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Tipping point for California manufacturing investmentPosted by Gino DiCaro, VP, Communications on April 18, 2013
These days, it seems like states are figuring out how important manufacturing is to healthy economies. The competition is picking up, as states move to reduce costs or create incentives for manufacturers. After all, companies put investment capital in locations with the most attractive business climates.
This could be good news for California. We have state-of-the-art advanced manufacturing facilities employing thousands of California workers. These companies could grow here if conditions are favorable. But there is one key issue that needs to be fixed if California is going to compete for its share of manufacturing growth.
A sales tax exemption on the purchase of manufacturing equipment is a policy most other states have adopted. This gives them a competitive advantage for their campaigns to grow high-wage manufacturing jobs. California had a similar tax rule, but it expired in 2003. We could catch up by reinstating the exemption, which would put California back on so many lists for future investment and growth. For many manufacturers, the sales tax exemption could be the 'tipping point' for a decision to invest in California.
In the 1990's, when the tax credit was in place, California attracted on average almost 6 percent of the country's manufacturing investment dollars. Manufacturing investment in California has now slowed to an average 1.9 percent of the country's, since that credit expired.
The credit helped Intel grow its wafer fabrication plant in Santa Clara and it helped Northrop Grumman grow in part to more than 27,000 employees. Because the exemption still exists in specific enterprise zones, it helped Fontana-based California Steel recently pay for a $100 million expansion. Imagine if this powerful tool were available to every manufacturer again in California.
CMTA had its lobby day this week on the issue to start informing the legislature of the tremendous economic benefits, including new net revenues to the state. Large employers, Intel, California Steel, Kimberly-Clark, International Paper, and Northrop Grumman joined to educate legislators why it is important to eliminate the tax on manufacturing investments.
Economist, Bill Watkins put it perfectly last week when he urged the state Legislature to "Create an opportunity economy." This manufacturing sales tax exemption would do exactly that and create the particular opportunity that California so badly needs.
(There are two sales tax exemption bills. Assm. Kevin Mullin's AB 486 will be heard in Assm. Revenue and Taxation Committee on Monday, April 22 and Sen. Lou Correa's SB 376 will be heard in Sen. Governance and Finance Committee on Wednesday, April 24)
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