Existing law, the Bradley-Burns Uniform Local Sales and Use Tax Law, authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

Existing law, the Sales and Use Tax Law, imposes state taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property, as defined, that is, among other things, purchased by a qualified person for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified, or purchased for use by a qualified person to be used primarily in research and development. Existing law prohibits the exemption described above from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for a taxable year beginning on or after January 1, 2025, and before January 1, 2030, a credit against those taxes to a taxpayer in an amount equal to the amount of tax reimbursement paid during the taxable year for sales tax on gross receipts that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

This bill would also allow for a taxable year beginning on or after January 1, 2025, and before January 1, 2030, a similar tax credit against those taxes to a taxpayer in an amount equal to the amount of use tax paid during the taxable year for storage, use, or other consumption that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

This bill would require, on or before May 14, 2025, and annually thereafter, the Department of Finance to provide to the legislative budget committees an estimate of the amount of revenue that would not be realized if the credits described above were allowed for that taxable year and would provide that those credits are allowed only for taxable years for which the Legislature appropriates money in the Budget Act for the administration of those credits.

Existing law requires any bill authorizing a new tax credit to contain, among other things, specific goals that the tax credit will achieve, detailed performance indicators, and data collection requirements.

This bill would make specified findings detailing the goal of the above-described tax credit, performance indicators for determining whether the credit meets that goal, and data collection requirements.

This bill would take effect immediately as a tax levy.

Existing law, the Bradley-Burns Uniform Local Sales and Use Tax Law, authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

Existing law, the Sales and Use Tax Law, imposes state taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property, as defined, that is, among other things, purchased by a qualified person for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified, or purchased for use by a qualified person to be used primarily in research and development. Existing law prohibits the exemption described above from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for a taxable year beginning on or after January 1, 2024, 2025, and before January 1, 2029, 2030, a credit against those taxes to a taxpayer in an amount equal to the amount of tax reimbursement paid during the taxable year for sales tax on gross receipts that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

This bill would also allow for a taxable year beginning on or after January 1, 2024, 2025, and before January 1, 2029, 2030, a similar tax credit against those taxes to a taxpayer in an amount equal to the amount of use tax paid during the taxable year for storage, use, or other consumption that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

Existing law requires any bill authorizing a new tax credit to contain, among other things, specific goals that the tax credit will achieve, detailed performance indicators, and data collection requirements.

This bill would make specified findings detailing the goal of the above-described tax credit, performance indicators for determining whether the credit meets that goal, and data collection requirements.

This bill would take effect immediately as a tax levy.

Existing law, the Bradley-Burns Uniform Local Sales and Use Tax Law, authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

Existing law, the Sales and Use Tax Law, imposes state taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property, as defined, that is, among other things, purchased by a qualified person for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified, or purchased for use by a qualified person to be used primarily in research and development. Existing law prohibits the exemption described above from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for a taxable year beginning on or after January 1, 2024, and before January 1, 2029, a credit against those taxes to a taxpayer in an amount equal to the amount of tax reimbursement paid during the taxable year for sales tax on gross receipts that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

This bill would also allow for a taxable year beginning on or after January 1, 2024, and before January 1, 2029, a similar tax credit against those taxes to a taxpayer in an amount equal to the amount of use tax paid during the taxable year for storage, use, or other consumption that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

Existing law requires any bill authorizing a new tax credit to contain, among other things, specific goals that the tax credit will achieve, detailed performance indicators, and data collection requirements.

This bill would make specified findings detailing the goal of the above-described tax credit, performance indicators for determining whether the credit meets that goal, and data collection requirements.

This bill would take effect immediately as a tax levy.

Existing law, the Bradley-Burns Uniform Local Sales and Use Tax Law, authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

Existing law, the Sales and Use Tax Law, imposes state taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property, as defined, that is, among other things, purchased by a qualified person for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified, or purchased for use by a qualified person to be used primarily in research and development. Existing law prohibits the exemption described above from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for a taxable year beginning on or after January 1, 2024, and before January 1, 2029, a credit against those taxes to a taxpayer in an amount equal to the amount of tax reimbursement paid during the taxable year for sales tax on gross receipts that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

This bill would also allow for a taxable year beginning on or after January 1, 2024, and before January 1, 2029, a similar tax credit against those taxes to a taxpayer in an amount equal to the amount of use tax paid during the taxable year for storage, use, or other consumption that would be exempt from taxation under the Sales and Use Tax Law pursuant to the sales and use tax exemption described above but for the provision that prohibits that exemption from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

Existing law requires any bill authorizing a new tax credit to contain, among other things, specific goals that the tax credit will achieve, detailed performance indicators, and data collection requirements.

The bill would make specified findings detailing the goal of the above-described tax credit, performance indicators for determining whether the credit meets that goal, and data collection requirements.

This bill would take effect immediately as a tax levy.

Existing law, the Bradley-Burns Uniform Local Sales and Use Tax Law, authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

Existing law, the Sales and Use Tax Law, imposes state taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including an a partial exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property, as defined, that is, among other things, purchased by a qualified person for purchases for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified, or purchased for use by a qualified person to be used primarily in research and development. Existing law prohibits the exemption described above from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

Existing law, the Bradley-Burns Uniform Local Sales and Use Tax Law, authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

Existing law, the Sales and Use Tax Law, imposes state taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including an exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property, as defined, that is, among other things, purchased by a qualified person for purchases for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified, or purchased for use by a qualified person to be used primarily in research and development. Existing law prohibits the exemption described above from applying with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, the Bradley-Burns Uniform Local Sales and Use Tax Law or the Transactions and Use Tax Law, sales and use taxes imposed pursuant to certain provisions of the Sales and Use Tax Law, and sales and use taxes imposed pursuant to certain provisions of the California Constitution.

This bill would express the intent of the Legislature to expand the sales and use tax exemption for manufacturing and research and development equipment to preserve Californias status as a hub of innovation and technology and to encourage greater investment in California.

GOVERNOR'S VETO

GV Bill Id:AB 52

Author:(Grayson)

As Enrolled Ver:September 3, 2024

2/3 vote. Tax Levy

SUMMARY

Allows a credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law equal to the amount of sales tax reimbursement or use tax paid on purchases that were partially exempt under the existing sales and use tax (SUT) exemption for manufacturing and research and development (MR&D).

1. Provides that the credit shall be allowed for taxable years beginning on or after January 1, 2025, and before January 1, 2030.
2. Provides that the credit may only be claimed on a timely filed original return.
3. Provides that a credit, a credit in a subsequent year, or a credit carryover shall not be allowed with respect to qualified tangible personal property (TPP), that within one year from the date of purchase, is removed from California, converted from an exempt use to some other use not qualifying for exemption, or used in a manner not qualifying for exemption.
4. Provides that, notwithstanding existing law, the California Department of Tax and Fee Administration (CDTFA) may provide information to the Franchise Tax Board (FTB), in a form and manner agreed upon by the CDTFA and FTB, regarding the exemption claimed by a person.
5. Provides that, on or before May 14, 2025, and annually thereafter, the Department of Finance shall provide to the legislative budget committees an estimate of the amount of revenue that would not be realized if the credit established by this bill were allowed for that taxable year.
6. Provides that the credit shall be allowed only for taxable years for which the Legislature appropriates money in the Budget Act for the administration of the credit.
7. Provides that the credit provisions shall sunset on December 1, 2030.

Governor's Veto Message

This bill would provide purchasers of manufacturing equipment with state tax credits equal to the amount of non-exempt sales and use taxes paid on the purchase of equipment.

As a strong supporter of California's innovation economy and manufacturing sector, I agree with the intent of this bill. California offers many powerful incentives to encourage new and continued investment in the areas of manufacturing, research, and development. However, by enacting a new tax credit, this bill would have a significant impact on the state general fund, and should be considered in the annual budget process.

In partnership with the Legislature this year, my Administration has enacted a balanced budget that avoids deep program cuts to vital services and protected investments in education, health care, climate, public safety, housing, and social service programs that millions of Californians rely on. It is important to remain disciplined when considering bills with significant fiscal implications that are not included in the budget, such as this measure.

