Bill Giving Tax Break to Manufacturers Passes Test

Despite claims it was an “irresponsible” measure that would worsen the state’s budget woes, a bill giving California manufacturers $1.2 billion in sales tax breaks on new equipment passed its first legislative test Monday.

The measure, carried by Assembly Speaker Willie Brown (D-San Francisco) on behalf of the California Manufacturers Assn., was approved on a 6-5 vote by the Assembly Revenue and Taxation Committee.

The bill would allow manufacturers to buy new equipment without paying sales tax. It would amount to the largest loophole so far in this legislative session and comes at a time when the state faces a $9-billion shortfall.

In previous testimony before the committee, the Speaker--sitting elbow to elbow with business leaders--said he decided to go ahead with the measure after listening to business woes at his economic summit this year in Los Angeles. Brown said the loss in tax revenue would be made up by stimulated business activity.

In the committee vote, Democrats opposed their Assembly leader’s bill while conservative Republicans backed it enthusiastically.

Officials with the manufacturers group say California should grant the exemption, as have 36 other states that try to lure businesses with partial or full sales tax relief on equipment purchases. The group also said the tax break would “send a message” that California is trying to change its image as hostile to business.

On Monday, some of Brown’s top lieutenants offered sympathy but opposed the measure. A committee analysis said that California businesses would have to buy twice the normal amount of new equipment before the economic ripple effect would make up for the amount lost in state and local sales tax each year.

Assemblyman Johan Klehs (D-San Leandro), the committee’s chairman, said that prospect was unlikely and that a vote for approval was “irresponsible.” Assemblyman Louis Caldera (D-Los Angeles), a co-author of the measure, joined in saying that it was now unwise to vote for the bill during the budget crunch.

“The cost is astronomical and the benefits are ephemeral,” Assemblyman Phillip Isenberg (D-Sacramento), who voted against the measure, said after the hearing. Also voting no: Brown’s majority floor leader, Thomas M. Hannigan of Fairfield.

But two Democrats on the committee--Dominic L. Cortese of San Jose and Tom Connolly of Lemon Grove--cast votes in favor of the bill with Republicans, who took the opportunity to tweak the Democrats.

“Vote for this worthy measure and vote for Willie Brown, your leader,” urged Assemblyman Ross Johnson (R-Fullerton), whose voting record is otherwise solidly opposite to that of the Speaker.