BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 394 - Torrico
Amended: August 24, 2009
Hearing: August 26, 2009 Tax Levy Fiscal: Yes
SUMMARY: Enacts a Sales and Use Tax Exemption for Tangible
Personal Property Used in the Process of
Manufacturing an Automobile in Fremont.
EXISTING LAW requires entities engaged in
manufacturing that purchase, lease, or rent equipment and
other supplies to pay sales or use tax on their purchases
of tangible personal property. However, purchases of
tangible personal property that become ingredients of an
item to be resold are exempt from tax.
THIS BILL exempts from the state, local, and district
share of the sales and use tax:
Purchases of tangible personal property
used by an auto manufacturer in Fremont,
California. To be eligible, the property must be
used in any stage of the process of
manufacturing, processing, refining, fabricating,
or assembling automobiles at any point of the
supply chain. Property includes, but is not
limited to, machinery and equipment, including
component parts and contrivances, and all
equipment or devices used or required to operate,
control, regulate, or maintain the machinery, as
defined.
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Purchases of tangible personal property
used by contractors purchasing the property for
use in the performance of the contract.
Contractors include research and storage
facilities used during the process of
manufacturing an automobile in Fremont that use
the special purpose buildings or foundations as
an integral part of the manufacturing process,
excluding buildings used solely as warehouses.
THIS BILL requires taxpayers to furnish the retailer
with an exemption certificate to realize the exemption.
The exemption does not apply to any tangible personal
property removed from the state within one year of purchase
or converted from the exempt use to another use, in which
case the taxpayer shall be liable for the tax. The measure
also defines its terms.
FISCAL EFFECT:
The Board of Equalization (BOE) estimates that AB 394
results in a state revenue loss of $9.2 million annually,
$385,000 to the state fiscal recovery fund, and $4.2
million to local agencies.
COMMENTS:
A. Purpose of the Bill
According to the Author, "For the past 25 years, the
New United Motor Manufacturing Incorporated (NUMMI) plant
has produced high quality vehicles under a 50-50 joint
venture between Toyota and General Motors. Located in
Fremont, CA, the NUMMI partnership directly produced over
5,000 jobs in the Bay Area and another 20,000 jobs
statewide through its purchasing of supplies. Now, with
the General Motor's bankruptcy, the plant - and all the
jobs related to it - is in jeopardy of going away. If
California loses these valuable jobs, not only will the
workers' families undergo tremendous hardships but the
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state will take another serious blow to its already
struggling economy. While hope remains that Toyota will
continue its operations either through expanding its
production line or entering into a new partnership with
another auto manufacturer, the State cannot idly sit by and
wait. It needs to do whatever it can to convince the auto
manufacturer that we want them to stay in California. AB
394 exempts automobile manufacturing equipment used by the
one auto manufacturing plant in California from the state
share of the sales and use tax. The exemption authorized
by this bill would only apply to equipment that remains
within the state of California for one year after
purchase."
B. Caravanning It
AB 394 is one of three bills intended to maintain the
New United Motor Manufacturing Inc. (NUMMI) in Fremont,
which operated as a joint venture between General Motors
and Toyota. GM has since withdrawn from the facility when
it discontinued the Pontiac Vibe, the only GM car NUMMI
manufactures. News reports indicate that Toyota intends to
close the facility in March, 2010.
The Legislature is currently considering two other
measures that seek to persuade Toyota to instead maintain
the factory:
SB 483 (Corbett) requires enacts an automobile
manufacturing tax credit. The measure is currently in
the Assembly Rules Committee.
SB 830 (Wright) allows the Governor to designate
the facility an enterprise zone, provide a preference
for state purchases of automobiles manufactured at
NUMMI, requires the California Public Utilities
Commission to direct Pacific Gas and Electric Company
to reduce NUMMI's public goods benefit charges by 70%
for two years, provides a priority for grants awarded
under the federal Workforce Investment Act, and enacts
a sales and use tax exemption similar to this bill.
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The measure is currently in the Assembly Rules
Committee.
Support and Opposition
Support:None.
Oppose:None
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Consultant: Colin Grinnell
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