COMMENTS

1. California's existing economic development tools: In 2013, Governor Brown signed legislation that reformed California's economic development policies. [AB 93 (Committee on Budget), Chapter 69, Statutes of 2013.] The new law eliminated enterprise zones and other geographically targeted economic development areas and, instead, created three new economic development tax incentives: (i) a temporary tax credit for wages paid by a taxpayer engaged in a trade or business within a designated census tract, as defined, or a former enterprise zone to certain full-time employees (the "New Employment Credit"); (ii) the California Competes Tax Credit program - a negotiated incentive administered by the Governor's Office of Business and Economic Development; and, (iii) a temporary MR&D SUT exemption.
2. The existing MR&D exemption: Until July 1, 2030, existing law provides a partial SUT exemption for a qualified person's purchase of qualified TPP to be primarily used in manufacturing; research and development; or electric power generation, distribution, or storage. The MR&D exemption only applies to the General Fund (GF) components of the statewide SUT rate (3.9375%) and is generally limited to $200 million of TPP purchases by a qualified person in each calendar year.
3. What would this bill do? This bill would allow an income tax credit under both the PIT Law and the CT Law equal to the amount of sales tax reimbursement or use tax paid on qualifying purchases that were only partially exempt under the existing SUT exemption for MR&D. Thus, taxpayers with sufficient income tax liability would effectively receive the benefit of a full SUT exemption for their MR&D purchases. This bill would accomplish this goal, however, without reducing local revenues via a complete SUT exemption. Instead, the full cost of the incentive program would be borne by the state through reduced GF revenues.

According to the Author

The author has provided the following statement in support of this bill:

Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians.

Arguments in Support

Proponents of this bill note:

AB 52 would provide manufacturers with a state tax credit equal to the local portion of the sales and use tax for the purchase of qualified manufacturing and research and development (R&D) equipment. California manufacturing generates more than $300 billion every year and employs more than 1.3 million people. This credit transforms the current incentive landscape, making manufacturing investment in California far more competitive and bringing us in line with 38 other states that already cover the taxes on qualified manufacturing purchases. California operational costs can challenge a manufacturer's ability to revitalize and uplift communities, but this investment will send just the proper signal that the State is serious about retaining and attracting production.

Arguments in Opposition

None for most recent version of this bill.

FISCAL COMMENTS

According to the Senate Committee on Appropriations analysis of this bill:

1. The FTB estimates that this bill would result in GF revenue losses of $100 million in 2023-24, $280 million in 2024-25, and $350 million in 2025-26. FTB's implementation costs would be minor and absorbable.
2. The Legislative Analyst's Office would likely incur absorbable costs to write the bill's specified report.
3. It should be noted that, pursuant to the most recent set of amendments, this bill's credit is only operative for years in which there is a budgetary appropriation.

VOTES

ASM REVENUE AND TAXATION: 11-0-0

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Ta, Valencia, Zbur

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

ASSEMBLY FLOOR: 77-0-3

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

ABS, ABST OR NV: Chen, Lackey, Quirk-Silva

SENATE FLOOR: 39-0-1

YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Alvarado-Gil

ASSEMBLY FLOOR: 76-0-3

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Robert Rivas

ABS, ABST OR NV: Cervantes, Ortega, Zbur

UPDATED

VERSION: September 3, 2024

CONSULTANT: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0005195

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 52

Author:(Grayson)

As Amended Ver:August 15, 2024

Majority vote

SUMMARY

Allows a credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law equal to the amount of sales tax reimbursement or use tax paid on purchases that were partially exempt under the existing sales and use tax (SUT) exemption for manufacturing and research and development (MR&D).

Senate Amendments

1. Provide that the credit shall be allowed for taxable years beginning on or after January 1, 2025, and before January 1, 2030.
2. Provide that the credit may only be claimed on a timely filed original return.
3. Provide that a credit, a credit in a subsequent year, or a credit carryover shall not be allowed with respect to qualified tangible personal property (TPP), that within one year from the date of purchase, is removed from California, converted from an exempt use to some other use not qualifying for exemption, or used in a manner not qualifying for exemption.
4. Provide that, notwithstanding existing law, the California Department of Tax and Fee Administration (CDTFA) may provide information to the Franchise Tax Board (FTB), in a form and manner agreed upon by the CDTFA and FTB, regarding the exemption claimed by a person.
5. Provide that, on or before May 14, 2025, and annually thereafter, the Department of Finance shall provide to the legislative budget committees an estimate of the amount of revenue that would not be realized if the credit established by this bill were allowed for that taxable year.
6. Provide that the credit shall be allowed only for taxable years for which the Legislature appropriates money in the Budget Act for the administration of the credit.
7. Provide that the credit provisions shall sunset on December 1, 2030.

COMMENTS

1. California's existing economic development tools: In 2013, Governor Brown signed legislation that reformed California's economic development policies. [AB 93 (Committee on Budget), Chapter 69, Statutes of 2013.] The new law eliminated enterprise zones and other geographically targeted economic development areas and, instead, created three new economic development tax incentives: (i) a temporary tax credit for wages paid by a taxpayer engaged in a trade or business within a designated census tract, as defined, or a former enterprise zone to certain full-time employees (the "New Employment Credit"); (ii) the California Competes Tax Credit program - a negotiated incentive administered by the Governor's Office of Business and Economic Development; and, (iii) a temporary MR&D SUT exemption.
2. The existing MR&D exemption: Until July 1, 2030, existing law provides a partial SUT exemption for a qualified person's purchase of qualified TPP to be primarily used in manufacturing; research and development; or electric power generation, distribution, or storage. The MR&D exemption only applies to the General Fund (GF) components of the statewide SUT rate (3.9375%) and is generally limited to $200 million of TPP purchases by a qualified person in each calendar year.
3. What would this bill do? This bill would allow an income tax credit under both the PIT Law and the CT Law equal to the amount of sales tax reimbursement or use tax paid on qualifying purchases that were only partially exempt under the existing SUT exemption for MR&D. Thus, taxpayers with sufficient income tax liability would effectively receive the benefit of a full SUT exemption for their MR&D purchases. This bill would accomplish this goal, however, without reducing local revenues via a complete SUT exemption. Instead, the full cost of the incentive program would be borne by the state through reduced GF revenues.

According to the Author

The author has provided the following statement in support of this bill:

Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians.

Arguments in Support

Proponents of this bill note:

AB 52 would provide manufacturers with a state tax credit equal to the local portion of the sales and use tax for the purchase of qualified manufacturing and research and development (R&D) equipment. California manufacturing generates more than $300 billion every year and employs more than 1.3 million people. This credit transforms the current incentive landscape, making manufacturing investment in California far more competitive and bringing us in line with 38 other states that already cover the taxes on qualified manufacturing purchases. California operational costs can challenge a manufacturer's ability to revitalize and uplift communities, but this investment will send just the proper signal that the State is serious about retaining and attracting production.

Arguments in Opposition

None for most recent version of this bill.

FISCAL COMMENTS

According to the Senate Committee on Appropriations analysis of this bill:

1. The FTB estimates that this bill would result in GF revenue losses of $100 million in 2023-24, $280 million in 2024-25, and $350 million in 2025-26. FTB's implementation costs would be minor and absorbable.
2. The Legislative Analyst's Office would likely incur absorbable costs to write the bill's specified report.

It should be noted that, pursuant to the most recent set of amendments, this bill's credit is only operative for years in which there is a budgetary appropriation.

VOTES:

ASM REVENUE AND TAXATION: 11-0-0

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Ta, Valencia, Zbur

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

ASSEMBLY FLOOR: 77-0-3

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

ABS, ABST OR NV: Chen, Lackey, Quirk-Silva

SENATE FLOOR: 39-0-1

YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Alvarado-Gil

UPDATED

VERSION: August 15, 2024

CONSULTANT: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0004327

 THIRD READING  

Bill No: AB 52

Author: Grayson (D), et al.

Amended: 8/15/24 in Senate

Vote: 21- Urgency

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 6/14/23

AYES: Caballero, Seyarto, Blakespear, Dahle, Glazer, Wiener

NO VOTE RECORDED: Durazo, Skinner

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Seyarto, Wahab

ASSEMBLY FLOOR: 77-0, 5/22/23 - See last page for vote

SUBJECT: Income tax credit: sales and use taxes paid: manufacturing equipment: research and development equipment

SOURCE: Author

DIGEST:

This bill enacts Personal Income and Corporation Tax credits equal to the amount of sales and use tax paid on the purchase of specified equipment beginning on or after the January 1, 2025, taxable year, and before the January 1, 2030, taxable year.
ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as remit taxes collected from purchasers to CDTFA.
2. Applies the sales tax whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business.
3. Provides that unless the purchaser pays the sales tax to the retailer, they are liable for the use tax, which is imposed on any person consuming tangible personal property in the state, and requires the purchaser to remit use tax to CDTFA.
4. Sets the state sales and use tax rate at 7.25% of the sales price of the property sold or used, of which 3.9375% flows to the state General Fund.
5. Allows cities, counties, and specified special districts to increase the sales and use tax, also known as district or transactions and use taxes, up to a 2% countywide cap, with some exceptions.
6. Exempts some items from the state and local sales and use tax, while others are exempt from the state sales tax, but not the local share.
   
