Revision of State Unitary Tax Credited : Sony to Expand San Diego TV Plant, Build Facility in Cypress
Less than a week after California legislators voted to change the way the state taxes multinational corporations, Sony Corp. of America announced Tuesday that it will invest about $30 million during the next three years in its television set manufacturing plant in San Diego.
In addition, the Japanese company, which was a vocal opponent of California’s unitary tax, has formed a joint venture with a New York firm to build a $10-million Western regional headquarters for Sony in Cypress.
“The repeal of the California unitary tax is very timely because not only Sony but other Japanese companies are looking at shifting production outside of Japan to other countries, and that includes the United States,” Kenji Tamiya, chairman of Sony Corp. of America, said at a news conference here.
Compromise Bill Passed
The state Senate and Assembly both passed a compromise bill last week revising the 50-year-old method of taxing international corporations with operations in California. Under the unitary tax system, the state taxes the worldwide profits of company rather than just the income produced in California or the United States.
For example, if 10% of a company’s sales, payroll and property are in California, the state taxes 10% of the firm’s entire worldwide profits, even if its California operations are losing money.
Under the compromise, which awaits Gov. George Deukmejian’s signature, multinational companies may continue to operate under the unitary tax in California or may choose what is called an “election fee” of 0.03% annually imposed on their assets, payroll and sales in California.
Immediately after the bill was passed, Akio Morita, chief executive of Sony Corp. and vice chairman of the Japanese business federation known as Keidanren, said he expected Japan and other countries to accelerate their investment in California.
At Tuesday’s press conference, Tamiya described Sony’s decision to increase its investment in California as “Sony’s answer to its pledge to bring production to the state.” Aside from the tax change, he said, the dollar’s devaluation against the yen during the past year has provided another incentive to move production overseas because “making products in Japan is extremely expensive.”
As part of the $30-million expansion plan for its 14-year-old San Diego plant, Sony will shift production of its 13-inch Trinitron television sets from Japan to the Southern California facility. That will add 150,000 to 200,000 units to the plant’s current annual production of 1 million TV sets and will mean that all Sony Trinitron sets sold in the United States will be made in San Diego. In addition, the San Diego plant will produce large-screen projection television sets for home use and high-resolution TV monitors for such industrial applications as air traffic control and computer-aided design.
Tamiya said it is not yet clear how many jobs might be created. The San Diego plant employs 1,900 of the 2,700 Sony employees who work at 17 facilities in California, including a technology center in Palo Alto and regional sales and service offices in the San Francisco, San Jose and Los Angeles areas. Sony employs about 7,000 people throughout the United States.
The electronics maker will pay half of the $10-million cost of the Cypress facility, and DeRevere Partnership of White Plains, N.Y., will provide the other half. Sony will then rent the facility from the joint venture. The 100,000-square-foot building will open next year as Sony’s new Western regional headquarters and will house sales and service operations.
Tamiya said Sony’s current headquarters in Compton, as well as its operations in Torrance and Irvine, will be moved to Cypress. The three present facilities employ 300 to 400 people, and that number is not expected to change much with the move to Cypress.
The Sony chairman said the company will use the “election fee” system of taxation in preference to the unitary tax. “We’re not happy with it, but, under the circumstances, the election fee is the best compromise. We will have to continue to work hard to repeal the election fee in the future,” Tamiya said.
Though he would not say how much Sony has been paying in unitary taxes, Tamiya said the change to the election fee will save the company 50% to 75% of what it would have had to pay under the old system.
He also noted that because of California’s system of taxation, Sony has systematically eliminated the state in recent years as a possible site for additional plants. As a result, California has lost out on such Sony projects as a $40-million compact disk manufacturing facility that was built in Terre Haute, Ind., in 1984.
Tamiya said an additional $20 million will be invested in the plant, which produces 1.5 million disks a month, to increase production to 2 million a month by the end of this year and to 3 million a month next year.
