(April 28, 2009) As a result of April 14 amendments, a new “job creator” bill has been added to the California Chamber of Commerce “job creator” list.
AB 829 (Caballero; D-Salinas) encourages investment and jobs in manufacturing by establishing a sales and use tax exemption for manufacturing equipment, beginning in 2013. This bill is identical to “job creator bill SB 699 (Alquist; D-Santa Clara).
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 electing to grow elsewhere and in-state companies continuing to shift workers or facilities to other regions that do not burden capital investments with excess taxation. AB 829 seeks to address this tax inequity and barrier to capital investment by exempting purchases of manufacturing equipment (productive assets) from all but 1 percentage point of the state sales and use tax rate of 8.25 percent and fully exempting sustainable development and research and development equipment from the state portion of sales and use tax.
The high cost of doing business in California has already prompted many manufacturers to expand elsewhere or shift operations to other states. Many states provide both a sales tax exemption and investment tax credits to encourage manufacturing investment. AB 829 would provide manufacturers some relief from the high cost of doing business in the state, which according to the Milken Institute’s annual study is currently over 23 percent higher than the national average. Removing barriers to investments to promote new machinery and equipment purchases in California will foster productivity gains, making manufacturers more competitive and allowing them to keep employees and grow the middle class in California.
Furthermore, AB 829 will further the state’s ambitious climate change objectives. California has become a recognized leader in setting targets for energy efficiency, water conservation and overall climate improvements through greenhouse gas reductions like the Global Warming Solutions Act of 2006. This bill will take those ambitious goals and objectives one step further by more heavily promoting investments in machinery and equipment aimed at achieving those goals.
Finally, AB 829 provides no upfront cost to the state as exemptions granted by this proposal would not be collectable until January 1, 2013. This three-year window allows for business to make investments in the state now, thus allowing California’s economy to benefit from increased job retention and growth in an industry that pays above average salaries and helps to promote the overall growth of California’s middle class.
California’s ability to meet the state’s economic needs depends on a healthy and competitive California economy. A healthy and stable economy for California is one that relies on production rather than just services and consumption occurring in the state. A new and improved tax treatment for manufacturing and research and development investments will send a strong message that California is able to maintain fair and stable tax policies and make the state more business-friendly, even during difficult economic times.
Action Needed
The bill is scheduled to be considered by the Assembly Revenue and Taxation Committee on May 4.
The CalChamber urges members to ask Assembly committee members to support AB 829.
Staff Contact: Kyla Christoffersen
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