Could Space Transport Company Taxes Force Them to Move?

January 2018 – In a move to counter a space transportation tax imposed by the state’s Franchise Tax Board in 2017.  Assemblymember Tom Lackey (R-Palmdale) has introduced AB 1878, to exempt these companies from such a burden. He said that the state is sending a terrible message by taxing an industry in its infancy. Lackey believes that California must protect its role as a aero/astro-space leader.

Currently, the tax is imposed upon companies based on the frequency of launches from California soil and the distance a spacecraft travels into space. Supposedly these rules were designed to apply to any company that generated at least half its income from “space transportation,” which the FTB defines as the movement of people or property 62 miles above the surface of the Earth.

Lackey’s bill would repeal this tax and exempt space flight income from state taxes, which he contends would give companies like SpaceX, Virgin Galactic and United Launch Alliance an incentive to stay in the state.

Companies have already begun to explore options outside of the state.  And other states have attempted to poach this business opportunity to create jobs in their own state.

New Mexico, for instance, has established their Spaceport Authority and built Spaceport America near White Sands which it bills as “the world’s first purpose-built commercial spaceport”. Tenants of the state-built facility already include Virgin Galactic, and SpaceX, while UP Aerospace and Armadillo Aerospace have both operated out of the facility.

In 2016, Moon Express moved from Mountain View to Florida. Its CEO and founder issued a statement that the decision to move was “in part due to the state of Florida’s progressive economic development incentives designed to attract commercial space companies.”

California has been at the forefront of the aerospace industry for more than a century. The industry directly or indirectly accounts for 510,000 jobs in California—203,000 directly. The state’s aerospace businesses and government organizations play crucial roles in commercial, civil, and national security programs, and the industry is a crucial source of high-paying jobs, tax revenues, and technological innovation.

The industry already contributes to the state’s tax base, generating $2.9 billion in personal income tax revenue associated with direct and indirect employment. However, California ranks low in terms of cost competitiveness and overall ease of doing business. Lackey believes that the FTB’s additional tax will add to that cost burden, and further incentivize companies to build elsewhere.