BILL ANALYSIS Ó
AB 777
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Date of Hearing: May 24, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 777 (Muratsuchi) - As Amended: May 21, 2013
Policy Committee: Revenue and
Taxation Vote: 7-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill exempts from property tax, qualified property, as
defined, for use in space flight.
Specifically, this bill:
1)Provides that the exemption will apply to lien dates on or
after January 1, 2007.
2)Provides that notwithstanding existing law, the state shall
not reimburse any local agency for lost property tax revenue.
3)Renders the provisions inoperative on January 1, 2023.
FISCAL EFFECT
1)The Board of Equalization estimates an annual revenue loss of
at least $1.1 million. Additionally, this bill's retroactive
provisions would cancel or refund the $2 million tax liability
for propulsion systems. To the extent this bill reduces the
revenues flowing to school districts, there would be a
corresponding cost to the General Fund as the property tax
would otherwise offset General Fund obligations to schools,
pursuant to the Proposition 98 minimum funding guarantee. The
annual revenue loss to the state would be approximately
$500,000 annually.
2)Costs in the tens of thousands of dollars as this bill is
keyed a state reimbursed local mandate for the administrative
costs on county officials for implementing this exemption.
COMMENTS
AB 777
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1)Support . The author notes space exploration, until recently,
was an entirely government-run industry. According to the
author, California has seen the emergence of private space
companies that put our state at the forefront of innovation
and technology. The author states companies like SpaceX are
not only creating the most advanced space vehicles, but are
also significantly contributing to the state's economy and our
local communities. This year SpaceX has created over 2,700
high-paying jobs and new manufacturing jobs that do not
require a four-year degree; spent $150 million contracting
with over 1,000 California suppliers; and continues to support
and train local students in science, technology, engineering
and mathematics disciplines. The author argues despite the
ground-breaking advances made by the aerospace industry,
California has yet to adapt tax policies that reflect the
realities of this emerging business sector. AB 777 would
exempt propulsion systems from property taxes, ensuring that
California has a sensible taxation policy that accounts for
the needs of the aerospace manufacturing industry. The author
contends this bill will ensure that California's space
technology innovators stay in business, by nurturing a
rational tax policy for the state's aerospace sector.
2)Support . Proponents of this bill, including the Los Angeles
Chamber of Commerce and SpaceX, note at one time California
was the leader in the aerospace industry, but the state's
position slowly eroded as multiple aerospace manufacturers
moved their operations elsewhere. Bucking this trend, SpaceX
has not only maintained its headquarters and manufacturing
operations in California, but has grown exponentially.
Supporters state as a direct result, California has re-emerged
as the U.S. leader in commercial space launch, taking over
business that would have otherwise been won by the French,
Russians or Chinese.
3)Opposition . Opponents of this bill, including the California
State Association of Counties and the California Assessors'
Association, note the property tax is the only significant
source of general purpose revenue for counties. Over the past
30 years, county general revenues have steadily been replaced
or partially replaced with revenue restricted to one
particular purpose or another. Opponents argue if favoring
ownership of this sort of property is an issue of statewide
concern, as passing this bill would indicate, then the state
AB 777
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should use statewide revenues to reimburse counties and other
local agencies for their losses, as provided by statute.
4)Background . The California Constitution, Article XIII,
Section 1 states that, unless otherwise exempt as provided by
the State Constitution or the laws of the U.S., all property
is taxable, including both real and personal property. SpaceX
is attempting to obtain an exemption from personal property
tax for qualified property that has space flight capacity,
(i.e., space rockets). Because space flight property is
classified as personal property, SpaceX must show it falls
under an existing exemption, or it is taxed.
Business inventories are exempt from property tax; the
exemption generally applies to tangible personal property held
for sale or lease in the ordinary course of business. In
order to qualify under the inventory exemption, a space rocket
would have to be sold or leased in the regular course of
business. However, SpaceX is prohibited by federal law from
selling or leasing the rockets it manufactures. It appears
SpaceX provides a service, (i.e., delivering items into
space).
Assuming the rockets are not inventory and fall under no other
personal property tax exemption, the Legislature maintains the
authority to exempt personal property. Section 2 of Article
XIII of the California Constitution provides that the
Legislature, with two-thirds of the membership of each house,
may classify personal property for differential taxation or
for exemption. Providing an exemption may encourage SpaceX to
continue investing and growing in California. However,
providing a narrow exemption for a single company may also
encourage other similarly situated companies to ask for a
personal property exemption on their business supplies.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081