A key component to last week’s final action on the state budget was the passage of SB 71, a bill that provides for a sales tax exclusion for “green technology” projects in California.  SB 71, authored by Senator Alex Padilla, and championed by Governor Schwarzenegger, authorizes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to approve projects for financial assistance in the form of sales and use tax exclusions.  This essentially means that CAEATFA will evaluate projects (more on what constitutes a “project” below) based on their ability to bring new jobs and new manufacturing to California and offer an exclusion from sales tax for the goods necessary to achieve those projects.  In simple terms, an “exclusion” from sales and use tax is accomplished by a complicated mechanism that involves the Authority taking ownership of the goods and conveying title back to the applicant through a lease or reconveyance. 

The definition of “project” includes a wide array of options:

(g) (1) “Project” means a land, building, improvement to the land or building, rehabilitation, work, property, or structure, real or personal, stationary or mobile, including, but not limited to, machinery and equipment, whether or not in existence or under construction, that utilizes, or is designed to utilize, an alternative source, or that is utilized for the design, technology transfer, manufacture, production, assembly, distribution, or service of advanced transportation technologies, or an arrangement for the purchase, including prepayment, or sale of energy derived from an alternative source pursuant to subdivision (g) of Section 26011.

(2) “Project,” for the purposes of Section 26011.8, means any tangible personal property that is utilized for the design, manufacture, production, or assembly of advanced transportation technologies or alternative source products, components, or systems.

Lots of folks in Sacramento are trying to figure out exactly what all of this means, and for our purposes, what it means to local revenues.  The Department of Finance noted in the analysis of the bill that the exclusion should have no fiscal impact on the state or locals, as these projects would not have been built without the incentive of the exclusion.  Others are more skeptical about the effect on state and local revenues.

Regardless of your view, much of the success of the program is going to hinge on the CAEAFTA and their process for evaluating such projects.  CSAC and the League of California Cities will be participating in the development of regulations and requesting that locals input into the decision-making process.  Not that anyone is against “jobs, jobs, jobs” – Who would be? – but counties that are approached about citing or expanding manufacturing plants for the goods required for these “green tech” projects should be mindful that the sales tax revenue may be less than what was anticipated.