State Sales Tax and Manufacturing Plant Location

David Joy, PhD, and Stephen C. Del Vecchio, DBA, CPA, and Janice L. Klimek, PhD, CPA

When companies seek to decide where to locate a manufacturing plant within the United States, state and local tax laws and regulations can play a significant part. Many state governments structure tax laws in ways that are favorable to businesses, which can have favorable cost consequences for companies locating or expanding in these states. States create these favorable tax laws in order to foster the creation of new jobs for residents and increased capital investment, which should result in an increase in the state's tax revenues through additional income and property taxes. Over time, the addition of state sales tax incentives has caused sales tax rates to differ considerably from state to state, from a low of zero to a high of more than 9%. Because of this wide disparity in state and local tax rates, companies should seek out favorable state tax environments when deciding whether to build a new manufacturing plant or expand an existing plant in a particular state. These differences in state and local sales taxes can result in significant variations in the construction costs and operating expenses related to the manufacturing process.