California is one of only three states that taxes companies when they purchase manufacturing equipment. The other two states are Wyoming and South Dakota.
The rationale behind the tax exception is to stimulate job creation. Cobalt Biofuel has plans to build a major biofuel processing plant in two years that would provide 300 construction jobs and 1,300 permanent jobs. CEO Rick Wilson says the tax exemption would save the company $8 million at a time when it is difficult to raise capital.
Cobalt says it has discovered a way to speed up the process of converting wood waste matter into biofuel in under 15 minutes, compared to three days using other processes. It wants to stay and expand in California because of the market for processed biofuels that could help the state achieve the governor's goals to reduce carbon emissions by 25 percent by 2020 and even by 80 percent by 2050. However, the tax on manufacturing equipment could prompt clean technology companies to move to other states or offshore.
California, of course, has yet to solve its ongoing budget deficits and there might be little appetite to cut a revenue source when the governor last week proposed all state workers take a pay cut and when a wide range of programs are being cut back. Backers of the tax exemption acknowledge it could be difficult to get support among lawmakers.
"We can't afford to sit back and wait for the world economy to come back, we can't wait for Washington to come up with a master plan on how to bring jobs back," Schwarzenegger said.
Carl Guardino, head of the Silicon Valley Leadership Group, says manufacturing jobs pay an average of 25 percent more than service sector jobs and that additional income produces more revenue for the state through income and sales taxes.
San Jose-based Nanosolar says it also is planning a major expansion in California. It makes solar cells at a facility on Hellyer Ave. It also has an assembly plant near Berlin, Germany, but the tax exemption might lead the company to shift those operations to California. Founder Brian Sager says the company regularly receives offers from other states and other countries to relocate its business.