Warning: main() [function.main]: Unable to access ../leftcolumn.php in /target/apacheweb/domains/cmta.net/htdocs/turning_california_around/milken/sales_tax_reduction.php on line 16 Warning: main(../leftcolumn.php) [function.main]: failed to open stream: No such file or directory in /target/apacheweb/domains/cmta.net/htdocs/turning_california_around/milken/sales_tax_reduction.php on line 16 Warning: main() [function.include]: Failed opening '../leftcolumn.php' for inclusion (include_path='.:/usr/share/php:/usr/share/pear') in /target/apacheweb/domains/cmta.net/htdocs/turning_california_around/milken/sales_tax_reduction.php on line 16

Competitive Tax Policy for Manufacturing Investments The economic downturn hit manufacturers harder than other sectors of the economy, to the detriment of workers losing high-wage jobs. California has lost 18 percent of its manufacturing jobs since January 2001. To restore manufacturing employment we must remove competitive barriers to hiring workers and making new investments in California. The Turning California Around: CMTA Agenda for Jobs campaign includes workers comp reform, increased energy supplies, lower energy rates and competitive tax policies for manufacturing investments. Since 1994 the manufacturer's investment tax credit (MIC) has paid back to manufacturers a portion of the sales tax they pay on new equipment. (Only four other states impose a sales tax on manufacturing equipment.) When the MIC expired this year, manufacturers effectively incurred a 6% tax increase on new machinery and equipment purchases. The MIC expiration helps balance the state budget this year, but the tax increase is fundamentally unfair and has created a significant disincentive to making new investments in California. To the extent the tax increase slows the economic recovery, future state tax revenues will diminish. Summary of Proposal: CMTA proposes that qualified taxpayers be exempt from the state portion (5 cents per dollar) of the sales tax on new purchases of qualified manufacturing equipment. To eliminate the state budget impact for the current budget year, CMTA proposes that the sales tax be paid currently and refunded to the taxpayer in future years. Benefits of a Sales Tax Exemption with Deferral: As the global economy recovers, the high cost of doing business in California is leading many manufacturers to expand or shift operations overseas or to other states. New machinery and equipment investments will foster productivity gains, making manufacturers more competitive and allowing them to keep employees in California. Reduction would mean $624 million in new net revenue to the state The Milken Institute found that a 5 cent reduction in sale tax for the purchase of manufacturing equipment would create 500,000 jobs over 10 years, of which 140,000 would be created in manufacturing, and contribute $624 million in new net revenue to the state. (Download full study) The deferral will limit the budget impact of the exemption to the future years in which the Milken study estimates the stimulus effect will have overcome the early years cost of the exemption. This makes the exemption self-funding under an appropriately timed refund period. (The deferral would dampen the stimulus at least to the extent it reduces the value of the exemption by the time value of money for the years prior to refund.) On the heels of the MIC expiration, a new and improved incentive for manufacturing investments will send a strong message that California is striving to maintain fair and stable tax policies and to make the state more business-friendly even during difficult budget times.