Businesses eyeing California tax law will be interested in how the new legislature deals with some dueling tax proposals—exempting businesses dealing with space launch facilities on the one hand and closing so-called business loopholes on the other. Of course, hanging over the debate is the question whether Proposition 13 would be amended to allow for more frequent assessment of commercial property.
Senator Steve Knight introduced Senate Bill 19 to expand tax exemptions for space launch facilities by exempting sales and use tax on equipment and materials used in the building or renovation of commercial space launch sites.
At the same time, we are told that members of the new Democratic supermajority have plans to revisit many tax credits and exemptions including provisions for tax breaks on Enterprise Zones.
The Legislative Analyst a decade ago and a Public Policy Institute study a few years later raised questions on the value of Enterprise Zones. The PPIC study stated that more than 20 years after the creation of the zones in California (in 1986), the program’s effects were not clear but argued that enterprise zones had no “statistically significant effect.” However, other studies on Enterprise Zones have been all over the map.
Clearly, some legislators and interest groups see more revenue for the state if Enterprise Zones and other business tax breaks are done away with.
The business community has a different view.
Without tax breaks, some businesses feel they cannot compete in California. At the height of the recession two years ago, an official in Merced County said that Enterprise Zone credits kept jobs in the county.
Sen. Knight told the Los Angeles Times “we risk losing California’s vital aerospace industry to other states and countries that are more business-friendly to this and other industries.”
Will the new supermajority see business breaks as incentives to keep jobs in California or a path to new revenue, which in the end might drive jobs away?
The split roll will also be part of that debate. Businesses given incentives to stay in the state through Enterprise Zones or tax exemptions might see all the positive steps lost if major property tax restructuring takes all the tax savings away.
The business community is in for an interesting and stressful year as the new legislature goes about its business