7. Authorizes a state General Fund-only sales and use tax exemption for purchases of equipment used in manufacturing and research and development effective July 1, 2014, and ending July 1, 2022 (AB 93, Committee on Budget, Chapter 69, Statutes of 2013 and SB 90, Galgiani, Chapter 70, Statutes of 2013). This exemption was expanded to include electric power generation and extended until January 1, 2030 (AB 398, Garcia, Chapter 135, Statutes of 2018). This partial sales and use tax exemption:
   
   1. Applies when taxpayers within specific North American Industrial Classification System codes purchase qualified tangible personal property: to use in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property; to us in research and development; to maintain, repair, measure, or test any qualified property subject to the exemption; and, to generate, produce, or store and distribute electric power.
      
   2. Limits the exemption when purchasing equipment for use by a contractor.
      
   3. Requires purchasers to provide an exemption certificate at purchase for the exemption to apply.
      
   4. States that the exemption does not apply if the purchaser converts the equipment from an exempt use or removes it from the state within one year from the date of purchase.
      
   5. Caps the exemption at $200 million per taxpayer for any qualified personal property purchased during any calendar year.
8. Provides for the imposition of tax on personal and corporate income, and allows various income tax credits, deductions, exemptions, and exclusions from those taxes.

This bill:

1. Enacts credits against the Personal Income and Corporation Taxes” equal to either the amount of tax reimbursement or use tax paid that would have been exempt from the Sales and Use Tax if the current sales and use tax exemption for equipment used in manufacturing or research and development was a full exemption instead of a partial one
2. Applies beginning on or after January 1, 2025, taxable year, and before January 1, 2030, taxable year.
3. Precludes taxpayers from claiming any amount used to generate this credit as a business expense deduction.
4. Allows taxpayers to carry forward the credit for up to nine subsequent taxable years.
5. Specifies that the credit may only be claimed on a timely filed original return of a taxpayer.
6. Disallows the credit if, within one year from the date of purchase, the qualified tangible property purchased with the partial sales and use tax exemption is removed from California, converted from an exempt use to some other use not qualifying for exemption, or used in a manner not qualifying for exemption.
7. Requires the Department of Finance to provide to the legislative budget committees an estimate of the amount of revenue that would not be realized if the credits established under this section were allowed for that taxable year.
8. Allows the credit only for taxable years for which the Legislature appropriates money to FTB in the Budget Act for administration of the credit.
9. Authorizes the CDTFA to provide information to the Franchise Tax Board (FTB) regarding the exemption claimed by a person.
10. Allows FTB to issue regulations necessary and appropriate to implement the bill.
11. Contains legislative findings and declarations supporting its purposes, including to comply with Section 41 of the Revenue and Taxation Code.

Background

Economic development. As a matter of economic development, the state has employed various tax incentives to encourage businesses to locate, stay, grow, and hire within California. As a part of these efforts, state policy has focused on bolstering key sectors of the economy, such as the manufacturing industry. The California manufacturing industry generates more than $300 billion every year and employs more than 1.3 million people, according to the California Manufacturers & Technology Association.

The current partial exemption for equipment used in manufacturing and research and development seeks to reduce the effects of “tax pyramiding” that occurs when tax applies to business inputs. This causes costs of production to rise, higher prices for consumers, reduced business expansion, and fewer job opportunities.

In 2022, the Legislature approved AB 1951 (Grayson), which would have expanded the current partial sales and use exemption for equipment used in manufacturing and research and development into a full exemption. However, Governor Newsom vetoed the bill, stating, “this change would result in substantial revenue loss to local governments, which impacts essential health, safety, welfare, and transportation services.” AB 52 differs from AB 1951 because its Personal Income and Corporation Tax credits reduce state General Fund revenue and do not affect local agency revenues attributable to the local sales and use tax on the purchase or use of equipment used in manufacturing or research and development.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• FTB estimates that this bill would result in General Fund revenue losses of $100 million in 2023-24, $280 million in 2024-25, and $350 million in 2025-26. FTB’s implementation costs would be minor and absorbable.
• The Legislative Analyst’s Office would likely incur absorbable costs to write the bill’s specified report.

SUPPORT: (Verified 8/16/24)

Aerospace and Defense Alliance of California
Agricultural Council of California
Bay Area Council
Biocom California
Biotechnology Innovation Organization
Boehringer Ingelheim Pharmaceuticals INC.
BOMA California
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Food Producers
California Life Sciences
California Manufacturers and Technology Association
California Steel Industries, INC.
California Taxpayers Association (CALTAX)
Can Manufacturers Institute
El Dorado County Chamber of Commerce
El Dorado Hills Chamber of Commerce
Elk Grove Chamber of Commerce
Folsom Chamber of Commerce
Glass Packaging Institute
Lincoln Area Chamber of Commerce
Los Angeles County Business Federation (BIZ-FED)
Los Angeles County Business Federation (BIZFED)
NAIOP of California, the Commercial Real Estate Development Association
Nucor Corporation
Orange County Business Council
Rancho Cordova Chamber of Commerce
Regional Economic Association Leaders (R.E.A.L.) Coalition
Rocklin Area Chamber of Commerce
Roseville Area Chamber of Commerce
Ryan, LLC
San Gabriel Valley Economic Partnership
Santa Maria Valley Chamber of Commerce
Scotts Miracle-gro Company
Silicon Valley Leadership Group
Specialty Equipment Market Association (SEMA)
The Wine Institute
Valley Industry and Commerce Association (VICA)
Yuba Sutter Chamber of Commerce

OPPOSITION: (Verified 8/16/24)

California Federation of Teachers AFL-CIO

ARGUMENTS IN SUPPORT: According to the author, “Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians. This credit would positively impact manufacturing investments and growth throughout California. By redeveloping the current investment credit system, new production and long-term capital investments will be incentivized and facilitate the growth of the manufacturing industry at a time when many companies are looking to make strategic investments in uncertain economic times.”

ARGUMENTS IN OPPOSITION: According to the California Federation of Teachers (CFT), “While CFT values the growth of industry and manufacturing in the state, and recognizes the potential economic multipliers of supporting the manufacturing industry in the state, CFT has a policy to oppose tax credits on the basis of the impact on Proposition 98 revenue that funds the TK-12 and Community College system. Proposition 98 receives funding from Personal Income Tax, Corporate Income Tax, and the Sales and Use tax. For every dollar of revenue collected by the state from these sources, approximately $0.40 cents is provided to our public education system. Thus, for every dollar provided as a tax credit in this manner, $0.40 of that dollar comes out of our student's classrooms. While CFT applauds the author's intent, we must oppose the impact the bill has on students. A more appropriate alternative would be to enact other revenue policies, such as a Wealth Tax on the top 0.1% of California and utilize those revenues to provide added benefit to our manufacturing and educational systems alike.”

ASSEMBLY FLOOR: 77-0, 5/22/23

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO VOTE RECORDED: Chen, Lackey, Quirk-Silva

Prepared by: Haley Summers / REV. & TAX. / (916) 651-4117

8/19/24 14:08:25

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 52 (Grayson) - Income tax credit: sales and use taxes paid: manufacturing equipment: research and development equipment

Bill Summary:

AB 52 would enact personal income and corporation tax credits equal to the amount of sales and use tax (SUT) paid on the purchase of specified equipment.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 15, 2024

Fiscal Impact:

• The Franchise Tax Board (FTB) estimates that this bill would result in General Fund revenue losses of $100 million in 2023-24, $280 million in 2024-25, and $350 million in 2025-26. FTB’s implementation costs would be minor and absorbable.
• The Legislative Analyst’s Office (LAO) would likely incur absorbable costs to write the bill’s specified report.

Author Amendments:

Make the bill contingent upon an appropriation.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 52 (Grayson) - Income tax credit: sales and use taxes paid: manufacturing equipment: research and development equipment

Bill Summary:

AB 52 would enact personal income and corporation tax credits equal to the amount of sales and use tax (SUT) paid on the purchase of specified equipment.

Fiscal Impact:

• The Franchise Tax Board (FTB) estimates that this bill would result in General Fund revenue losses of $100 million in 2023-24, $280 million in 2024-25, and $350 million in 2025-26. FTB’s implementation costs would be minor and absorbable.
• The Legislative Analyst’s Office (LAO) would likely incur absorbable costs to write the bill’s specified report.

Background:

Except where a specific exemption or exclusion is provided, current law imposes SUT on all retailers for the privilege of selling tangible personal property (TPP) at retail in California, or on the storage, use, or other consumption in this state of TPP purchased from a retailer. Unless purchasers pay the sales tax to the retailer, they are liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax.

After CDTFA collects SUT revenue ($78 billion in 2021-22), it allocates the money to various state and local funds. Roughly half—collected from an approximately 3.9 percent rate—goes to the General Fund and can be spent on any state program, such as education, health care, and criminal justice. Another 1.25 percent, known as the Bradley-Burns rate, goes to cities and counties for general purposes. Three sales tax funds have uniform state rates and support specified programs—a 1.0625 percent rate for 2011 realignment (county-administered criminal justice, mental health, and social service programs); a 0.5 percent rate for 1991 realignment (county-administered health and social services programs); and a 0.5 percent rate for city and county public safety programs pursuant to Proposition 172 (1993). Additionally, some local governments levy optional local rates—known as Transactions and Use Taxes (TUTs)—and a small portion of these funds are used for general purposes. As of December 31, 2022, the average statewide SUT rate was 8.56 percent.

