January 18, 2020

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Heavy equipment rental companies seek tax breaks

Jason Garcia | 3/21/2019

Florida Trend Exclusive

Companies that rent bulldozers, backhoes and other construction and industrial equipment are lobbying the Florida Legislature for a $30-million tax break this spring.

Led by industry giant United Rentals, which owns a $14-billion fleet of machines and has more than 60 locations in Florida, the heavy equipment industry wants state lawmakers to reclassify their rental equipment as “inventory,” akin to new products waiting to be sold. Inventory is exempt from property taxes under Florida law; tangible personal property, which is how heavy rental equipment is generally classified now, is not.

The lobbying in Florida is part of a nationwide push by the industry to eliminate personal property taxes on heavy rental equipment, or at least replace the tax with easier-to-administer levies.

United and other companies – including Sunbelt Rentals and Herc Rentals, the industry’s No. 2 and 3 players, respectively – have formed an organization called the Heavy Equipment Rental Tax Coalition, which is engaged in similar lobbying campaigns in at least seven other states and has helped persuade legislatures to pass favorable laws in at least half a dozen others.

United has lobbied the National Conference of State Legislatures on the issue, and the industry has enlisted the help of the American Legislative Exchange Council, the Koch-backed coalition of conservative lawmakers that shops model legislation in state capitols.

Representatives for United, which records show spent between $10,000 and $50,000 to lobby the Florida Legislature last year, and the broader industry collation, which spent between $10,000 and $30,000 on lobbyists last year, declined to discuss the legislation they are promoting in Tallahassee. But in lobbying materials, the industry claims that taxing heavy equipment rentals – which is mobile – discourages them from storing unrented equipment in Florida, potentially contributing to shortages when there is a surge in demand after events such as hurricanes.

They also argue that the taxes discourage capital investment by driving up costs for themselves and their customers, which include commercial builders, manufacturers, utilities, energy and chemical companies, paper mills, railroads and shipbuilders. And they say that complying with tangible personal property taxes is complicated and onerous.

Heavy equipment rentals are a $60 billion a year business, according to the American Rental Association, an industry trade group. Stamford, Conn.-based United is the biggest player, with more than 13% of the market. Sunbelt has a 7% market share, while Herc has 3%.

Publicly traded United turned a profit of nearly $1.5 billion last year on revenues more than $8 billion. Roughly 86 cents of every dollar the company earns comes from rentals, though it also sells used equipment as it’s replaced with new machinery. United has nearly 1,200 rental locations in the U.S., Canada and Europe. Its Florida presence includes 46 general rental locations, 16 trench, power and fluid specialty locations and a 31,000-sq.ft. shared services office in Tampa.

The provision the industry is lobbying for is attached to SB 1112, an omnibus tax package sponsored by Sen. Joe Gruters, a Sarasota Republican and the current chairman of the Republican Party of Florida. The legislation includes an assortment of tax changes sought by a variety of interests, including, among others, big physical retailers such as Walmart, Target and Best Buy; the Florida Realtors; and North Venice-based PGT Innovations, which manufactures hurricane-resistant windows and doors.

A few weeks before the legislative session began in early March, records show that a national lobbying firm in Virginia that represents both United Rentals and the Heavy Equipment Rental Tax Coalition wrote a $25,000 check to a political committee set up by a Florida lobbyist who represents both the company and the coalition in Tallahassee. A few days later, that political committee distributed several checks to lawmakers – including $5,000 to a fundraising committee controlled by Gruters and a $2,500 check to one controlled by Rep. Bryan Avila, a Miami Springs Republican who chairs the tax-writing committee in the Florida House.

The tax cut for rental equipment would mean a revenue hit for cities, counties and school boards, all of which are funded by property taxes. When state economists last evaluated the proposal, they estimated that it could save the industry – but cost local governments – anywhere from $18 million to $70 million annually. They ultimately settled on an estimate of a little more than $30 million annually. 

SB 1112 cleared its first legislative hurdle last week, when the Senate Commerce and Tourism Committee approved it by a 5-0 vote. No senator on the committee asked a question or spoke in debate. Of the inventory provision, Gruters told the committee only it “clarifies” state law. 

In an interview with Florida Trend this week, Gruters said he’d been told by industry representatives that they have been moving equipment out of Florida to avoid the tax. But he also said, after further discussions with legislative staff, he has decided to remove the measure from his overall tax package because of concerns it may not be constitutional. The Constitution permits the Legislature to exempt tangible personal property from property taxes when it is held for sale, but not when it is rented.

The industry is still lobbying other lawmakers, including in the state House, which has yet to introduce its own package of tax cuts. The provision could also surface later in session as an amendment to another bill. 

The Florida Legislature has already granted a similar, but smaller tax break. Two years ago, lawmakers inserted a little-discussed provision into a broad tax bill that classified big construction and agricultural equipment – machines that weigh 1,000 pounds or more, like tractors – as inventory for the purposes of property taxes. But it only applied to equipment that is meant to be sold but is rented out first through a rent-to-purchase contract. 

That measure was sought by Tampa-based Flagler Construction Equipment, the exclusive Florida seller of Volvo construction machinery. Flagler, which had been embroiled in litigation with the Orange County Property Appraiser’s Office over whether its equipment should be considered inventory, hired the Tallahassee lobbying firm Ballard Partners to persuade lawmakers to change the law in its favor. 

That legislation was written very narrowly to exclude pure rentals of heavy equipment, both to comply with the Constitution and to keep the fiscal impact down. Economists estimated at the time that that smaller tax break would cost $200,000 a year. 

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