Legislation providing an economic incentive for manufacturers to invest in and expand their production capabilities in California was named today as a job creator by the California Chamber of Commerce.
AB 52 (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.
Investment Incentive
AB 52 will incentivize long-term investments and generate growth in the manufacturing industry in California by providing qualified entities a state tax credit equal to what they pay in local sales taxes for qualified manufacturing equipment.
The tax credit will bring California in line with 38 other states that cover the taxes on qualified manufacturing purchases. The conformity will make manufacturing investment in California more competitive and attractive, and signal that the state is serious about retaining and attracting production.
California state and local sales tax rates rank among the highest in the nation. Although the base state sales tax rate is 6%, when local portions of the sales tax are added, the combined rate can reach up to 10.75%. Small and medium-sized manufacturers face a disproportionate share of the economic burden of doing business in the state.
High-Wage Jobs
By promoting increased production, AB 52 would ensure the growth of high-wage jobs for various skill levels and backgrounds in one of the state’s essential industries.
Manufacturing employs 1.3 million people in California. With the multiplier effect, each manufacturing job supports at least 2.5 other jobs.
Manufacturing represented 11% ($300 billion) of California’s gross domestic product (GDP) in 2021. More than 70% of manufacturers have fewer than 20 employees.
Despite the efforts of California manufacturers throughout the state to keep supply chains solid and resilient, California lost 7.1% of its manufacturing job base over the last decade, according to data extracted from the U.S. Bureau of Labor Statistics. Moreover, the state has attracted no more than 1% of the country’s large manufacturing investments during the same period.
Positive Impact
AB 52 will help local manufacturers, which operate on razor-thin margins, compete in the domestic and global markets. That competitive ability will lead to growth in innovation, production of a wide range of goods, and an increase in high-quality jobs.
AB 52 is scheduled to be considered by the Assembly Revenue and Taxation Committee on April 10. The CalChamber joins a coalition of industry and businesses in urging legislators to support AB 52.
Staff Contact: Preston Young