In 2013, the Legislature enacted two budget trailer bills (AB 93 and SB 90) which reformed California’s economic development policies by eliminating enterprise zones and instead implementing three new tax benefits. One of these was a state-only (3.9375 percent) SUT exemption on purchases of equipment used in manufacturing and research and development made by taxpayers within specific North American Industrial Classification System codes, capped at $200 million annually per taxpayer, effective July 1, 2014, and ending July 1, 2022. In 2017, the Legislature expanded and extended this exemption until January 1, 2030, in conjunction with an agreement to extend the Global Warming Solutions Act (AB 398, E. Garcia, 2018). AB 398 also required the Greenhouse Gas Reduction Fund to compensate the General Fund for the total dollar amount of exemptions.

The partial SUT exemption applies to property a taxpayer uses (1) in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property, (2) in research and development, (3) to maintain, repair, measure, or test any qualified property subject to the exemption, and (4) to generate, produce, or store and distribute electric power.

Current law contains many full (state and local) SUT exemptions; however, as noted earlier, the current SUT exemption for equipment used in manufacturing and research and development only applies to the state General Fund portion of the SUT. Thus, as a partial exemption, it does not reduce SUT revenues that flow to local agencies. CDTFA reports the exemptions totaled $409 million in 2022, up from $376 million in the previous year.

Proposed Law:

This bill among other things would, for taxable years 2024 through 2028, do the following:

• Enact credits against the personal income and corporation tax equal to either the amount of tax reimbursement or use tax paid that would have been exempt from the SUT if the current SUT exemption for equipment used in manufacturing or research and development was a full exemption instead of a partial one.
• Preclude any amount used to generate a credit from being claimed as a business expense deduction.
• Allow taxpayers to carry forward the credit for up to nine subsequent taxable years.
• Allow FTB to issue regulations to implement the bill.
• Require the Legislative Analyst’s Office, by January 1 2027, to review the credits provided by this bill, as specified.

Related Legislation:

AB 1951 (Grayson, 2022), would have expanded the partial SUT exemption for equipment used in manufacturing and research and development into a full SUT exemption. The bill was vetoed by the Governor.

Staff Comments:

As noted above, this bill would create a tax credit for the amount of SUT paid on purchases only partially exempt under the existing manufacturing research and development SUT exemption. Thus, taxpayers with sufficient personal income tax and corporation tax liabilities would effectively receive a full SUT exemption for qualified purchases, without being subject to the $200 million limit. However, unlike AB 1951, the additional revenue loss would be borne by the General Fund, instead of by local governments.

The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) also administers, until January 1, 2026, a separate full SUT exclusion program, limited to $100 million per year, for eligible projects that promote the utilization of green technology. A 2002 budget trailer bill (AB 209) expanded the CAEATFA program to allow an additional $15 million of SUT exclusions for the 2022, 2023, and 2024 calendar years solely for projects that manufacture, refine, extract, process, or recover lithium.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Income tax credit: sales and use taxes paid: manufacturing equipment: research and development equipment

Enacts Personal Income and Corporation Tax Credits equal to the amount of sales and use tax paid on the purchase of equipment.

Background

Tax expenditures. California law allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something they would otherwise not do, but for the tax credit. The Department of Finance is required annually to publish a list of tax expenditures, which currently total around $87 billion per year.

Sales and Use Tax. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, requires them to register with the California Department of Tax and Fee Administration (CDTFA), and remit tax to CDTFA. Retailers can collect sales tax reimbursement from purchasers when the sales agreement provides for the addition of reimbursement, and the reimbursement is shown on the receipt or proof of sale. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below. Additionally, cities, counties, and specified special districts may increase the sales and use tax, also known as district taxes.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

State Sales and Use Tax Exemption for Manufacturing Equipment. In 2013, the Legislature enacted AB 93 (Committee on Budget) and SB 90 (Committee on Budget & Fiscal Review), which reformed California’s economic development policies by eliminating enterprise zones and other geographically-targeted economic development areas, instead allowing three new tax benefits:

• The New Employment Credit, where the Franchise Tax Board allocates credits for wages paid by taxpayers to qualified employees within former enterprise zones, and other areas that suffer from high levels of poverty and unemployment. The credit lasted from the 2014 taxable year until the 2019 taxable year. The Legislature extended the credit in 2018 until 2026 (SB 855, Committee on Budget and Fiscal Review).
• The California Competes Tax Credit, where the California Competes Tax Credit Committee, also created by the bills, can award various tax credits up to an annually capped amount. The Committee is comprised of the Treasurer, the Director of Finance, the Director of the Governor’s Office of Business and Economic Development (GO-BIZ), one appointee of the Speaker of the Assembly, and one appointee from the Senate Committee on Rules. SB 855 also extended the authority for the Committee to allocate credits through the 2022-23 fiscal year, which the Legislature extended last year through the 2027-28 fiscal year (AB 194, Committee on Budget).
• A state-only (3.9375%) sales and use tax exemption on purchases of equipment used in manufacturing and research and development made by taxpayers within specific North American Industrial Classification System codes, capped at $200 million annually per taxpayer, effective July 1, 2014, and ending July 1, 2022. In 2017, the Legislature expanded and extended this exemption until January 1, 2030, as part of an agreement to extend the Global Warming Solutions Act (AB 398, E. Garcia, 2018). AB 398 also required the Greenhouse Gas Reduction Fund to compensate the General Fund for the total dollar amount of exemptions.

The exemption applies to property a taxpayer uses:

• In any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property;
• In research and development;
• To maintain, repair, measure, or test any qualified property subject to the exemption; and,
• To generate, produce, or store and distribute electric power.

The exemption also applies in a more limited fashion when purchasing equipment for use by a contractor. Purchasers must provide an exemption certificate at purchase for the exemption to apply. The exemption does not apply if the purchaser converts the equipment from an exempt use or removes it from the state within one year from the date of purchase.

While state law exempts many forms of property from both the state and local shares of the sales and use tax, the current sales and use tax exemption for equipment used in manufacturing and research and development only applies to the State General Fund shares. Partial exemptions also do not reduce sales and use tax revenues that flow to local agencies from the other increments. CDTFA reports the exemptions totaled $408.5 million in 2022, up from $375.8 million in 2021. Based on reporting by equipment sellers, manufacturers claimed 77.4% of the total; electric utilities 20.5%; and agricultural businesses 2%.

Manufacturers Investment Credit. During the economic recession in the 1990s, the Legislature enacted the Manufacturer’s Investment Credit (MIC) to compensate for the state’s relatively higher costs and make the state’s tax environment more favorable for manufacturers to expand in-state or relocate from out of state (SB 671, Alquist, 1993). Originally proposed as a Sales and Use Tax Exemption, the MIC allowed certain businesses a nonrefundable Personal Income or Corporation Tax credit equal to 6 percent of the costs of acquiring and installing manufacturing equipment. Taxpayers could only claim the MIC for certain types of equipment, and as initially enacted applied only to manufacturers. At its peak, the MIC resulted in revenue losses of $460 million in 2000-2001.

When enacted, the MIC had a sunset date of January 1, 2001, if the level of manufacturing employment on that date, did not exceed by 100,000 jobs the number that existed on January 1, 1994. The Legislature modified the MIC sunset to instead provide it would expire during any year in which the number of these manufacturing jobs did not exceed the 1994 level by at least 100,000. In March 2003, the Employment Development Department released figures indicating that the state's manufacturing employment as of January 1, 2003, was less than the January 1, 1994, jobs figure, resulting in the MIC’s repeal effective January 1, 2004.

Seeking to strengthen the current incentive for California firms to purchase equipment for use in manufacturing and research and development without adversely affecting revenues for local agencies, the author wants to enact and income tax credit equal the amount of tax paid on the purchase of such equipment.

Proposed Law

Assembly Bill 52 enacts credits against the Personal Income and Corporation Tax equal to either the amount of tax reimbursement or use tax paid that would have been exempt from the Sales and Use Tax if the current sales and use tax exemption for equipment used in manufacturing or research and development was a full exemption instead of a partial one. The credit applies beginning in the 2024 taxable year, and ends after the 2028 taxable year.

The bill precludes any amount used to generate a credit from being claimed as a business expense deduction, and allows taxpayers to carry forward the credit for up to nine subsequent taxable years.

The bill allows the Franchise Tax Board (FTB) to issue regulations necessary and appropriate to implement the bill, and contains legislative findings and declarations supporting its purposes, including to comply with Section 41 of the Revenue and Taxation Code.

