percent general, 1.5 auto), Bay Minette (3 percent general, 1.5 auto), Loxley (2 percent general only) and Spanish Fort (1.5 percent general, 0.75 percent auto).

Four municipalities in Mobile County impose a rental tax: Mobile and Chickasaw, 4 percent for both general and auto, Prichard, 5 percent for both categories, and Satsuma, 2 percent for both categories.

Buddy Sharpless, executive director of the Association of County Commissions of Alabama, said he wasn’t aware of any Alabama counties seeking to enact a new rental tax.

If Baldwin’s new tax generates a sizeable amount, other counties may consider it, said Chris Williams, director of governmental relations for Irondale-based Alabama Associated General Contractors.

Like Baldwin, they will likely take a single-county approach to getting the legislation needed to enact such a tax, Williams said.

He said he expects it to become a statewide legislative issue only if the tax becomes so popular among counties that there is an industry-led move to contain the tax rate.

Under the Baldwin County Legislative Act, 75 percent of the new revenue will go to the county’s general fund “to be expended, as approved by the Baldwin County Commission, for general purposes,” except for $100,000 appropriated each fiscal year to a separate county fund “for the operation of the Baldwin County Legislative Office.”

The other 25 percent will go to a separate county fund “to be expended … for capital outlay for the Fort Morgan State Historic Site and Historic Blakeley Authority,” according to the act.

The complete text of the Legislative Act and the county’s tax enactment are available at CEG

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