It’s time to cut the inventory tax

Andy Ellard

The Mavericks, Rockets, and Spurs – and any other team in the National Basketball Association (NBA) – are all subjected to a “luxury tax” if their total roster salary exceeds the league’s salary cap. But unlike the NBA’s luxury tax, which would bring teams closer to securing the NBA Title, Texas’s inventory tax only sets small businesses behind year after year.

During Governor Abbott’s state of the state address, he reiterated his commitment to providing meaningful property tax relief for Texans. I was relieved to hear him include it as his first emergency priority for the 88th Legislature. Hopefully, they heed his urgency.

Like many small business owners here in the Lone Star State, there’s nowhere else I’d rather call home. Located in Northwest Dallas, Manda Machine Company has been in my family for three generations – and we’re not going anywhere anytime soon. But something’s got to give.

To meet our customers’ needs, we keep roughly $100,000 worth of metal in our inventory. Without it, we’d be toast. Our customers appreciate knowing that when they come to us, we can tackle their projects quickly and professionally. But Texas taxes that inventory – and everything else in our business – regardless of whether or not it turns a profit. All of it is taxed every year.

Not only does it take significant time and resources to comply with this tax, but it’s costly. This year, we cut a check to the state of Texas for nearly $20,000 on our inventory and equipment.

As a small business owner, that $20,000 goes a long way. It’s a mere drop in the bucket for the state, which has a record-breaking budget surplus. Without that tax, over time I’d be able to invest in my business to expand our operations, hire more workers, and increase my employees’ wages.

It’s also terrible for consumers. I have to make decisions about how much or how little inventory I keep on hand. With more supply, I pay a higher inventory tax. With less supply, I run the risk of shipping delays. Either way, we run into the risk of increased costs.

All said, we’ve got it relatively easy. But for other operations who have heavy machinery and warehouses full of inventory to keep their doors open, I can only imagine what their tax bills look like.

As only one of nine states that fully taxes a business’ inventory, it’s hard to overstate the competitive disadvantage of the tax. It’s time for Texas to stand up for small businesses and pass meaningful tax relief.

Amid soaring inflation and a looming recession, Governor Greg Abbott and Lieutenant Governor Dan Patrick are to be commended for prioritizing property tax relief this legislative session. While increasing the exemption to $100,000 is a good start, I know repealing the tax entirely would be preferred.

I hope the 88th Legislature takes this issue seriously and delivers a victory for small businesses. That’d certainly be more appreciated than any NBA Title.

Andy Ellard owns and operates Manda Machine Company, Inc. in Dallas.