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Manufacturing 'free agent,' Tesla Motors, reveals California support for equipment tax exemption

Posted by Gino DiCaro, VP, Communications on July 1, 2008

Yesterday, Tesla Motors announced it will manufacture its Model S electric vehicle here in California right next to their Research and Development facility.  Last year they made a semi-public, and what we thought was a final decision to build their manufacturing operation in Albuquerque New Mexico.  Now a sales tax exemption on all of their manufacturing equipment purchases, along with at least $1 million in training funds has turned them around and brought them back to California.

This exemption is similar to the one all of the State's manufacturers received before 2003.  The Legislature allowed it to be eliminated and, since 2004, California manufacturers have been operating in one of only 3 States that fully tax this equipment.  It's one of the most significant competitive issues that contributed to the loss of almost a quarter of our manufacturing community since 2001.

The Gov. put out a two-page press release touting the incentive and Tesla's decision.  That press release will be bronzed and framed here at the CMTA offices because it is the first acknowledgment of a sales tax incentive to grow manufacturing.  And it's a recognition that substantial costs have to be overcome in California for an operation to pencil out.

What the release and the details also show is that the State is only interested in incentives to grow the highly coveted green product manufacturers.  This is a good start no doubt.  But what about companies that don't fall directly under a green banner or produce the Holy Grail of global warming products?  Why is it good for one manufacturer and not another?  Why is it not good for Intel and the $70,000 a year jobs that produce the semiconductors that run the world?  Why is it not good for Sheffield Platers in San Diego, with major environmental awards, 50 employees making everything from golf clubs to aerospace plating and supporting 300 small businesses?  Why is it good to keep them uncompetitive and provide relief for Tesla?

The Governor's actions prove something we've all known for some time.  The State will put up cash if it makes us greener (even though we are already one of the most greenhouse gas efficient states in the country).  But it won't put up cash if it makes us wealthier in the future.   I expect it's because the resulting press release is too far down the road for any politician to fully embrace such a dynamic concept.  The economic benefits will be a future politician's credit and not their own.

The fact that the Governor and some California Agencies made this happen doesn't mean they can make it happen over night for the rest of the State's wealth creators.  But the Governor can push our biggest challenge - the Legislature - to include in the budget as an economic stimulus a broad 5-cent sales tax exemption on equipment and offset the 23 percent higher costs out here in California.

CMTA has received little attention over this issue since 2004 and I suspect the coverage will last as long as the Governor's press release stays dry on my desk before a rogue diet Pepsi washes it away forever.  But maybe, just maybe, this can be the day this "deal-breaker" got off the ground for the rest of California's manufacturing free agents and made us all a lot more competitive.


See CMTA's "Stay True" for more on manufacturing importance
See CMTA's  California Manufacturers Leading the Way for more on manufacturing's economic footprint from supplier networks.



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