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Manufacturers Seek Cut in State Sales Tax

Economy: The proposed 5-percentage-point reduction would create 50,000 new jobs a year over the next decade.


California manufacturers are lobbying for a tax break they say would bolster the state's sagging industrial sector and create 50,000 new jobs annually over the next decade.

On Tuesday, the California Manufacturers and Technology Assn. unveiled a proposal for a 5-percentage-point reduction in the state sales tax on purchases of manufacturing and telecommunications equipment. The move would cost the state treasury an estimated $185 million in the first year--a tough sell at a time when California is facing a nearly $24-billion budget deficit.

But business leaders say increased economic activity would more than offset the initial cost within a few years, resulting in a net revenue gain to state coffers and a much-needed lift to the state's industrial base.

"This proposal will help turn around California's economy while providing a strong base for sustained economic growth and job creation," said Jack Stewart, president of the association.

Manufacturing isn't the only sector lining up for tax relief in the midst of a budget crisis. The software industry is on the verge of receiving a long-sought $30-million tax break, and Gov. Gray Davis earlier this year blocked efforts to impose a $22-million tax on the lumber industry.

Such breaks already have some legislators seething at a time when they're being forced to cut social programs to balance the books. But Stewart said the state's hard-hit manufacturing sector deserves assistance. California has lost more than 145,000 factory jobs since January 2001.

The big concern is that many of those jobs won't come back, given California's high cost of doing business.

The manufacturers group commissioned a study by the Santa Monica-based Milken Institute showing that, among major manufacturing states, only Minnesota has a higher tax burden than California. Add the nation's highest electricity rates and industrial space costs that are 40% above the national average, and "you've got the perception that California is a business-unfriendly state," said Milken economist Ross DeVol, who wrote the manufacturing study.

DeVol said reducing the sales tax would give California manufacturers an incentive to purchase more capital equipment, which would provide an immediate stimulus to the economy.

He projects the break would result in 50,000 new jobs a year--14,000 of them in manufacturing--resulting in a net revenue gain of $114 million over a five-year period.

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