(April 4, 2012) Three California Chamber of Commerce-supported bills that will provide tax breaks for small businesses and encourage more manufacturing and research and development jobs are scheduled to be considered by an Assembly policy committee next week.
The following three “job creator” bills will be heard in the Assembly Revenue and Taxation Committee on April 9:
- AB 1605 (Garrick; R-Carlsbad) reduces upfront costs for small businesses by eliminating the minimum franchise tax for the first year the business is in operation.
- AB 1911 (Donnelly; R-Twin Peaks) encourages employers to maintain and expand their manufacturing operations in California by providing a permanent, partial sales-and-use-tax exemption for purchases of manufacturing equipment.
- AB 1972 (Huber; D-El Dorado Hills) encourages employers to maintain and expand their manufacturing and research and development operations in California by providing a full sales-and-use-tax exemption for purchases of manufacturing and research and development equipment made through December 31, 2018.
These bills are a part of CalChamber’s 2012 Renew Agenda and will help position California for economic recovery.
Currently, small businesses in California with gross receipts of $1 million or less are required to pay an annual minimum franchise tax of $800 the first quarter of the year, which ultimately will be applied toward the company’s overall annual tax liability. This $800 is owed and must be prepaid, regardless of whether the company is active, inactive or even makes a profit.
AB 1605 seeks to reduce this burden on small businesses by eliminating the annual minimum tax for the first year the business is operating. Reducing this initial minimum franchise tax will encourage small business growth and will allow small firms to place more capital upfront toward expanding their business rather than as a prepayment to taxes they may never owe.
AB 1911 and AB 1972
Most states recognize that taxing the input as well as the final manufactured product is double taxation and discourages investment. The current policy has resulted in less production in California — out-of-state companies elect to grow elsewhere and in-state companies continue to shift workers or facilities to other regions that do not burden capital investments with excess taxation.
AB 1911 addresses this tax inequity and barrier to capital investment by exempting manufacturing equipment purchases from the state portion of the sales and use tax. In addition, AB 1972 also seeks to temporarily exempt sustainable development and R&D equipment from state and local sales and use tax.
Removing investment barriers to promote new machinery and equipment purchases in California will foster productivity, make manufacturers more competitive, and allow them to keep employees and strengthen the state’s economy.
California’s ability to meet the state’s economic needs depends on a healthy and competitive economy. A new and improved tax treatment for manufacturing and R&D investments will send a strong message that California favors fair tax policies that make the state more business-friendly, even during difficult economic times.
These bills will be considered by Assembly Revenue and Taxation on April 9. Contact your Assembly representative and committee members and ask them to support AB 1605, AB 1911 and AB 1942.
Staff Contacts: Jennifer Barrera and Mira Guertin