Manufacturing Tax Credit Proposal Moves Forward

A California Chamber of Commerce-supported bill that will invest in the next generation of manufacturing by expanding tax credits passed the Assembly floor this week. The proposal was approved by the Assembly with a bipartisan 74-0 vote and now moves to the Senate for consideration.

The bill, AB 1951 (Grayson; D-Concord), expands investment and production in California by expanding the sales and use tax exemption for the purchase of manufacturing, and research and development (R&D) equipment.

Provides Opportunities for Innovation, Jobs

California ranks among the highest in the nation in state and local sales tax rates. While the base state sales tax rate is 6%, when combined with local and district portions, the sales and use tax rate can reach up to 10.75%.

AB 1951 will provide a state and local sales and use tax exemption for the purchase of manufacturing and R&D equipment. This exemption broadens the current partial exemption, which is narrowly defined, limiting its application and providing a minimal exemption at a rate of 3.9375%.

With the high district tax rates in some parts of the state, as well as the state’s high operating costs, the current exemption simply does not provide manufacturers with an incentive to invest and grow in California, the CalChamber said in a recent letter to legislators.

“Through this exemption, California can provide more opportunities for growth, innovation, and high-quality jobs that come from increased investments in California manufacturing,” the CalChamber said.

Thirty-eight states already fully exempt manufacturing equipment purchases from sales and use tax, and another five states do not have a state sales tax. California’s manufacturing industry remains at the forefront of global leadership and innovation, but the industry hasn’t kept pace with the rest of the country in job growth and investments.

California’s manufacturing industry experienced only 3% job growth in the last decade while U.S. manufacturing flourished with 11% growth. At the same time, California attracted no more than 1% of the country’s large manufacturing investments, according to data from Site Selection Magazine.

AB 1951 will send the proper signal to manufacturers that California is serious about retaining and attracting high-quality jobs and production, the CalChamber stressed. With tremendous ripple effects throughout the economy, each manufacturing job supports at least 2.5 other jobs in the workforce.

“AB 1951 will provide manufacturers the opportunity to continue to lead and compete in a domestic and global economy that operates on razor-thin margins,” the CalChamber stated. “This bill will facilitate further innovation, production of wide-ranging goods, and provide high-quality jobs throughout California’s regionally diverse economies.

Staff Contact: Preston Young

Preston Young
Preston R. Young joined the California Chamber of Commerce in October 2019 as a policy advocate, specializing in health care policy and taxation issues. He was named a senior policy advocate starting January 1, 2024 in recognition of his efforts on behalf of members. Young came to CalChamber from Schuering Zimmerman & Doyle, LLP, where he specialized in medical malpractice, health care, product liability and elder abuse litigation. Young holds a B.A. in communications from Saint Mary’s College of California, and earned a J.D. from Golden Gate University School of Law, where he was associate editor of the Environmental Law Journal. See full bio.