Tax Break Urged to Boost Atmosphere for Launches

The “space race” that once pitted the U.S. and Russia against each other has morphed into a mad scramble among states and nations to capture the burgeoning business of the commercial space industry.

California already has its first “spaceport” at Vandenberg Air Force Base in Santa Barbara County, which saw more commercial than military launches for the first time in its history in 1996. In Long Beach, Boeing plans to modify an oil-drilling platform to serve as a mobile, sea-based commercial launch platform, and near Palmdale, Lockheed Martin is at work on the next generation of space capsules--reusable modules that will return to Earth--under a program they have dubbed VentureStar.

But fearful that the VentureStar program may be lured out of the state, local legislators have proposed extending statewide a tax break first granted to aeronautical firms at Vandenberg in 1993 and due to sunset in 2004.

AB 1765, coauthored by Assemblyman George Runner Jr. (R-Lancaster) and state Sen. William “Pete” Knight (R-Palmdale), would exempt all property used in commercial space launches from state sales and land-use taxes and would extend the 1993 tax breaks indefinitely.

“We have to do whatever we can to offset the higher costs of doing business in California,” Runner says. “We have corporate taxes that other states don’t have and our utility costs are high.”

With Virginia, Florida, Alaska and New Mexico at the forefront of domestic competition for the commercial space industry, and Russia, China, France, Canada and even tiny Guyana going after it internationally, California must offer major incentives to keep its nascent spaceports thriving, Runner argues. And he points to widespread backing for his bill, which has attracted a bipartisan band of 11 other coauthors in addition to Knight.

What’s at stake is “the international highway to space” and decisions lawmakers make today will determine which state or nation ends up manning the tollbooth, Runner says.

Existing state tax exemptions are not insignificant, however. The Board of Equalization set the losses in sales tax from Vandenberg at $1 million for each of eight launches since 1993.

Critics of the tax breaks say that industry giants such as Boeing and Lockheed are not making their launch decisions on the basis of the sales tax exemption. It’s the talent, infrastructure and federal investment in California that has made the state a commercial space pioneer, says Lenny Goldberg, a lobbyist for the California Tax Reform Assn., which opposes Runner’s legislation.

“With launches costing $20 million to $50 million apiece, are companies really basing their choice to stay in California on a $200,000 to $1 million sales/use tax exemption?” Goldberg said.

Runner contends they are, adding that his bill is a matter of equity: If launches from Vandenberg get the break, so should launches from budding space centers elsewhere in the state.

His bill is supported by various technology associations, Boeing, Lockheed Martin’s Missiles & Space unit and the California Taxpayers’ Assn., which praised it as a way “to ensure the continued vitality and expansion of this emerging industry.”

The bill unanimously passed the Assembly’s Revenue and Taxation Committee last month and was automatically placed on the so-called suspense file by the Appropriations Committee along with other bills that will cost the state $150,000 or more in annual revenue. All suspense file bills will be reviewed in late May after 1998 state revenue figures are revised.

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