Send a Signal That California’s Back in Business : Economy: Repeal the tax on manufacturing equipment to stem job losses to the 42 other states that promise lower taxes.
When Intel Corp. recently announced that its $1-billion expansion will take place in Albuquerque, N.M., rather than in Folsom, Calif., the company said that a major reason for its decision to expand outside the state was California’s sales tax on new manufacturing equipment.
Unlike California, New Mexico doesn’t tax manufacturers when they purchase new equipment. By expanding in New Mexico, Intel will save $50 million in sales taxes alone, not to mention millions more in regulatory and workers’ compensation costs. Meanwhile, California will lose the 1,000 jobs that Intel would have created here and the $8 million in state and local taxes that Intel’s $50-million yearly payroll would have generated--all of which is now headed for New Mexico, along with the 2,000 construction and 3,000 manufacturing support jobs the project will create.
Intel’s decision underlines the urgent need to repeal California’s sales tax on new manufacturing equipment. California is one of only eight states to levy the tax, and it’s having a devastating impact on our ability to keep and attract manufacturing jobs.
More than 247,000 manufacturing jobs have been driven out of California in the last three years, not to mention the tens of thousands of jobs that were never created here because California-based companies like Intel were forced to expand elsewhere. Between 1987 and 1992, more than 700 manufacturing plants relocated or expanded outside the state. The situation has deteriorated to the point where California is now losing one manufacturing-related job every working minute of every working day. These are terrifying figures when you consider that nearly half of all California jobs are manufacturing-related, and that manufacturers and their suppliers provide nearly half of the state’s economic wealth.
California’s tax on new manufacturing equipment makes it increasingly difficult for companies here to retool or expand their operations to remain competitive. California’s one remaining automobile manufacturer, for example, New United Motor Manufacturing in Fremont, is the only auto manufacturer in North America that has to pay state sales tax on new equipment. Last year, the company paid $10 million in sales taxes when it retooled its plant--that’s $10 million more than any of its out-of-state competitors had to pay.
Critics argue against repealing the tax, saying we can’t afford the revenue loss. But they need to understand that we can’t lose money we don’t have or will never get. Until this tax is repealed, manufacturers like Intel will continue moving to other states, taking jobs, salaries and tax revenues with them.
If California has the good sense to repeal its tax on manufacturing equipment, three things will happen. We will immediately become competitive with 42 other states that are now luring manufacturers away from California with promises of lower taxes. We will provide California companies with an immediate incentive to expand their facilities and create new jobs. And we will send a very clear signal to companies throughout the world that California is back in business.
DR, J.D. CROWE 93
