Inventory taxes pose an additional cost of doing business in more than a dozen states, and despite efforts to mitigate the competitive disadvantage the practice creates for many taxpayers, policymakers have yet to propose an equitable fix. Virtually all states employ a property tax at the state or local level. The most common target is real property, which is land and land improvements; and tangible personal property such as fixtures, machinery and equipment. Nine states also tax business inventory. These include Texas, Louisiana, Oklahoma, Arkansas, Mississippi, Kentucky, West Virginia, Maryland and Vermont. Another four states — Alaska, Michigan, Georgia and Massachusetts — partially tax inventory. In these 13 states, inventory tax contributes a significant portion of overall property tax collections. From a policy standpoint, however, inventory tax is probably the least defensible form of property tax: It is the least transparent of business taxes; is “non-neutral,” as businesses with larger inventories, such as retailers and manufacturers pay more; and it adds insult to injury for businesses whose inventory is out of sync with finicky consumer buying habits. Few fixes Taxpayers have had few options in attempting to reduce inventory tax liability because an inventory’s valuation is seldom easily disputed. So, …
