It’s a good thing that Tesla Motors has decided to build its electric car factory in California. One of the main reasons executives changed their minds and decided not to build the factory in New Mexico as previously announced is instructive, creative and disconcerting all at once.

A major incentive to produce the cars in California is that the company will not have to pay sales tax on $100 million worth of manufacturing equipment. That will be a savings to the company of about $8 million.

Once again we see companies reacting to tax pressure. While a whole host of legislators and interest groups are clamoring for business to pay more taxes, we see that business paying less in taxes keeps companies, and most importantly, jobs in California. The government will get its share of revenue when those workers pay their taxes and the company pays other taxes.

The way the company will get around the sales tax is because the company itself will not purchase the manufacturing equipment. The state will purchase the equipment and lease it back to the company. This bit of creativity was put together by the governor’s office and the state treasurer’s office. State Treasurer Bill Lockyer chairs the California Alternative Energy and Advanced Transportation Financing Authority, which created the program to exempt makers of zero-emission cars from paying sales taxes on equipment.

Kudos go to the treasurer and governor for creativity to keep the company in California. However, should the state be in the business of buying equipment for favored companies? Where might this lead and what other types of companies will demand equal treatment? How much equipment of private companies should the state own?

Perhaps the way to avoid these questions is to make California a much more business friendly place. After all, Tesla always considered putting its manufacturing plant close to its engineers in Northern California, but as vice president Darryl Siry was quoted in the Mercury News, “We always wanted to be in California,” but it is “prohibitively expensive.”

Improving the California business climate will go a long way to encourage companies to stay in the Golden State. As for now, welcome back Tesla, we’re glad you are here.