California badly needs a fair and smart reform of its tax system – now more than ever after the giveaway to corporations and the wealthy in the new federal tax law.
What the state doesn’t need are more gimmicks, such as soaking corporations with a tax surcharge.
And we should be very careful about new targeted taxes on fast-growing industries – like the one on space transportation companies. California is the only state with such a tax on commercial launches.
That came to mind Tuesday as tech billionaire Elon Musk’s Space X successfully launched Falcon Heavy, the world’s most powerful rocket, from the Kennedy Space Center in Florida. It was thrilling to watch.
SpaceX and United Launch Alliance are launching satellites from Vandenberg Air Force Base; Virgin Galactic has started operations at Mojave Air and Space Port. Assemblyman Tom Lackey, a Palmdale Republican whose district is a center of California’s $62 billion aerospace industry, is trying to block the “space tax” from being collected.
“We are sending a terrible message by taxing an industry that is only in its infancy,” he said in a statement. “Instead, California should continue to protect its role as an aerospace leader and offer an incentive for companies that choose to operate here.”
His Assembly Bill 1878, which would exempt income from launches in California from state taxes, was referred last week to the Assembly Committee on Revenue and Taxation.
The Howard Jarvis Taxpayers Association supports the bill, saying that “government has no business excessively stifling this innovation economy with new taxes and regulations.” The legislation has also been mentioned on Breitbart, the right-wing website that apparently sees space tax as another example of California out of control.
But the state tax board says that the companies, themselves, welcome the certainty of the tax and that the industry has “significant growth potential.” Spokesman Jacob Roper says that the Franchise Tax Board is writing an analysis of the bill.
I don’t often agree with Howard Jarvis, much less Breitbart, but I am skeptical. Technically, the space tax isn’t new; it’s the application of an existing tax that covers trucking firms and other ground transportation companies. But taxing space transportation sure looks like rocket science.
Last year, the Franchise Tax Board came up with a complicated formula that takes into account how many launches each company does from California compared to launches elsewhere, plus how far the rockets go before separation.
The mileage for launches from California is set at only the 62 miles to the edge of space. After that, the companies aren’t taxed. If a company can’t disclose details because of national security issues, a launch is assumed to be 310 miles, a little higher than where the International Space Station is orbiting.
Under the example in the regulations, which took effect Sept. 28, a company has three contracts in a tax year: $2 million for two launches outside California of 1,000 miles each, $500,000 for one launch elsewhere that goes 10,000 miles and $1 million for a launch in California that goes 1,000 miles. After all the calculations, the gross receipts to be used to compute the tax bill would be $256,800.
Besides space travel, Musk also has his hyperloop, the concept right out of science fiction to transport goods and perhaps people at nearly the speed of sound. I can’t wait to see how California taxes that.