Just wondering….

About a year ago, Timothy Roberts quoted Kirk Everett from the Silicon Valley Leadership Group, arguing in favor of SB552:

“We can’t afford not to have this right now,” says Kirk Everett, director of governmental relations and tax policy for the Silicon Valley Manufacturing Group. “Investing in our competitiveness and creating jobs is where we are going with this.”

This bill would completely exempt manufacturers and software companies from sales tax.

Now here we are in 2006, once again the SVLG is pleading poverty and going to Sacramento asking for welfare from the state. They are pushing SB1291-Alquist, which would merely exempt themselves from most sales tax. The manufacturers would only have to pay 2.75% sales tax. You can read my analysis here.
But what else is the SVLG doing? They are pushing a sales tax measure here in Santa Clara County that is double what is needed.

The county needs only a quarter-cent sales tax to cover all their needs. This is according to the county staff at the February 28, 2006 meeting. The only reason the ballot is as high as it is because of the desire by the movers and shakers to build gold-plated projects that no other agency wants to fund or build (small point it’s because no one would use them). More about those projects can be read about here.

Lets look at SB1291, the Silicon Valley Leadership group claims that it is just to avoid a competitive disadvantage:

John Ambroseo, chief executive of Santa Clara-based Coherent, speaking on behalf of the Silicon Valley Leadership Group, argues that the state tax exemption is needed to make California competitive with most other states that don’t tax manufacturing purchases on the theory that products are “double-taxed” when the businesses then sell the products they make.

But wait a minute, isn’t sales tax by definition “double-taxation”? When you go to work and get your paycheck, what is taken out? Taxes. So when you go to the store to buy what you need, aren’t you being “double-taxed” when the cashier charges the sales tax on those pair of shoes? Why isn’t Elaine Alquist asking that ordinary folk get their own sales tax exemption?

Now Elaine claims in her letter in the 4/21/2006 issue of the Mountain View Voice that SB1291 would

simply would ensure that California manufacturers would not be “double taxed” on both the “inputs” and the “outputs” of their equipment and products

it seemed worth a deeper look at the language of the bill.

Section I, reads in part:

6377. (a) … there are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption in this state of:

(1) Tangible personal property that will become … tangible personal property manufactured, processed, fabricated, or used in research and development activities.

(2) Tangible personal property directly used or consumed in … research and development of tangible personal property:

(A) The product being … or used in a research and development activity.

(B) Any intermediate or preliminary product that will [be] used in a research and development activity.

…

(9) …used in performing research and development activities.

Wow, reading the list, it is hard to imagine some activity that is not covered by this sales tax exception. “Research and development” covers practically any and all activities a company could engage in. But what does “research and development” cover in Elaine’s bill:

(6) “Research and development” means those described in Section 174 of the Internal Revenue Code or in any regulations thereunder.
(c) For purposes of this section, all of the following apply:
(1) The production of a publication for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public at a daily, weekly, or other short intervals is considered manufacturing.

So apparently printing the SJ Mercury and company newsletters is considered “research and development”.

(2) The manufacturing or research and development of computer software.

Anything related to writing a computer program. I sense lots of software engineers becoming “businesses” for this massive loophole.

(3) “Semiconductor, pharmaceutical or biotechnology fabrication clean rooms and equipment” means all tangible personal property, … used in connection with the manufacturing, processing,
fabrication, or research and development … of a semiconductor, pharmaceutical, or biotechnology product, without regard to whether the property is actually contained in the clean room environment.

So all Intel has to do is claim that the purchase has something to do with a clean room and they get a tax break. And a side note here: you really have to admire the balliesness to claim a tax deduction for “clean room” equipment that isn’t in the clean room. This sounds like something a creative tax accountant could really have fun with.

It gets even better, lets look at the some of the other sections:

“Research and development” includes integrated systems, fixtures, and piping, all property necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity, or other environmental conditions or manufacturing or research and development tolerances, and production equipment and machinery.

So software, biotech, semiconductor companies all get a major sales tax. Reading deeper, the is hard to imagine any industry that wouldn’t be exempt.

So what would this cost? Well the earlier version, SB552, which in many cases is word for word identical, the Legislative Analyst issued this report:

immediately putting the state back into a deficit position to the extent of some $10 billion (three times $3.2 billion plus interest). In other words, this bill might put the state into a permanent deficit position

Sounds to me like a lot of social programs would be cut.

Lets look at some of the other tasties:

(10) Tangible personal property used … if the use or consumption of the property is necessary and essential to comply with federal, state, or local laws, or rules and regulations that establish requirements related to public health.

(11) Tangible personal property specifically installed to do any of the following:
(A) Reduce water use and wastewater flow volumes from the manufacturing, processing, fabrication, research and development or repair operation.

(B) Reuse and recycle wastewater streams generated within the manufacturing, processing, fabrication, research and development or repair operation.

So basically, the Silicon Valley Leadership Group is asking that their members get a tax exemption for equipment that is required to obey the law.

When was the last time that you were paid to obey the law? Do you tell the police officer that you didn’t stop for the stop sign because you were not paid to stop for it? I thought that obeying the law was required because it … ummm .. is the law?

I sense a Leona Helmsley moment:

“Only little people pay taxes.”

Remember back in 2003 when Deputy Defense Secretary Paul D. Wolfowitz, was saying that:

that Pentagon budget specialists put the cost of war and reconstruction at $60 billion to $95 billion in this fiscal year. If we costed each and every [scenarios], the costs would range from $10 billion to $100 billion.”

Hmmm lets see the cost is currently at $238 billion and counting….

The Murky reports that:

Mayor Ron Gonzales “volunteered” Wednesday to be replaced on a transportation advisory board he has chaired since 2002.

Gonzales’ latest move comes after he stunned many last week by showing up to chair [the Silicon Valley Rapid Transit Policy Advisory Board] Valley Transportation Authority advisory board. Until then, many of his colleagues believed he had been forced to resign from all such posts as punishment for his role in procuring a controversial contract amendment for Norcal Waste Systems.

This is the board that is guiding Mr. Ron Gonzalas pet BART-to-San-Jose project into multi-billion dollar cost overruns before construction even starts. I guess he just couldn’t bear the possibility of not being there to stroke his pet before he left office.

Apparently this board members realize what a mess the BART project is:

Alameda County Supervisor Scott Haggerty, who sits on the VTA’s 10-member Silicon Valley Rapid Transit Corridor Advisory Board, said that while he was surprised Gonzales showed up at last week’s meeting, he was not disappointed. Haggerty, who like Gonzales is a BART-to-San Jose backer, said that without the San Jose mayor, work at the advisory board had ground to a halt. It couldn’t even muster a quorum for the previous two meetings