In wake of Aerojet, Central Valley lawmakers push to extend tax break for manufacturers - Sacramento Business Journal

April 25, 2017

In wake of Aerojet, Central Valley lawmakers push to extend tax break for manufacturers - Sacramento Business Journal

Victor A. Patton | Sacramento Business Journal

Taxpayer groups and business advocates joined a pair of Central Valley legislators at the state Capitol Monday to support a pair of bills they say would expand a tax break for manufacturers and help retain jobs statewide.

Although the legislation was introduced in February, Assemblyman Jim Cooper, D-Elk Grove, framed it in the context of Aerojet Rockedyne Holdings Inc.'s (NYSE: AJRD) April 10 announcement that it will relocate or eliminate 1,100 jobs from its facilities in Rancho Cordova. The relocated jobs will move to Huntsville, Alabama.

Sen. Cathleen Galgiani, D-Stockton, is shown speaking Monday at the state Capitol about…

Cooper said at the news conference that more needs to be done to “incentivize business” to stay in California. “Today we say enough is enough. We can do better,” he said. “California cannot afford to lose any more jobs, especially high-paying, middle-class professions that our constituents depend upon.”

Cooper and Sen. Cathleen Galgiani, D-Stockton, said their respective bills, A.B. 600 and S.B. 600, would build upon the state’s Manufacturing and Research & Development Equipment Exemption signed into law by Gov. Jerry Brown in 2013.

Under existing law, manufacturers and some research and development businesses can qualify for a partial exemption from sales and use tax on purchased equipment.

Cooper's and Galgiani's identical bills would expand eligibility for the exemption to agricultural processors and producers of electric power from renewable resources.

The bills would also extend the tax break from July 1, 2022 until July 1, 2030. Plus, proponents said the bills would make it easier for businesses to substantiate their equipment purchases to qualify for the tax break.

Therese Twomey, fiscal policy director for the California Taxpayers Association, told the Business Journal that the bills will help eliminate conflicts that prevent small businesses and ag processors from taking advantage of the 3.9 percent sales tax exemption on purchased equipment.

“Agriculture processors (currently) are not allowed to claim a tax exemption when they buy equipment for canning tomatoes, or peas, or packaging California mandarins, for example,” Twomey said. “So this would allow them to be eligible.”

CalTax is one of the active sponsors of the bills, along with the California Manufacturers and Technology Association,

At Monday’s news conference on the west steps of the Capitol, Galgiani said the bills' passage would help attract manufacturing jobs, and ensure a better growth rate of manufacturing jobs statewide. She cited State Board of Equalization data stating that for every $1 of tax exemption, there has been a $23 return on investment in equipment and infrastructure. Since 2014, employers have invested around $9.4 billion in equipment purchases that qualified for the tax exemption.

“This bill will improve and expand this program, allowing California firms to invest in the equipment they need to remain competitive and hire even more workers,” Galgiani said.

The bills, which are currently before the Assembly's Revenue and Taxation Committee and the Senate's Governance and Finance Committee, have received bipartisan support. Its coauthors include Republican Sens. Anthony Cannella of Ceres and Andy Vidak of Hanford, and Assemblymen Travis Allen of Huntington Beach and Bill Brough of San Juan Capistrano.

Additional supporters included National Federation of Independent Business and the California Chamber of Commerce.

The sole group thus far on record as opposing the bills is the California Tax Reform Association, a labor-affiliated group that “advocates for fair taxes in the context of a healthy public sector,” according to its website.

CTRA sent an April 20 letter to the Sen. Mike McGuire, chairman of the Senate Governance and Finance Committee, stating that the proposed legislation would provide no “real benefit” for the “substantial tax loss that the bill generates.” The letter said that the current 2022 sunset date for the manufacturing equipment tax exemption should not be lifted without a full examination.

CTRA said, however, that the current exclusion of food processors from eligibility for the tax break may be “a legitimate issue that should be looked at.”

Cooper said the bills are particularly valuable to the Central Valley economy, which is heavily dependent on agriculture.

“California is the farm-to-fork capital of the world. In my district alone, over $2.3 billion in ag commodities are produced each year," he said. "These two bills will help grow our economy and incentivize manufacturers and producers to stay in California and create more jobs, high-paying middle class jobs and jobs the Central Valley desperately needs.”