2007 Silicon Valley Projections - Silicon Valley Leadership Group

Tax Policy
Compare this with San Diego’s high-tech area where the propit’s
worth noting that while overall property tax rates in
erty tax rate is only 1.11%—closer to the state average. Also,
California seem modest, California has much higher property
values than most other competitive areas. In fact, a 2003
report from the US Census Bureau showed California as the
state with the second highest property values in the nation,
behind only Hawaii, a place where land is genuinely scarce.
Tax Rates
Sales Income Property
California . . . . . . . . . . .6.25% . . . . . . . .8.84% . . . . . . . . .1.12%
Tax Cost . . . . . . . . .$6,250,000 . . . .$8,840,000 . . . . .$1,120,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$16,210,000
Massachusetts . . . . . . . .5.00% . . . . . . . .9.50% . . . . . . . . .1.33%
Tax Cost . . . . . . . . .$5,000,000 . . . .$9,500,000 . . . . .$1,330,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$15,830,000
Illinois . . . . . . . . . . . . . .6.25% . . . . . . . .7.30% . . . . . . . . .1.51%
Tax Cost . . . . . . . . .$6,250,000 . . . .$7,300,000 . . . . .$1,510,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$15,060,000
New Jersey . . . . . . . . .6.00% . . . . . . . .9.00% . . . . . . . . .0.00%
Tax Cost . . . . . . . . .$6,000,000 . . . .$9,000,000 . . . . . . . . . . . . .-
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$15,000,000
Virginia . . . . . . . . . . . .7.00% . . . . . . . .6.00% . . . . . . . . .1.11%
Tax Cost . . . . . . . . .$7,000,000 . . . .$6,000,000 . . . . .$1,110,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$14,110,000
Texas . . . . . . . . . . . . . .6.25% . . . . . . . .4.50% . . . . . . . . .2.62%
Tax Cost . . . . . . . . .$6,250,000 . . . .$4,500,000 . . . . .$2,620,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$13,370,000
New York . . . . . . . . . . .4.25% . . . . . . . .7.50% . . . . . . . . .1.53%
Tax Cost . . . . . . . . .$4,250,000 . . . .$7,500,000 . . . . .$1,530,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$13,280,000
North Carolina . . . . . . .4.50% . . . . . . . .6.90% . . . . . . . . .1.10%
Tax Cost . . . . . . . . .$4,500,000 . . . .$6,900,000 . . . . .$1,100,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$12,500,000
Colorado . . . . . . . . . . .2.90% . . . . . . . .4.63% . . . . . . . . .0.82%
Tax Cost . . . . . . . . .$2,900,000 . . . .$4,630,000 . . . . . . .$820,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8,350,000
Oregon . . . . . . . . . . . . .0.00% . . . . . . . .6.60% . . . . . . . . .1.48%
Tax Cost . . . . . . . . . . . . . . . . .- . . . .$6,600,000 . . . . .$1,480,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$8,080,000
Washington . . . . . . . . .6.50% . . . . . . . .0.00% . . . . . . . . .1.29%
Tax Cost . . . . . . . . .$6,500,000 . . . . . . . . . . . . .- . . . . .$1,290,000
First Year Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$7,790,000
ASSUMPTION: A company investing $100M in equipment used in
manufacturing or R&D, with $100M of net income and $100M of
property in the state it operates in.
Best Practices - Lessons Learned
News story after story show compelling examples of
why companies choose to grow jobs and expand
operations in states other than California. What do
they have that we haven’t? In Arizona, companies are
being drawn to the state by tax breaks creating 1,000
direct jobs and thousands of indirect supporting
industry
Hold
jobs.
for Draft
Arizona's
Projections
recent adoption
2007
of an 80
percent sales factor formula, which stops short of
considering only a company's sales tax calculations, has
created a more positive environment for investment in
the state. Most states give equal weight to three
factors — the share of a company's total nationwide
investments: payroll, property, and sales that occur in
that particular state—
when deciding tax burden. But
under the sales factor formula, they would consider a
higher fraction of the company's sales within the state.
In the Arizona example, “about 70% of a chip plant’s
cost is the equipment that goes into it, not the labor . .
.a tax break can help mitigate that cost . . .[in this case]
a huge boost from a new Arizona law that allows
companies to cut income taxes if they spend at least $1
billion in capital investments” (USA Today, 2005).
Regarding sales and use taxes, it must be noted that CA’s lack
of an exemption for productive business assets, which is prevalent
in virtually every other state, makes California’s sales tax
burden comparatively higher.
A state or region’s tax rates may seem byzantine, but tax rates
can provide companies’ insight into the costs of doing business
in, and the potential competitive advantages of relocating
to, certain regions. Especially when considering “greenfield”
or new developments, the tax rates and especially the tax
incentives that local economies provide can make or break site
location decisions.
To remain competitive, California, and municipalities in
Silicon Valley, must embrace pro-growth tax policies and
attempt to avoid the unintended consequences of the past.
This chart illustrates where California stacks up relative to our
competition throughout the country in terms of tax policies to
promote new business and spur expansion.
From an international perspective, corporate rates vary greatly,
but the U.S. ties France for the fourth highest corporate tax
rate out of the nations compared below. Although the countries
of France, Germany, India are equal to or higher than the
U.S., these countries have been successful in wooing U.S.
manufacturing operations due to offsetting tax incentives and
business friendly environments in those countries.
49