Last Friday, we highlighted a special tax deal offered to Costco by Spanish Fork. Today, we highlight another deal offered in Sandy to Scheels, a sporting goods superstore, and analyze the rationale used to justify these kinds of deals.
Government should not be in the business of providing advantages to favored companies
Earlier this year, Sandy city, Salt Lake County, Canyons School District, and four smaller taxing entities agreed to rebate 100 percent of Scheels’ property taxes for 25 years for a new store in Sandy, a deal worth more than $16.8 million (see here, here, here and here).
To illustrate the magnitude of this deal, the same privilege offered to residents of Salt Lake County, including Sandy, would save each household an average of $1,817 per year in property taxes,1 or $45,425 over a 25-year period. And the same deal would save other businesses an average of $8,928 2 per year for each commercial property they own, equal to $223,205 per property over 25 years.
These numbers raise an important question: Why does Scheels, a company based in Fargo, N.D., get a tax break of mammoth proportions while Utah families and other businesses that have been paying full tax rates for years or decades get nothing?
Clearly Scheels doesn’t need the tax break to survive. It earns hundreds of millions in revenue each year and is expanding into new states, including Utah. So why is it getting a deal? According to Nick Duerksen, director of business and economic development in Sandy, the city was competing with Boise to attract the company.
In Mr. Durksen’s view, bringing Scheels to Sandy will provide taxpayers a net benefit as the company increases the amount of capital investment and jobs in the area and brings an estimated $400,000 in sales taxes each year ($10 million over 25 years).
Certainly, some workers, consumers and other businesses will benefit from Scheels’ presence in the near future, but taxpayers will likely not fully recoup the costs of the deal until as long as 25 years from now, when the company begins paying property taxes.
So the real winners of this deal are Scheels, its employees, and whichever taxpayers happen to live in the area 25 years from now. Current taxpayers who move out too soon are out of luck. They get to subsidize profits and jobs for Scheels and its employees without ever receiving a positive return on their supposed investment.
But if government hadn’t offered Scheels a special deal and the company had chosen to expand in Boise instead of Sandy, wouldn’t that be a huge loss for Sandy residents? Hardly.
Does anyone really think that developing a prime property situated adjacent to a new I-15 exit without offering special tax breaks would be difficult? In this case, taxpayers could likely have their cake and eat it too by waiting for another business to develop the property – a business that is willing to pay its fair share of taxes.
And let’s not underestimate the importance of treating all businesses alike by requiring them to pay the same tax rate. Giving special privileges to some companies provides them a government-subsidized advantage over their competitors.
To put this in athletic terms, as a new member of the PAC-12 the Universityof Utah is receiving a partial-revenue share during its first three years in the conference until it becomes a full-revenue member in 2014-15. Utah fans might prefer a better arrangement for them, but what would Cal, Oregon, USC, and other long-time PAC-12 members think if newcomer Utah received a greater revenue share than them for its first 25 years in the conference? Surely they would decry the deal as an unfair competitive advantage for Utah.
And yet, when it comes to the 12 or more sporting goods stores and other Scheels competitors in Sandy, tax-break advocates seem to have no qualms about giving Scheels a distinct advantage – for 25 years!
Some people might argue that governments competing with one another for businesses is a fact of life; that offering special tax deals is a necessary evil to “get in the game”; and that disadvantaged business owners should be willing to sacrifice for the “common good.” These people would do well to remember Cicero’s declaration over 2,000 years ago:
“Let it be set down as an established principle, then, that what is morally wrong can never be expedient – not even when one secures by means of it that which one thinks expedient; for the mere act of thinking a course expedient, when it is morally wrong, is demoralizing” (De Officiis, Book III -).
Government should not be in the business of providing advantages to favored companies. In the end, our government and people will be much better off by trusting in the free market and promoting justice and fairness. It’s not worth sacrificing these principles for some potential (unguaranteed) economic activity.
1 Average property tax paid per household in Salt Lake County in 2009.
2 Total property taxes collected on commercial properties in Utah in 2009 divided by the total number of taxable commercial properties in the state.