State Revenue Impact

According to the Franchise Tax Board, AB 52 would result in revenue losses of approximately $100 million in 2023-24, $280 million in 2024-25, and $350 million in 2025-26.

Comments

1. Purpose of the bill. According to the author, “Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians. This credit would positively impact manufacturing investments and growth throughout California. By redeveloping the current investment credit system, new production and long-term capital investments will be incentivized and facilitate the growth of the manufacturing industry at a time when many companies are looking to make strategic investments in uncertain economic times.

2. Revenue loss? By enacting a new tax credit against the Personal Income and Corporation Taxes, AB 52 will reduce taxes paid to the state by eligible taxpayers who claim the credit after purchasing qualifying equipment. As a result, the state will have to reduce spending or increase taxes, all else equal. However, manufacturers argue the exemption would add between $1.5 and $4.5 billion to gross state product if manufacturers spend amounts saved resulting from the higher exemption on additional production. Manufacturers argue taxes paid on the additional output, as well as those resulting from the 163,000 new jobs they argue the measure will add, will generate additional revenues that exceed estimated losses. However, this additional revenue relies largely on the assumption that purchasers will use all revenues not paid in taxes due to the bill on increased production in California, when firms receiving the benefit of the richer exemption can also use the money to increase returns to capital, wages, or to better meet market demand or increase efficiency in other states. The Congressional Research Service (CRS) estimated the 2017 Tax Cuts and Jobs Act (TCJA) reduced the effective federal corporate income tax rate from 17.2% in 2017 to 8.80% in 2018. However, the International Monetary Fund estimates investment in buildings and equipment rose only 3.5% as a result of 2017 tax reform, which when combined with the CRS data, implies only 42 cents of each dollar in reduced federal tax liabilities resulted in investment purchases of buildings and equipment. The Committee may wish to consider the incentive effect of AB 52, as well as the degree to which the taxes reduced by the measure will result in additional economic activity in the state.

3. Who benefits? Most manufacturers can claim the current partial sales and use tax exemption for its equipment purchases. SB 90/AB 93 allowed the exemption for any purchaser engaged more than 50% of the time in specified North American Industrial Classification System (NAICS) codes for manufacturers, as well as biotechnology and life science research and development. The Legislature expanded the references to the appropriate NAICS codes to include electric power generation and distribution in AB 398. However, SB 90/AB 93 prohibited any business required to apportion revenue to multiple states for Corporation Tax purposes from claiming the exemption, which AB 398 altered to include apportioning agricultural enterprises. AB 52’s credit would benefit these same firms by allowing a credit for the amount of local sales and use taxes paid as a result of its exemption being a partial one; however, unlike converting the partial exemption to a full one as called for by AB 1951 (discussed below), as a nonrefundable credit, only those firms with sufficient tax liability to offset AB 52’s credit will benefit from the measure.

4. Substitution? One risk of subsidizing equipment purchases is firms will substitute machines for workers, especially as equipment becomes more efficient. While more equipment likely means more economic activity and output, it’s unclear whether the benefits of added productivity and economic activity resulting from the program accrue to workers in the form of higher wages or increased employment.

5. Related legislation. Last year, the Legislature approved AB 1951 (Grayson), which would have converted the current partial exemption for equipment used in manufacturing and research and development into a full exemption. However, Governor Newsom vetoed the bill, stating “this change would result in substantial revenue loss to local governments, which impacts essential health, safety, welfare, and transportation services.” AB 52 differs from AB 1951 because its Personal Income and Corporation Tax credits would reduce state General Fund revenue, not revenues that flow to local agencies under the various non-General Fund increments of the Sales and Use Tax.

6. Section 41. Section 41 of the Revenue and Taxation Code requires any bill enacting a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, along with data collection and reporting requirements (SB 1335, Leno, 2014). AB 52 states as its goal, purpose, and objective to encourage new and continued investment in California in the areas of manufacturing and research and development. The measure identifies the dollar amount of credits claimed, and the number of taxpayers that claimed it as performance indicators, and directs the Legislative Analyst’s Office to report a by January 1, 2027, regarding the effectiveness of the credit.

7. Technicals. Committee staff recommend the following technical amendments:

• Require credits to be claimed on original, timely-filed returns.
• Direct taxpayers to maintain exemption certificates, invoices, and any other documentation necessary to verify the credit, to be provided to FTB at its request.
• Adding recapture language similar to the current exemption that directs FTB to recapture the credit if the equipment purchased to generate the credit is converted to a non-exempt use or removed from the state.
• Add language allowing tax information sharing between FTB and CDTFA necessary to effectively administer the credit

Assembly Actions

Assembly Revenue and Taxation Committee: 11-0
Assembly Appropriations Committee: 15-0
Assembly Floor: 77-0

Support and Opposition

(6/9/23)

Support:
Aerospace and Defense Alliance of California
Agricultural Council of California
Bay Area Council
Biocom California
Biotechnology Innovation Organization
Boehringer Ingelheim Pharmaceuticals INC.
Boma California
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Food Producers
California Life Sciences
California Manufacturers and Technology Association
California Steel Industries, INC.
California Taxpayers Association (CALTAX)
Can Manufacturers Institute
El Dorado County Chamber of Commerce
El Dorado Hills Chamber of Commerce
Elk Grove Chamber of Commerce
Folsom Chamber of Commerce
Glass Packaging Institute
Lincoln Area Chamber of Commerce
Los Angeles County Business Federation (BIZ-FED)
Naiop of California, the Commercial Real Estate Development Association
Orange County Business Council
Rancho Cordova Chamber of Commerce
Rocklin Area Chamber of Commerce
Roseville Area Chamber of Commerce
Ryan, LLC
San Gabriel Valley Economic Partnership
Santa Maria Valley Chamber of Commerce
Scotts Miracle-gro Company
Silicon Valley Leadership Group
Specialty Equipment Market Association (SEMA)
The Wine Institute
Yuba Sutter Chamber of Commerce

Opposition:
California Federation of Teachers AFL-CIO

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 52

Author:(Grayson)

As Amended Ver:April 19, 2023

Majority vote

SUMMARY

Allows a credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law equal to the amount of sales tax reimbursement or use tax paid on purchases that were partially exempt under the existing sales and use tax (SUT) exemption for manufacturing and research and development (MR&D).

Major Provisions

1. Allows, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, a credit equal to:
   1. The amount of sales tax reimbursement paid during the taxable year on purchases that would be fully exempt from taxation under the SUT Law's MR&D exemption but for Revenue and Taxation Code (R&TC) Section 6377.1(d), which provides the exemption is only partial; and,
   2. The amount of use tax paid during the taxable year on purchases that would be fully exempt from taxation under the SUT Law's MR&D exemption but for R&TC Section 6377.1(d), which provides the exemption is only partial.
2. Provides that any deduction otherwise allowed for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed.
3. Provides that, if the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to reduce the taxpayer's tax liability in the following taxable year, and succeeding eight years, if necessary, until the credit is exhausted.
4. Authorizes the Franchise Tax Board (FTB) to adopt regulations necessary or appropriate to carry out the purposes of this credit.
5. Takes immediate effect as a tax levy.
6. Sunsets the credit provisions on December 1, 2029.

COMMENTS

1. California's existing economic development tools: In 2013, Governor Brown signed legislation that reformed California's economic development policies. [AB 93 (Committee on Budget), Chapter 69, Statutes of 2013.] The new law eliminated enterprise zones and other geographically targeted economic development areas and, instead, created three new economic development tax incentives: (i) a temporary tax credit for wages paid by a taxpayer engaged in a trade or business within a designated census tract, as defined, or a former enterprise zone to certain full-time employees (the "New Employment Credit"); (ii) the California Competes Tax Credit program - a negotiated incentive administered by the Governor's Office of Business and Economic Development; and, (iii) a temporary MR&D SUT exemption.
2. The existing MR&D exemption: Until July 1, 2030, existing law provides a partial SUT exemption for a qualified person's purchase of qualified tangible personal property (TPP) to be primarily used in manufacturing; research and development; or electric power generation, distribution, or storage. The MR&D exemption only applies to the General Fund (GF) components of the statewide SUT rate (3.9375%) and is generally limited to $200 million of TPP purchases by a qualified person in each calendar year.
3. What would this bill do? This bill would allow an income tax credit under both the PIT Law and the CT Law equal to the amount of sales tax reimbursement or use tax paid on qualifying purchases that were only partially exempt under the existing SUT exemption for MR&D. Thus, taxpayers with sufficient income tax liability would effectively receive the benefit of a full SUT exemption for their MR&D purchases. This bill would accomplish this goal, however, without reducing local revenues via a complete SUT exemption. Instead, the full cost of the incentive program would be borne by the state through reduced GF revenues.

According to the Author

The author has provided the following statement in support of this bill:

Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians.

