The International Warehouse Logistics Association has told Pennsylvania Governor Edward G. Rendell that his proposal to impose a 4% sales tax on warehouse services would drive jobs out of Pennsylvania by making it more difficult for warehouse operators there to compete with similar businesses in surrounding states.

“A 4 percent increase in transport and storage costs in and out of Pennsylvania is bad for jobs and bad for tax collections,” Joel Anderson, president of IWLA, writes in his recent letter to Gov. Rendell. “Warehouse firms and their customers will sharply reduce Pennsylvania operations and the Pennsylvania citizen will be worse off.” He adds, “In this economy, our customers will not tolerate a 4 percent increase to do business in Pennsylvania when they can easily go across the border to Maryland, Ohio, New York or New Jersey and easily utilize the services of a competitor warehouse not subject to this tax.”

According to Anderson, the proposed tax on warehouse services will hurt Pennsylvania businesses because the third-party warehouse industry is interstate in nature, which means that they serve customers who are either moving product into or out of the state. Because of this, he notes, warehouse customers can choose to use warehouses anywhere along the supply chain, including those located in neighboring states.

In his letter to the governor, Anderson cites a 2007 Michigan State University study that investigated the economic impact on jobs in Michigan if that state had imposed a sales tax on warehousing. The research demonstrated that a sales or service tax on warehousing would result in a loss of several thousand warehouse- and transportation-related jobs and a net loss of millions of dollars in tax revenues to the state. As a result, Michigan repealed this tax prior to its imposition and the probable loss of jobs was the key reason for this repeal.

Gov. Rendell has asked the state legislature to help shrink a $5.6 billion state deficit by reducing the Pennsylvania sales tax from 6% to 4% and extending it to a list of 74 products and services not currently taxed, including commercial warehousing. He has projected that the change would raise about $531.5 million for the state from September through June 2011.