California State Treasurer John Chiang announced Tuesday that electric car maker Tesla Motors will receive $39 million in sales tax incentives, marking a new round of government subsidies for a company that has become adept at using them to grow the business.
The tax incentives benefit advanced manufacturing and companies involved in alternative energy. Tesla has previously received more than $89 million in incentives from the program for projects over the last six years. Space Exploration Technologies Corp., or SpaceX, also run by Tesla Chief Executive Elon Musk, was awarded an estimated $30.3 million from the initiative earlier this year.
Under the program, qualified companies are excluded from paying sales and use taxes on certain equipment purchases for up to three years. Musk’s companies were the biggest beneficiaries of the program, which awards up to $100 million each year. Tesla applied for the most recent sales tax exclusion based on more than $463 million worth of expected purchases related to the expansion of its Model S and Model X.
Tesla representatives did not respond to requests for comment.
Deana Carrillo, executive director of the economic development agency chaired by Chiang, said the program is designed to retain and expand the pool of high-paying jobs in advanced California industries. But she emphasized it’s unlike controversial economic development programs that lure companies with cash grants.
“We’re not writing anyone a check,” Carrillo said. “We’re the last dollar in. These guys have got to get their financing together, make their decision, buy their property, get ready to buy the equipment, and then we’re giving them a benefit at the margin.”
The California Alternative Energy and Advanced Transportation Financing Authority calculates whether the loss in sales taxes is worth the added benefits that come through additional property and income taxes if the company continues to expand and hire in the state, she said.
The large Tesla subsidy reflects the enormous expense entailed in manufacturing cars, Carrillo said, compared with other industries such as biogas that don’t require as much equipment.
She acknowledged, however, that the agency needs to get the word out more to smaller companies that may not be as experienced as Tesla at capitalizing on government incentives.
“One thing we’re working on is letting the little guy know we exist,” she said.
Since the sales tax exclusion program was launched by the Legislature in 2010, it has become increasingly popular and available to a growing number of industries, including manufacturers that use or process recycled materials.
Because of that popularity, the economic development authority for the first time has come up against an annual $100-million cap set by the Legislature. Carrillo said the financing authority will ask the Legislature next year to remove or increase the annual cap on the incentives. Until then, all new applications have been frozen.