Arguments in Support

This bill is sponsored by the California Manufacturers & Technology Association, which notes the following:

AB 52 would provide manufacturers with a state tax credit equal to the local portion of the sales and use tax for the purchase of qualified manufacturing and research and development (R&D) equipment. This credit transforms the current incentive landscape, making manufacturing investment in California far more competitive and attractive. California operational costs can challenge a manufacturer's ability to revitalize and uplift communities, but this investment will send just the proper signal that the State is serious about retaining and attracting production.

Arguments in Opposition

None on file

FISCAL COMMENTS

1. GF revenue loss of approximately $100 million in fiscal year (FY) 2023-24, $280 million in FY 2024-25, and $350 million in FY 2025-26.
2. GF costs of an unknown, but likely absorbable, amount to the FTB to administer the tax credit and share data with the Legislative Analyst's Office (LAO).
3. Costs of an unknown, but likely absorbable, amount to the LAO to write the report. However, the Legislature sees a wide array of bills that require the LAO to measure different tax expenditures. Generally, a request to prepare an individual report would not generate significant new workload for the LAO. But, taken together, these proposals strain the ability of the LAO fulfill other existing or future legislative mandates and requests, as the LAO's budget is subject to the Legislature's constitutional spending cap.

VOTES

ASM REVENUE AND TAXATION: 11-0-0

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Ta, Valencia, Zbur

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: April 19, 2023

CONSULTANT: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0000685

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 52

Author:(Grayson) – As Amended Ver:April 19, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, a tax credit under the Personal Income Tax (PIT) Law and Corporation Tax (CT) Law in an amount equal to the amount of sales and use tax (SUT) paid on purchases qualifying for the SUT partial exemption for manufacturing and research and development (MR&D).

This bill declares the goals and performance indicators for the tax credit and requires the Legislative Analyst’s Office (LAO) to review, by January 1, 2027, the effectiveness of the tax credit and post the review on the LAO’s website.

FISCAL EFFECT:

1. General Fund (GF) revenue loss of approximately $100 million in fiscal year (FY) 2023-24, $280 million in FY 2024-25, and $350 million in FY 2025-26.
2. GF costs of an unknown, but likely absorbable, amount to the Franchise Tax Board (FTB) to administer the tax credit and share data with the LAO.
3. Costs of an unknown, but likely absorbable, amount to the LAO to write the report. However, this committee sees a wide array of bills that require the LAO to measure different tax expenditures. Generally, a request to prepare an individual report would not generate significant new workload for the LAO. But, taken together, these proposals strain the ability of the LAO fulfill other existing or future legislative mandates and requests, as the LAO’s budget is subject to the Legislature’s constitutional spending cap.

COMMENTS:

1. Purpose. According to the author:

There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local [SUT] exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians.

This bill is sponsored by the California Manufacturers and Technology Association and supported by other business associations.

1. Existing SUT Incentives. California’s existing MR&D SUT exemption was enacted in 2013 as part of the state’s overhaul of economic development policies. The tax expenditure provides, until July 1, 2030, a partial SUT exemption for a qualified taxpayer’s purchase of qualified tangible personal property (TPP) that is primarily used in manufacturing, research and development, or electric power generation, distribution, or storage. The partial exemption only applies to the GF components of the statewide SUT rate (3.9375%) and is generally limited to $200 million of TPP purchases by a qualified taxpayer in each calendar year. The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) also administers, until January 1, 2026, a separate full SUT exclusion program, limited to $100 million per year, for eligible projects that promote the utilization of green technology. AB 209 (Committee on Budget), Chapter 251, Statutes of 2022, expanded the CAEATFA program to allow an additional $15 million of SUT exclusions for the 2022, 2023, and 2024 calendar years solely for projects that manufacture, refine, extract, process, or recover lithium.

This bill creates a tax credit for the amount of SUT paid on purchases only partially exempt under the existing MR&D SUT exemption. Thus, taxpayers with sufficient PIT and CT liability would effectively receive the benefit of a full SUT exemption for MR&D purchases, without being subject to the exemption’s $200 million limit. However, the additional revenue loss would be borne by the state, instead of cities and counties.

1. Prior Legislation. AB 1951 (Grayson), of the 2021-22 Legislative Session, would have expanded the partial MR&D SUT exemption to become a full exemption. AB 1951 was vetoed by Governor Newsom, who stated:

As a strong supporter of California’s business climate and manufacturing industry, I agree with the intent of this bill to invest in California’s economy, incentivize innovation, and spur a manufacturing marketplace that is competitive nation-wide. However, we cannot ask our local governments to bear this loss in revenue…

With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined…Bills with significant cost pressures, such as this measure, should be considered as part of the annual budget process….

I look forward to working with the Legislature and stakeholders to propose something on this topic next year.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: May 1, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 52 (

Author:Grayson) – As Amended Ver:April 19, 2023

SUSPENSE

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Income tax credit: sales and use taxes paid: manufacturing equipment: research and development equipment

SUMMARY: Allows a credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law equal to the amount of sales tax reimbursement or use tax paid on purchases that were partially exempt under the existing sales and use tax (SUT) exemption for manufacturing and research and development (MR&D). Specifically, this bill:

1. Contains the following findings and declarations:
   1. Businesses conducting manufacturing or research and development activities are essential to the economic well-being of California and provide high-wage jobs for Californians. In recent years, many of these businesses have chosen to relocate operations to lower cost jurisdictions or expand outside of California;
      
   2. California has the highest state-level sales tax rate among the 50 states in the United States, and after local rates are accounted for, SUT rates in California can reach up to 10.75%; and,
      
   3. Thirty-eight states fully exempt manufacturing equipment from SUT. With California's current partial exemption, taxpayers pay more to buy equipment in California than they would elsewhere, creating a competitive disadvantage for the state.
      
2. Allows, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, a credit equal to:
   
   1. The amount of sales tax reimbursement paid during the taxable year on purchases that would be fully exempt from taxation under the SUT Law's MR&D exemption but for Revenue and Taxation Code (R&TC) Section 6377.1(d), which provides the exemption is only partial; and,
      
   2. The amount of use tax paid during the taxable year on purchases that would be fully exempt from taxation under the SUT Law's MR&D exemption but for R&TC Section 6377.1(d), which provides the exemption is only partial.
      
3. Provides that any deduction otherwise allowed for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed.
4. Provides that, if the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to reduce the taxpayer's tax liability in the following taxable year, and succeeding eight years, if necessary, until the credit is exhausted.
   
5. Authorizes the Franchise Tax Board (FTB) to adopt regulations necessary or appropriate to carry out the purposes of this credit.
   
6. Provides that, for purposes of complying with R&TC Section 41, the Legislature finds and declares the following:
   
   1. The specific goal that the credits will achieve is to encourage new and continued investment in California in the areas of MR&D; and,
      
   2. Detailed performance indicators for the Legislature to use in determining whether the credits meet that goal are as follows:
      
      1. The total dollar amount of tax credits allowed; and,
         
      2. The number of taxpayers that were allowed a tax credit.
         
7. Requires the Legislative Analyst's Office (LAO), on or before January 1, 2027, to review the effectiveness of the credits and post the review on the LAO's website. This review shall include, but not be limited to, an analysis of the demand for the credits and the economic impact of the credits.
   
8. Provides that, notwithstanding existing law, the FTB shall provide to the LAO any data in its possession requested by the LAO for purposes of conducting its review.
   
9. Takes immediate effect as a tax levy.
   
10. Sunsets the credit provisions on December 1, 2029.

EXISTING LAW:

1. Allows various tax credits under both the PIT Law and CT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses. (R&TC Sections 17001 et seq. and 23001 et seq.)
2. Imposes, under the SUT Law, a tax on retailers measured by the gross receipts from the sale of tangible personal property (TPP) sold at retail in this state or on the storage, use, or other consumption in this state of TPP purchased from a retailer for storage, use, or other consumption in this state. (R&TC Section 6001 et seq.)
3. Provides, until July 1, 2030, a partial MR&D SUT exemption for qualified TPP purchased for use by a qualified person to be used primarily:
   
   1. In any stage of the manufacturing, processing, refining, fabricating, or recycling of TPP;
      
   2. In research and development;
      
   3. To maintain, repair, measure, or test any qualified TPP described above; and,
      
   4. In the generation or production, or storage and distribution, of electric power.

The partial exemption also applies to qualified TPP purchased for use by a contractor to perform a construction contract for a qualified person that will use that property as an integral part of the following:

• 1. The manufacturing, processing, refining, fabricating, or recycling process;
     
  2. The generation or production, or storage and distribution, of electric power; or,
     
  3. As a research or storage facility for use in connection with those processes. (R&TC Section 6377.1.)

1. Requires any bill that authorizes a tax expenditure to contain all of the following:
   
   1. Specific goals, purposes, and objectives that the tax expenditure will achieve;
      
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goals, purposes, and objectives stated in the bill; and,
   3. Specified data collection requirements to enable the Legislature to determine whether the tax expenditure is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. (R&TC Section 41.)

