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Bottom line for Mississippi-based electronics manufacturer: less competitive

Peavey worried about the costs of higher taxes

Meridian — Ask Hartley Peavey, owner of Peavey Electronics, about the impact of the weak dollar on exports, and you’ll get an earful. While the weak dollar creates some advantages, Peavey is increasingly concerned about other factors that make his company less competitive.

Peavey Electronics, which celebrates its 40th anniversary this year, has competed in the rapidly changing international marketplace by switching from selling lower priced products to very technologically sophisticated, high-priced electronics. While best known for producing guitars and amplifiers, the largest part of Peavey Electronics business is putting in sophisticated sound systems for large operations such as the new air terminal in Heathrow, England.

A year ago the euro was 88¢. Most recently it was $1.33. While that helps his business in Europe, he has concerns about the overall picture.

“That means all of these people who have their savings in dollars may find that we have that ugly dragon of inflation back with us,” Peavey said. “On the other hand, our fair state that has spent itself into oblivion might find it easier to pay off debts with devalued dollars. The state is broke, most of the counties are broke and most of the municipalities are broke because they went on a spending frenzy a few years back when times were somewhat better.”

Peavey said there is a storm brewing because American workers want to make high wages, but buy cheap imported goods.

“You have all these Americans making good money, buying all these imported goods,” Peavey said. “Eventually (starting about now) that is going to ‘come home to roost’. Americans want to earn $30 per hour, and pay $12 for a pair of tennis shoes. Sooner or later that is going to hurt American industry, which then won’t be able to afford to hire Americans at the wages they want to earn. And if we collectively don’t create more than we consume, guess what happens?”

The trade deficit in U.S. hit an all- time high in late 2004. Peavey fears that sooner or later, Japan, China and other countries will stop making investments in the U.S. dollar.

“And when we can’t borrow anymore, what can we do?” Peavey said. “If everyone loses faith in American dollars, and wants their money to be in euros, yen or marks, do you realize what that would do to our economy? What if the Arabs got tired of taking dollars? You don’t think the Arabs are thinking of that? Instead of gas at $2 per gallon, it could be $5 per gallon like the rest of the world.”

Peavey said an issue bigger than the value of the dollar is the competitiveness of Mississippi. Fees for water and sewer in Meridian have gone up 18% in the past two years, and will go up another 10% next year. Mississippi Power Company is proposing a rate increase. Mississippi has a 5% state income tax, and one of the highest sales tax rates in the nation. And the Mississippi State Tax Commission has been making tax assessments that Peavey said are completed unjustified.
For example, the Tax Commission has determined that the 800 computers used by Peavey are not being used for manufacturing. So Peavey is being hit with a use tax on all computers.

“I wish someone would show me how a state-of-the-art manufacturing company can operate without using computers,” Peavey said. “We use computers for work orders, working processes and to track inventory of raw materials and finished goods. We use computers to generate invoices to ship goods out the door. How can we react to the State Tax Commission that says you don’t use a single computer for manufacturing and we want a 7% use tax on them?”

Peavey said that they have appealed that determination, and hope progress has been made on getting the use tax rate corrected for some of the computer expenses.
The Tax Commission also wants a 7% use tax on their offices, Peavey said, stating that they are not involved in manufacturing.

“Mississippi has some of the highest taxes in the nation, and many people don’t know it,” Peavey said. “When I hire people to come in from other states, and they go to buy license plates or car insurance, tags and car insurance are some of the highest around. These are detrimental to competitiveness and industrial recruiting.”

Peavey said his company competes not so much with firms in Chicago, L.A. and Kansas, but in places outside the U.S. with names which are hard for us to pronounce.

“For Peavey to be competitive, Meridian has to be competitive, Mississippi has to be competitive, and last but not least, the U.S. has to be competitive,” he said. “Mississippi is particularly bad about raising taxes and fees. Come here and look at the cost of housing, car tags, and the Mississippi state income tax.

“Let’s take Florida as for instance, which has a 6% sales tax and no state income tax. Ditto for Texas. People come in here to look at Mississippi for a possible location here, and all those things matter. A 5% income tax is significant. If you are locating an industry somewhere, and have to pay 5% income tax in Mississippi, and in Florida and Texas you didn’t, where would you locate? I mention this because Mississippi thinks it is competitive. But what I’m telling you is that those who have to compete know that it isn’t.”

Peavey also believes the big incentives paid to attract industries like Nissan are fiscally irresponsible.

“Nobody paid for my plants,” Peavey said. “They gave me a 10-year partial ad valorem tax exemption on some of them, but that is it. But the State of Mississippi helped Nissan … So, consequently, the state is bankrupt and wants to go up on taxes. If you looked in the dictionary for a picture of fiscal irresponsibility, you could put Mississippi in there as an example.

“Since July, my company has hired more than 140 people. I didn’t ask for or get a cent. With one exception, I didn’t even get a thank you. I was rewarded by local folks with my expenses of business going up.

“The real business world is a fight to stay alive. Some officials in Jackson apparently don’t know that. It is very difficult to be out here on the front line, compete with all the competition, and have some of my local, county and state leaders shooting us in the back, raising the costs of doing business and making us less competitive every day.”

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.


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