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Manufacturing sales tax exemption bills move forward

Posted by Gino DiCaro, VP, Communications on April 25, 2013

This is a follow-up to last week's 'Tipping Point' piece on CMTA's proposed sales tax exemption on manufacturing equipment purchases.

Both tax exemption proposals were heard in committee this week, receiving positive comments from legislators.  SB 376 by Sen Lou Correa received a unanimous 7-0 vote in the Senate Governance and Finance Committee and Assemblyman Kevin Mullin's AB 486 received an affirming hearing but we won't know the bill's fate until the Assembly Revenue and Taxation Committee votes on it in its 'suspense file' hearing next week.  

Both bills enjoyed wide support in testimony with the only opposition coming from California Tax Reform Association, a group funded by public employee interests.  In ten years, among at least 30 proposals, only one ever made it past its first hearing,

CMTA stepped up its game this week to show the job impact from the manufacturers investment credit back when it was originally implemented in the state in 1993 for a ten-year period.  See for yourself below.  We basically caught up to U.S. manufacturing in the first seven years and grew by seven percent with 131,000 new manufacturing jobs before the massive tech bust occurred.  
manufacturing during the MIC
California manufacturers can overcome big challenges with the support of state and local government.  Most manufacturers realize there is a premium to pay to operate in the state, but the total valuation of California costs makes it almost impossible to compete.  Bringing back the sales tax exemption on manufacturing investments is one way to get back in line with most other states and position the state to compete for manufacturing scale-ups.

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Tipping point for California manufacturing investment

Posted 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.  

sales tax exemption

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)

STE one pager |  Coalition letter in support





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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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Why not California #11 & #12 -- MiaSole and Facebook

Posted by Gino DiCaro, VP, Communications on Jan. 28, 2010

California took more employment and innovation bruises this month with two announcements from companies producing the state's favorite products - web technology and solar power.

Palo Alto based Facebook will build new facility in Oregon

Employing 200 people during construction and 35 full time employees upon completion

"The social media powerhouse confirmed Thursday that it has picked the economically depressed Central Oregon town for Facebook's first company-owned data center, drawn to the region by reliable and affordable power, a favorable climate and tax breaks."

Article link

Silicon Valley based MiaSole solar company will build manufacturing facility in Georgia
Employing potentially 1,000 workers

"A Silicon Valley-based company that makes low-cost, high-efficiency solar modules is planning a manufacturing plant in metro Atlanta that could employ up to 1,000.  While California remains a hub for solar startups, Oregon, Texas, Colorado and Arizona are becoming destinations as solar firms chase skilled labor and low operating costs, said Terry Peterson, a San Carlos, Calif.-based solar power consultant.  While Georgia’s cheap fossil-fueled electricity lowers manufacturing costs, it squelches local demand for solar power."

Article link

These announcements bring more pain to the state's economy and workers after California lost another 5,900 manufacturing jobs in December, bringing the total since 2001 to more than 607,000.




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How can CA win the Lottery?: Become a powerful magnet for the next wave of innovative products

Posted by Gino DiCaro, VP, Communications on May 20, 2009

This week the Assembly Revenue and Taxation Committee passed -- with 6 voting yes and 3 not voting -- a bill that brings California in line with 47 other states by exempting the sales tax on manufacturing equipment and giving working families a fighting chance for higher paying careers.  The bill is AB 829 by Assemblymember Anna Caballero.  Unfortunately, the bill was amended to include offsetting revenue sources, a difficult circumstance during tough budget times.  But the vote on the bill shows that legislators want to put out the welcome mat for high wage employers.

Many in both the capitol and media circles have argued that companies aren't leaving the state and they often use that as carte blanche to oppose the removal of any barriers to conducting business in California -- including reinstatement of the sales tax exemption that our employers lost back in 2003.

I don't even care anymore about proving the decisions of current and potential California companies.    It's like arguing whether a last place basketball team is really the worst in the league - no offense to the Sacramento Kings.  It's not even an interesting question anymore, and a last place team needs to do only one thing - improve.   Yes California is beautiful ... no, California doesn't lose thousands of jobs daily to other states ... yes, we don't know the reasons for all of the decisions being made all over the country that don't include California ... no, the state won't crumble into the ocean ... yes we've lost more than 30 percent of our industrial base -- most of those 530,000 job losses coming before the recent economic recession.

Let's just fix the problem.  Everything starts with signals to manufacturers that this state wants these types of operations.

CMTA's president, Jack Stewart, issued a formal media statement today that summed it up perfectly:

"California has a chance to lead the world out of recession and into a prosperous future if we make economic recovery the front and center goal in the debate on how to solve the budget crisis. Only through private sector investment and new middle-class jobs, such as manufacturing jobs paying an average $65,000 per year, can California enjoy sustainable tax revenue growth to pay for important government services.  To do this we must capitalize on emerging and innovative sectors in new and traditional technologies and products."

The Sac Bee's Dan Walters wrote an entire piece this weekend on understanding California's woes and then called out "silly Republicans" for trying to understand certain reasons for migrations to Nevada.  That trip was meant simply to gather information going forward and the facts still proved a 2 percent growth in industrial jobs in Nevada during the same time California's sector plummeted by 28 percent.  No one ever said Nevada stole all our manufacturing jobs.  Eight legislators just wanted to ask some questions about what Nevada was doing right.  What everyone in that room found was that Nevada was actively hunting down business as a lifeblood of the state's success.

Even Gov. Schwarzenegger's administration has gotten in on the act.  Two weeks ago, Brian McGowan, the Deputy Secretary for Economic Development and Commerce at the state's Business, Transportation and Housing Agency wrote in the Capitol Weekly that California "remains a powerful magnet for business."  I challenge anyone to find two companies that are exploring growth options that agree with that statement.

If we were a powerful magnet for employers, a $21 billion deficit wouldn't be sitting on every Californians doorstep today.  This brings me to a formula that we should all understand going forward after yesterday's iniative failures:
    Take the state’s annual budget and divide that by the state population.  That gives you the per capita number for running the state:  Basically divide $132 billion by 27 million working age people and you get $4,888 per person.

    Then look at the per employee tax revenue of a manufacturer. This is all the taxes the company pays in the state (divided by the number of employees) plus the taxes an employee pays.   I asked one of our member companies for their sample numbers.  Basically their per employee tax revenue amounted to $19,255 per year, which does not include the taxes their employees pay on an average $60,000 salary.  Compare that to the revenue the state generates from the service sector that pays far less tax revenue overall and a wage that is, on average, $20,000 less.
At that point, removing barriers for manufacturing growth becomes an obvious step in the right direction for the state.

Like Walters said in the end of his piece, we should solely pay attention to our future.  Agreed completely.  Then one must ask what we want to look like in 2 years?  For many reasons, we want Californians making more money, the state producing and selling innovative products, employment numbers growing and a budget balanced to pay for bold government programs.   Making us a "powerful magnet" for the next wave of innovative products will get us there.  Global recession or not, California will be in a better place.

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