FISCAL EFFECT: The FTB estimates General Fund (GF) revenue losses of $100 million in fiscal year (FY) 2023-24, $280 million in FY 2024-25, and $350 million in FY 2025-26.

COMMENTS:

1. The author has provided the following statement in support of this bill:

Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 52 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians.

1. This bill is sponsored by the California Manufacturers & Technology Association, which notes the following:

AB 52 would provide manufacturers with a state tax credit equal to the local portion of the sales and use tax for the purchase of qualified manufacturing and research and development (R&D) equipment. This credit transforms the current incentive landscape, making manufacturing investment in California far more competitive and attractive. California operational costs can challenge a manufacturer's ability to revitalize and uplift communities, but this investment will send just the proper signal that the State is serious about retaining and attracting production.

1. This bill is supported by the Silicon Valley Leadership Group, which notes the following:

By reducing the cost of conducting R&D and manufacturing in California, AB

52 will help increase investment and employment in the state. Manufacturing

and R&D jobs are high-wage, which will help to maintain and increase

California's income tax base. Furthermore, manufacturing and R&D provide

spillover effects that will strengthen the California economy.

California's manufacturing sector has been growing more slowly than in the rest of the United States over the past decade. SB 52 would be a meaningful step to help encourage more manufacturing investment in California and to provide further impetus for innovation economy companies to remain and grow here.

1. Committee Staff Comments:
   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues).
      

As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. While this affords taxpayers greater financial predictability, it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote.

• 1. California's existing economic development tools: In 2013, Governor Brown signed legislation that reformed California's economic development policies. [AB 93 (Committee on Budget), Chapter 69, Statutes of 2013.] The new law eliminated enterprise zones and other geographically targeted economic development areas and, instead, created three new economic development tax incentives: (i) a temporary tax credit for wages paid by a taxpayer engaged in a trade or business within a designated census tract, as defined, or a former enterprise zone to certain full-time employees (the "New Employment Credit"); (ii) the California Competes Tax Credit program - a negotiated incentive administered by the Governor's Office of Business and Economic Development; and, (iii) a temporary MR&D SUT exemption.
  2. The existing MR&D exemption: Until July 1, 2030, existing law provides a partial SUT exemption for a qualified person's purchase of qualified TPP to be primarily used in manufacturing; research and development; or electric power generation, distribution, or storage. The MR&D exemption only applies to the GF components of the statewide SUT rate (3.9375%) and is generally limited to $200 million of TPP purchases by a qualified person in each calendar year.
  3. What would this bill do? This bill would allow an income tax credit under both the PIT Law and the CT Law equal to the amount of sales tax reimbursement or use tax paid on qualifying purchases that were only partially exempt under the existing SUT exemption for MR&D. Thus, taxpayers with sufficient income tax liability would effectively receive the benefit of a full SUT exemption for their MR&D purchases. This bill would accomplish this goal, however, without reducing local revenues via a complete SUT exemption. Instead, the full cost of the incentive program would be borne by the state through reduced GF revenues.
  4. Should manufacturing purchases be fully exempt? Most experts who have studied state SUT regimes would argue that, in an ideal world, it makes little sense to subject most business-to-business purchases to sales tax. This contention is predicated on the fact that taxing such business inputs often leads to tax pyramiding. Tax pyramiding, in turn, occurs when the same good is taxed multiple times during the production process. Imagine, for example, a manufacturing firm that purchases taxed materials to fabricate an item that is again subject to SUT upon its final sale to a consumer. California's existing MR&D exemption at least partially addresses this problem for qualifying purchases.

It should be noted, however, that most tax experts would also argue that the current SUT base is far too narrow. By only imposing SUT on sales of TPP, California's current consumption tax fails to capture a wide range of consumer services and digital purchases.

• 1. Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the CT Law, and the SUT Law introduced on or after January 1, 2020. This Committee has also adopted a policy, requiring that all tax expenditure proposals must comply with the requirements of R&TC Section 41. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. This bill complies with R&TC Section 41.

In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. According to the policy, an "appropriate sunset provision" means five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" means 10 years. This bill complies with this Committee's policy on sunset dates.

• 1. Prior legislation: AB 1951 (Grayson), of the 2021-22 Legislative Session, would have expanded, for a five-year period, the existing partial SUT exemption for MR&D by making it a full exemption. Governor Newson vetoed AB 1951 and noted the following in his veto message:

This bill replaces the current partial manufacturing sales tax exemption with a full exemption until January 1, 2028. This change would result in substantial revenue loss to local governments, which impacts essential health, safety, welfare, and transportation services. Assuming there are no changes in taxpayer behavior, local agencies are estimated to lose over half a billion dollars each year.

As a strong supporter of California's business climate and manufacturing industry, I agree with the intent of this bill to invest in California's economy, incentivize innovation, and spur a manufacturing marketplace that is competitive nation-wide. However, we cannot ask our local governments to bear this loss in revenue.

With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined. The Legislature sent measures with potential costs of well over $20 billion in one-time spending commitments and more than $10 billion in ongoing commitments not accounted for in the state budget. Bills with significant cost pressures, such as this measure, should be considered as part of the annual budget process. For these reasons, I cannot sign this bill.

I look forward to working with the Legislature and stakeholders to propose something on this topic next year.

REGISTERED SUPPORT / OPPOSITION:

Support

California Manufacturers & Technology Association (Sponsor)

Aerospace and Defense Alliance of CA

Agricultural Council of California

Bay Area Council

Biocom California

Boehringer Ingelheim

Biotechnology Innovation Organization

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California League of Food Producers

California Life Sciences

California Taxpayers Association

Capstone Green Energy

El Dorado County Chamber of Commerce

El Dorado Hills Chamber of Commerce

Elk Grove Chamber of Commerce

Folsom Chamber of Commerce

Glass Packaging Institute

Lincoln Area Chamber of Commerce

NAIOP of California, the Commercial Real Estate Development Association

Orange County Business Council

Rocklin Area Chamber of Commerce

Ryan LLC

Santa Maria Valley Chamber of Commerce

Scotts Miracle Grow

Shingle Springs/Cameron Park Chamber of Commerce

Silicon Valley Leadership Group

Specialty Equipment Market Association

Valley Industry and Commerce Association

Yuba Sutter Chamber of Commerce

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098

Date of Hearing: April 17, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 52 (

Author:Grayson) – As Amended Ver:March 16, 2023

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Income tax credit: sales and use taxes paid: manufacturing equipment: research and development equipment

SUMMARY: Allows a credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law equal to the amount of sales tax reimbursement or use tax paid on purchases that were partially exempt under the existing sales and use tax (SUT) exemption for manufacturing and research and development (MR&D). Specifically, this bill:

1. Contains the following findings and declarations:
   1. Businesses conducting manufacturing or research and development activities are essential to the economic well-being of California and provide high-wage jobs for Californians. In recent years, many of these businesses have chosen to relocate operations to lower cost jurisdictions or expand outside of California;
      
   2. California has the highest state-level sales tax rate among the 50 states in the United States, and after local rates are accounted for, SUT rates in California can reach up to 10.75%; and,
      
   3. Thirty-eight states fully exempt manufacturing equipment from SUT. With California's current partial exemption, taxpayers pay more to buy equipment in California than they would elsewhere, creating a competitive disadvantage for the state.
      
2. Allows, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, a credit equal to:
   
   1. The amount of sales tax reimbursement paid during the taxable year on purchases that would be fully exempt from taxation under the SUT Law's MR&D exemption but for Revenue and Taxation Code (R&TC) Section 6377.1(d), which provides the exemption is only partial; and,
      
   2. The amount of use tax paid on purchases that would be fully exempt from taxation under the SUT Law's MR&D exemption but for R&TC Section 6377.1(d), which provides the exemption is only partial.
      
3. Provides that any deduction otherwise allowed for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed.
4. Provides that, if the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to reduce the taxpayer's tax liability in the following taxable year, and succeeding eight years, if necessary, until the credit is exhausted.
   
5. Authorizes the Franchise Tax Board (FTB) to adopt regulations necessary or appropriate to carry out the purposes of this credit.
   
6. Provides that, for purposes of complying with R&TC Section 41, the Legislature finds and declares the following:
   
   1. The specific goal that the credits will achieve is to encourage new and continued investment in California in the areas of MR&D; and,
      
   2. Detailed performance indicators for the Legislature to use in determining whether the credits meet that goal are as follows:
      
      1. The total dollar amount of tax credits allowed; and,
         
      2. The number of taxpayers that were allowed a tax credit.
         
7. Requires the Legislative Analyst's Office (LAO), on or before January 1, 2027, to review the effectiveness of the credits and post the review on the LAO's website. This review shall include, but not be limited to, an analysis of the demand for the credits and the economic impact of the credits.
   
