January 31, 2009 in Opinion

‘Tax exemption’ really an incentive

By Mark Sonderen Special to The Spokesman-Review

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999 W. Riverside Ave.

Spokane, WA 99201.

J. J. Loper was flipping hamburgers at a local fast-food restaurant when he decided he wanted a better job. Today, he works in patterns and cutting dies at our Spokane packaging plant at more than double the salary with full benefits. To help him advance his career and earn a higher salary, we are paying his community college tuition to increase his machining skills.

Christi Solis works in packing and quality control. She makes sure our products are ready to be shipped to our customers. She and her husband use her salary to supplement the family income, and when Christi recently gave birth to their first child, they used our health care plan as their primary coverage.

It’s likely that neither J. J. nor Christi would be working for me if it weren’t for what’s known as the M&E exemption. For me, it is the key to my company’s ability to grow and hire new people.

State lawmakers passed the exemption in 1995 to stimulate investment and job creation in Washington’s manufacturing sector. It exempts manufacturing machinery and equipment (hence M&E), along with research and development, repairs and replacements parts from the sales tax.

In its first 10 years, the M&E exemption created almost 285,000 new jobs and added $81.5 billion to the Washington state economy. Over the next seven years, it’s projected to create an additional 45,000 jobs and add more than $49 billion to our faltering economy. Still, some have suggested that the exemption should be repealed.

Thankfully, Senate Majority Leader Lisa Brown, D-Spokane, has made it clear the Senate supports the M&E. In her Senate Democrats blog entry on Monday, she wrote of the M&E: “… we clearly have no plans to end that tax exemption. If anything, we intend to expand the toolkit of incentives to spur investment now.” I hope other legislators follow her lead.

I first learned the value of the M&E exemption in 1998 when my company burned to the ground.

The fire destroyed $10 million worth of machinery, but fortunately no one was injured. With the help of our dedicated employees, loyal customers, understanding suppliers and a few friendly competitors, we were fully operational in 15 weeks. Best of all, we didn’t lay off a single employee and we kept 100 percent of our customers.

What does this have to do with the M&E exemption? We probably wouldn’t have a healthy company today without it.

Exempting the sales tax on equipment purchases saved us more than $800,000 when we replaced the machinery lost in the fire. I used those savings to buy another piece of equipment, which meant hiring more people to run it. Since then, we’ve added another $6 million in equipment and hired more people.

We had 45 employees when the fire struck in 1998. Today, we have 111 employees – people like J. J. and Christi and dozens of others who have good, family-wage jobs with full benefits. And as we’ve grown, we’ve increased our accounting and customer service staff and added a human resources department.

When I think about it, calling the M&E a tax exemption is misleading, because it’s actually an incentive to invest. Purchasing equipment is a direct investment in the future of my company and my people. Taxing investment – in my case, investments in new equipment – makes it harder for me to grow, provide more jobs and build wealth – wealth that ripples throughout the entire community and adds much-needed tax revenues to state coffers.

For me, it’s very simple. My father started our company in 1963. I took over in 1980, and my son and daughter who work with me will be the third generation of our family business. But the M&E exemption is the key to whether we stay in Washington. Think of the M&E as the tipping point. Without it, my future growth and development will start focusing out of the state.

One more thing. We just finished a $2.5 million addition to our building. That’s $2.5 million that went into the pockets of construction workers, truck drivers, material suppliers, shippers, secretaries and clerks – as well as permitting fees and tax revenues to city, county and state governments. It all started with the M&E exemption.

It’s very simple, really. The M&E exemption makes it possible for me to purchase new machines. Without machines, I’m not growing. If I’m not growing, I’m not hiring.

As Sen. Brown says, we need to spur investment now. And it all starts with the M&E.

Mark Sonderen is president of Sonderen Packaging in Spokane.

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