By MADISON HIRNEISEN
THE CENTER SQUARE STAFF REPORTER
(The Center Square) — A bill authored to preserve the Golden State’s status as a home for innovation by offering full sales and use tax exemptions for manufacturing and research and development equipment cleared another major legislative hurdle this week.
Assembly Bill 1951, sponsored by Assemblyman Tim Grayson, would expand California’s existing partial sales and use tax exemption to provide a full exemption for purchases of manufacturing and research and development equipment up to $200 million for five years. The Senate Appropriations Committee passed the bill on Thursday. Its next destination is the Senate floor.
“Every Californian wins when manufacturing grows,” Assemblyman Grayson tweeted Thursday after the bill was passed. “AB 1951 will not only help us keep manufacturing jobs in California where they belong, but also create new ones.”
California has the nation’s highest state-level sales tax rate and – after accounting for local rates, sales and use tax rate – can reach 10.75% in the state, according to the bill’s text. Thirty-eight other states fully exempt manufacturing equipment from sales and use tax, meaning that “taxpayers pay more to buy equipment in California than they would elsewhere, creating a competitive disadvantage for the state,” the bill states.
Under existing law, a person can receive a partial sales and use and tax exemption for qualified “tangible personal property” primarily for manufacturing, research, and development, as previously reported by The Center Square. Grayson’s bill alters that provision by offering a full exemption for equipment purchases up to $200 million from Jan. 1, 2023, to Jan. 1, 2028. After that, the state would return to the partial exemption until 2030.
Manufacturers in California account for more than 10% of the state’s total output and employ 7.5% of the workforce, according to data from the National Association of Manufacturers. Manufacturing jobs employ about 1.2 million Californians through more than 35,000 manufacturing firms, according to the state.
Supporters of the legislation say the bill will support California jobs while simultaneously bolstering California’s manufacturing industry.
“AB 1951 is critical in helping our companies grow exponentially, increasing state innovation, and providing many Californians with high-quality, high-paying jobs,” California Manufacturers & Technology Association President and CEO Lance Hastings said in a statement.
The bill won support from the California Taxpayers Association and the California Chamber of Commerce as it moved its way through the legislature. No organizations registered in opposition to the measure.
A fiscal analysis of the bill estimates taxpayers would keep approximately $695,000 in utilizing the full exemption instead of the partial exemption. Local governments would see an annual $533 million drop in tax revenue due to the same shift in taxpayer behavior.
The bill will be heard next on the Senate floor in the coming weeks, where lawmakers will decide whether or not to send it to Gov. Gavin Newsom’s desk. The last day for the Senate and Assembly to pass bills is Aug. 31.
Madison Hirneisen covers California for The Center Square.