By MADISON HIRNEISEN
THE CENTER SQUARE
(The Center Square) — A bill that would have offered a full exemption from sales and use tax on manufacturing equipment was vetoed by Gov. Gavin Newsom on Thursday night.
Governor Newsom vetoed the 1951 Assembly Bill Thursday night, a measure that would have turned California’s existing partial sales and tax exemption for manufacturing and research and development equipment into an exemption total of up to $200 million through 2028. In a veto message, Governor. Newsom raised concerns about lost revenue for local governments, which a tax analysis suggests could total $533 million in sales and use up lost tax revenue each year.
“As a strong supporter of California’s business climate and manufacturing industry, I agree with the intent of this bill to invest in the California economy, encourage innovation and to stimulate a nationally competitive manufacturing market,” Governor Newsom wrote. “However, we cannot ask our local governments to bear this loss of revenue.”
California’s state level sales tax rate is the highest in the country. Sales and use tax rates can reach up to 10.75% once local rates are taken into account, according to AB 1951 text.
Dozens of other states already fully exempt manufacturing equipment from sales and use tax, meaning “taxpayers pay more to buy equipment in California than they would elsewhere,” the project says. of law.
The veto was met with disappointment by the California Manufacturers & Technology Association, which backed the measure. If the measure were signed into law, CMTA President and CEO Lance Hastings said it would have aligned California with 38 other states that already exempt manufacturing equipment from sales tax.
“Now we continue to remain an outlier in this space, and it’s a tough proposition for someone like me to be able to promote California as a great manufacturing state when we have this differential tax treatment compared to some other States,” Mr. Hastings told The Center Square.
Hastings said the CMTA plans to stay in dialogue with the governor’s office about the bill and address any underlying concerns that remain about the funding mechanisms. He also hopes to have a broader conversation about how California is “taxing itself.”
“If a local government is so concerned about the loss of revenue due to an investment that a company is willing to make in its community, that highlights to me the disconnect between what we need in the 21st century and what we we had in the 20th century with our fiscal policy. It’s misaligned,” Hastings said.
In his veto message, Governor Newsom wrote that he looked forward to “working with the Legislative Assembly and stakeholders to come up with something on this topic next year.”