No Sales Tax Exemption for Clean Tech Manufacturing As Yet

On March 24, Gov. Arnold Schwarzenegger signed legislation he touted as creating a sales tax exemption for purchases of green tech manufacturing equipment.

“(This bill) will expand our clean tech industry and bring the green jobs and businesses we need to rebuild California’s economy,” the GOP governor said at the bill signing. “We’re sending a clear message to every entrepreneur and innovator that it pays to invest in a clean future for California.”

Not yet.

No companies have applied for the exemption because the state entity that hands out the tax break – the California Alternative Energy and Advanced Transportation Financing Authority – hasn’t completed the regulations that define what projects qualify.

The financing authority was a dormant body revived by Treasurer Bill Lockyer. It was created to spur investment in alternative energy, fuel cells and low-emission or electric vehicles through loans, interest rate cuts and sales tax exemptions.

Creating regulations for state programs can be an excruciatingly slow process. A decade has passed since legislation requiring state standards for septic tanks was signed and no regulations implementing the law have been adopted.

The treasurer’s office has a faster — albeit ambitious — timetable.

“We hope within three to six months to have regulations in place and start accepting applications,” said Joe DeAnda, a Lockyer spokesman. “By this summer.”

Prior to the March legislation – SB 71 by Sen. Alex Padilla, a Los Angeles Democrat — the financing authority was only able to provide a sales tax exemption for purchases of manufacturing equipment that helped create zero emission vehicles.

Last October, the authority inked an agreement with Tesla Motors in which the authority took title of $320 million in equipment Tesla purchased, $238 million of it to open a new assembly line for its Model S electric sedan.

By the authority taking title, the company saved roughly 9 percent on its purchase – nearly $29 million. Title is transferred back to Tesla when the transactions are completed.

A similar structure will likely be used for sales tax exemptions authorized under Padilla’s legislation, DeAnda said.

Central to the drafting of the regulations is adding more specificity to the terms used in Padilla’s measure.

For example, the law defines “advanced transportation technologies” as “emerging commercially competitive transportation-related technologies identified by the authority as capable of creating long-term, high value-added jobs for Californians while enhancing the state’s commitment to energy conservation, pollution reduction, and transportation efficiency.”

Some examples are offered including, “intelligent vehicle highway systems, advanced telecommunications for transportation; command, control, and communications for public transit vehicles and systems, electric vehicles and ultra low-emission vehicles, high-speed rail and magnetic levitation passenger systems (and) fuel cells.”

The law requires the authority to evaluate projects applying for the exemption, in part, on whether the benefits to the state equal or exceed the benefits to the applicant. The extent the project reduces greenhouse gas emissions, increases energy efficiency, lowers energy use or lowers air or water pollution above and beyond state and federal requirements is another factor.

When the authority has awarded $100 million worth of exemptions it must notify the Legislature before issuing more.

DeAnda acknowledges the relative newness of some clean tech industries creates challenges in defining which projects qualify.

“We’re breaking new ground in terms of there isn’t a hard and fast definition for these types of technologies and what’s included and what’s not. That’s why the legislation left the definitions somewhat open-ended.”


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