It’s about time manufacturing got a little love in the Golden State. You would think that creating high-wage jobs, making multi-million dollar investments for innovative new products and providing huge multiplier effects in the broader economy would have justified a sales tax exemption on manufacturing equipment before now. Nearly every other state has this.
For more than a decade CMTA has argued that manufacturing investment is the engine of the economy – and letting the manufacturing investment tax credit lapse in 2003 was a big mistake. Yet a dozen bills introduced since 2003 failed to reinstate the credit. California has suffered declining investments and manufacturing jobs as a result.
Last month, at long last, lawmakers passed a bill package including a sales tax exemption for manufacturing equipment. Did they suddenly come to their senses on the importance of manufacturing and agree that this and perhaps other policies should be adopted to help manufacturers? It is a nice thought, but we shouldn’t count on it. We must keep educating legislators and pushing for improvements to make California a better place for manufacturing. There is much more work to be done.
One reason to redouble our efforts is that environmental and public sector unions are stronger than ever in California. Gaining a sales tax exemption was a big win for manufacturing but it was also a big win for labor unions because unfortunately getting rid of enterprise zones, a key part of the package, was their highest priority this year.
The governor and labor decided to make it happen by pushing an alternative economic development plan that they believed could win-over moderate democrats and a few Republicans for a super-majority vote. A statewide sales tax exemption for manufacturing equipment was the ways and means to achieve that result. The best part is that it will help bring manufacturing to all regions of the state. Everybody wins.
But it was not enough at first – a four-and-- a-half-year sunset for the exemption was unacceptable to CMTA. We pushed hard for a permanent exemption, or at least long-term policy that would encourage manufacturers to choose California for investments they are now planning for five years or more into the future. Not willing to make this change, the sunset remained and almost derailed the bill. Republicans agreed with CMTA that long-term, predictable tax policy is the best way to spur manufacturing growth and high-wage jobs. They negotiated for and got an eight-year sunset – one complete investment cycle. We thank them for their efforts.
Let’s make this the first of many positive changes to turn California into a powerhouse for manufacturing investment and job growth. Every manufacturer should start by thanking your local legislators for the vote last week. Let them know that the exemption will help, but remind them about your many other challenges in the state. Invite them to visit your facilities to meet your employees and tell them about your contributions to the community. CMTA will continue to be a resource to you and champion for your interests in Sacramento.
Dorothy Rothrock is senior vice president of government relations for the California Manufacturers and Technology Association. This commentary first appeared on the CMTA website.