8. Takes immediate effect as a tax levy.
   
9. Sunsets the credit provisions on December 1, 2028.

EXISTING LAW:

1. Allows various tax credits under both the PIT Law and CT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses. (R&TC Sections 17001 et seq. and 23001 et seq.)
2. Imposes, under the SUT Law, a tax on retailers measured by the gross receipts from the sale of tangible personal property (TPP) sold at retail in this state or on the storage, use, or other consumption in this state of TPP purchased from a retailer for storage, use, or other consumption in this state. (R&TC Section 6001 et seq.)
3. Provides, until July 1, 2030, a partial MR&D SUT exemption for qualified TPP purchased for use by a qualified person to be used primarily:
   
   1. In any stage of the manufacturing, processing, refining, fabricating, or recycling of TPP;
      
   2. In research and development;
      
   3. To maintain, repair, measure, or test any qualified TPP described above; and,
      
   4. In the generation or production, or storage and distribution, of electric power.

The partial exemption also applies to qualified TPP purchased for use by a contractor to perform a construction contract for a qualified person that will use that property as an integral part of the following:

• 1. The manufacturing, processing, refining, fabricating, or recycling process;
     
  2. The generation or production, or storage and distribution, of electric power; or,
     
  3. As a research or storage facility for use in connection with those processes. (R&TC Section 6377.1.)

1. Requires any bill that authorizes a tax expenditure to contain all of the following:
   
   1. Specific goals, purposes, and objectives that the tax expenditure will achieve;
      
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goals, purposes, and objectives stated in the bill; and,
   3. Specified data collection requirements to enable the Legislature to determine whether the tax expenditure is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. (R&TC Section 41.)

FISCAL EFFECT: The FTB estimates General Fund (GF) revenue losses of $100 million in fiscal year (FY) 2023-24, $280 million in FY 2024-25, and $350 million in FY 2025-26.

COMMENTS:

1. The author has provided the following statement in support of this bill:

Within the California economy, manufacturing plays a crucial and essential role, supporting high wage jobs and small businesses. California has comparative manufacturing advantages to other regions of the world due to the strength and depth of its innovation in technology. Not only does manufacturing employ 1.3 million people in California, but it also plays a key role in creating new jobs with its multiplier effect, supporting 2.5 jobs for every one manufacturing job. In 2021, manufacturing in California contributed significantly to the state's exports, and represented 11.00% ($300 billion in goods) of California's GDP. There is a large misconception that all manufacturing is done on large industrial scales, however over 70% of manufacturers have less than 20 employees. AB 1951 will incentivize long-term investments and fuel growth in the manufacturing industry in California by providing a full state and local sales and use tax exemption for the purchase of manufacturing equipment. Ultimately, manufacturers will be able to grow, hire and train skilled workforces for the future and provide high wage jobs for Californians.

1. This bill is sponsored by the California Manufacturers & Technology Association, which notes the following:

AB 52 would provide manufacturers with a state tax credit equal to the local portion of the sales and use tax for the purchase of qualified manufacturing and research and development (R&D) equipment. This credit transforms the current incentive landscape, making manufacturing investment in California far more competitive and attractive. California operational costs can challenge a manufacturer's ability to revitalize and uplift communities, but this investment will send just the proper signal that the State is serious about retaining and attracting production.

1. This bill is supported by the Silicon Valley Leadership Group, which notes the following:

By reducing the cost of conducting R&D and manufacturing in California, AB

52 will help increase investment and employment in the state. Manufacturing

and R&D jobs are high-wage, which will help to maintain and increase

California's income tax base. Furthermore, manufacturing and R&D provide

spillover effects that will strengthen the California economy.

California's manufacturing sector has been growing more slowly than in the rest of the United States over the past decade. SB 52 would be a meaningful step to help encourage more manufacturing investment in California and to provide further impetus for innovation economy companies to remain and grow here.

1. Committee Staff Comments:
   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues).
      

As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. While this affords taxpayers greater financial predictability, it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote.

• 1. California's existing economic development tools: In 2013, Governor Brown signed legislation that reformed California's economic development policies. [AB 93 (Committee on Budget), Chapter 69, Statutes of 2013.] The new law eliminated enterprise zones and other geographically targeted economic development areas and, instead, created three new economic development tax incentives: (i) a temporary tax credit for wages paid by a taxpayer engaged in a trade or business within a designated census tract, as defined, or a former enterprise zone to certain full-time employees (the "New Employment Credit"); (ii) the California Competes Tax Credit program - a negotiated incentive administered by the Governor's Office of Business and Economic Development; and, (iii) a temporary MR&D SUT exemption.
  2. The existing MR&D exemption: Until July 1, 2030, existing law provides a partial SUT exemption for a qualified person's purchase of qualified TPP to be primarily used in manufacturing; research and development; or electric power generation, distribution, or storage. The MR&D exemption only applies to the GF components of the statewide SUT rate (3.9375%) and is generally limited to $200 million of TPP purchases by a qualified person in each calendar year.
  3. What would this bill do? This bill would allow an income tax credit under both the PIT Law and the CT Law equal to the amount of sales tax reimbursement or use tax paid on qualifying purchases that were only partially exempt under the existing SUT exemption for MR&D. Thus, taxpayers with sufficient income tax liability would effectively receive the benefit of a full SUT exemption for their MR&D purchases. This bill would accomplish this goal, however, without reducing local revenues via a complete SUT exemption. Instead, the full cost of the incentive program would be borne by the state through reduced GF revenues.
  4. Should manufacturing purchases be fully exempt? Most experts who have studied state SUT regimes would argue that, in an ideal world, it makes little sense to subject most business-to-business purchases to sales tax. This contention is predicated on the fact that taxing such business inputs often leads to tax pyramiding. Tax pyramiding, in turn, occurs when the same good is taxed multiple times during the production process. Imagine, for example, a manufacturing firm that purchases taxed materials to fabricate an item that is again subject to SUT upon its final sale to a consumer. California's existing MR&D exemption at least partially addresses this problem for qualifying purchases.

It should be noted, however, that most tax experts would also argue that the current SUT base is far too narrow. By only imposing SUT on sales of TPP, California's current consumption tax fails to capture a wide range of consumer services and digital purchases.

• 1. Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the CT Law, and the SUT Law introduced on or after January 1, 2020. This Committee has also adopted a policy, requiring that all tax expenditure proposals must comply with the requirements of R&TC Section 41. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. This bill complies with R&TC Section 41.

In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. According to the policy, an "appropriate sunset provision" means five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" means 10 years. This bill complies with this Committee's policy on sunset dates.

• 1. Prior legislation: AB 1951 (Grayson), of the 2021-22 Legislative Session, would have expanded, for a five-year period, the existing partial SUT exemption for MR&D by making it a full exemption. Governor Newson vetoed AB 1951 and noted the following in his veto message:

This bill replaces the current partial manufacturing sales tax exemption with a full exemption until January 1, 2028. This change would result in substantial revenue loss to local governments, which impacts essential health, safety, welfare, and transportation services. Assuming there are no changes in taxpayer behavior, local agencies are estimated to lose over half a billion dollars each year.

As a strong supporter of California's business climate and manufacturing industry, I agree with the intent of this bill to invest in California's economy, incentivize innovation, and spur a manufacturing marketplace that is competitive nation-wide. However, we cannot ask our local governments to bear this loss in revenue.

With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined. The Legislature sent measures with potential costs of well over $20 billion in one-time spending commitments and more than $10 billion in ongoing commitments not accounted for in the state budget. Bills with significant cost pressures, such as this measure, should be considered as part of the annual budget process. For these reasons, I cannot sign this bill.

I look forward to working with the Legislature and stakeholders to propose something on this topic next year.

REGISTERED SUPPORT / OPPOSITION:

Support

California Manufacturers & Technology Association (Sponsor)

Aerospace and Defense Alliance of CA

Agricultural Council of California

Bay Area Council

Biocom California

Boehringer Ingelheim

Biotechnology Innovation Organization

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California League of Food Producers

California Life Sciences

California Taxpayers Association

Capstone Green Energy

El Dorado County Chamber of Commerce

El Dorado Hills Chamber of Commerce

Elk Grove Chamber of Commerce

Folsom Chamber of Commerce

Lincoln Area Chamber of Commerce

NAIOP of California, the Commercial Real Estate Development Association

Rocklin Area Chamber of Commerce

Ryan LLC

Santa Maria Valley Chamber of Commerce

Scotts Miracle Grow

Shingle Springs/Cameron Park Chamber of Commerce

Silicon Valley Leadership Group

Specialty Equipment Market Association

Valley Industry and Commerce Association

Yuba Sutter Chamber of Commerce

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098