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Cal Tax says: "Let's encourage manufacturing in CA"

Posted by Gino DiCaro, VP, Communications on April 30, 2017

Last week, as the Legislature heard two bills to extend and improve a California sales tax exemption on manufacturing equipment purchases, the California Taxpayers Association (Cal Tax) president wrote a great piece for the OC Register on the importance of encouraging manufacturing investment in California. Most states either don't tax the purchases in the first place or provide some level of exemption. If the state's exemption was allowed to sunset, it would create a competitive disadvantage in California's ability to attract investment for the high wage sector.  Cal Tax analyzed the state's current temporary exemption and found that every $1 dollar of incentive claimed has created $23 in return investment.  Cal Tax's piece below. Share it around where you can.

Let's encourage manufacturing in California 

by Teresa Casazza -- President, Cal Tax
(ran in OC Register April 27, 2017)

While discussing California’s loss of manufacturing jobs, a colleague once quipped that at the rate we’re going, the only factory jobs left in this state will be at The Cheesecake Factory.

We haven’t gotten to that point yet, but it is true that the Golden State has been losing manufacturing jobs to other states and countries, in large part because of the high cost of doing business in California.

Even native California companies are moving operations to other states. The latest is Aerojet Rocketdyne, the pioneering aerospace company that is eliminating 1,100 jobs in Sacramento and creating 800 jobs in Alabama. You don’t have to be one of Aerojet’s rocket scientists to know that California needs to improve its jobs climate.

In 2013, the Legislature and governor approved an economic development plan to attract and retain high-paying manufacturing and research-and-development jobs. This legislation has been good for our economy, and has the potential to be great with a few adjustments — tweaks included in twin bills, Assembly Bill 600 and Senate Bill 600, by Assemblyman Jim Cooper and Sen. Cathleen Galgiani, respectively... READ MORE ON OC REGISTER

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A quick look at manufacturing jobs numbers

Posted by Gino DiCaro, VP, Communications on Oct. 29, 2013

Manufacturing jobs growth chart

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Mounting support for competitive tax policy for manufacturing growth

Posted by Gino DiCaro, VP, Communications on Feb. 21, 2013


In 2003 California manufacturers lost a sales tax credit on their capital equipment purchases, making them approximately six percent less competitive than manufacturers in most other states.  Since then, there have been no less than 20 proposed exemptions in different forms before our state legislature.  None -- with one failing exception -- have made it to even a second committee hearing.

The annual proposals indicate that some legislators, like those in most states, understand the importance of competitive tax policy for manufacturers -- and the jobs, innovation and ripple effect they bring to a regional economy.  Unfortunately the proposals stumble every year on an unwarranted fear of lost state revenues.

This year, after a decade of limited bipartisan support, that might change.

Correa Stewart STE

Yesterday, Senator Lou Correa and Assemblyman Kevin Mullin held a press conference at CMTA's office to announce new legislation to provide a sales tax exemption designed to stimulate our manufacturing base. 

CMTA president Jack Stewart summed it up with clarity at the press conference, "By creating a sales tax exemption for manufacturing equipment, California sends a strong signal to investors around the United States and around the world that California is serious about attracting new investment."

Competitive state tax policy is absolutely critical for California to attract domestic manufacturing investment.

California is the largest manufacturing state, but our state has been among the lowest performing states in per capita manufacturing investment in the last decade.

There are many reasons for this, but the state’s total valuation of costs makes it very difficult to compete for new manufacturing start-ups and expansions. 

Advanced manufacturing equipment is expensive, often resulting in millions of dollars per year in new equipment or retrofits for a company.  A six percent tax disadvantage on these critical inputs means less investment and fewer middle-class jobs for California.  Often this doesn't result in companies moving out of state, but  means a company quietly elects to grow elsewhere.

Some folks think the exemption equates to less revenue for the state.  The opposite is true.  A study done by the Milken Institute on a similar exemption showed that after the first three years of the policy, the state would reap more than 45,000 jobs and bring in more than $500 million in new state revenues with a net increase of $39 million to the state.  Senator Correa’s legislation delays a company’s ability to recognize the tax savings for the first three years, allowing the state to reap the revenue benefits before paying for the exemption. 

The legislation is more popular than ever with co-authors from both parties jumping on board.  There is no reason our legislature shouldn’t fully embrace this concept when so many other states already do.

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