California's Franchise Tax board announced last summer that it would be slapping a tax on space launch companies operating in the Golden State, to be calculated by a complicated formula taking into account miles traveled through space and frequency of launch.
Industry and political leaders in Texas, a state with a polar opposite governing philosophy to that of California, were particularly amused. The idea of taxing space travel sounded like just the sort of joke that Texans might tell about how things are done in Blue-state California, as one Texas journalist put it to me during an interview. But the rocket tax is no joke.
Some glimmer of sanity has since arisen in the California state assembly, in the form of a proposed bill, AB1874, offered by State Assemblyman Tom Lackey, R-Palmdale, according to the San Francisco Chronicle. This bill would repeal the application of the transportation tax to space launches, and exempt all commercial space launch income from state taxes.
The legislation makes sense. States like Texas and Florida have enacted tax incentives to attract all kinds of businesses, including commercial space companies. California cannot afford to start losing rocket launch companies as a result of its draconian tax policies.
On the other hand, the tax board claims that its tax formula will actually attract commercial space businesses to California. The theory is that the regulation will provide an aspect of certainty that would otherwise not exist. In support of this view, the more established aerospace companies such as SpaceX and ULA seem prepared to accept the new tax formula, at least for the time being.
Lackey probably would respond that his bill would provide the same degree of certainty, and at the same time not yield California’s competitive advantage for aerospace to other states. Big companies with deep pockets may be willing to swallow the tax before going to the inconvenience of relocating, but it will tend to inhibit smaller startups which have to, in any case, put up with California’s mind-numbing regulatory regime. Lackey’s bill is supported by the Howard Jarvis Taxpayers Association.
Chances of Lackey’s bill passing both houses of the California legislature and being signed into law by Governor Jerry Brown seem dubious at best. The ruling elites in California do not seem to comprehend the power of tax incentives to attract and grow businesses. The governing philosophy in the Golden State seems to be that more taxes are better than fewer taxes. Money must be raised to pay for an array of spending projects, especially high-speed rail, the cost of which seems to be increasing by the day.
California enjoys one competitive advantage for space flight that even its politicians cannot ruin — that of geography. The space launch facility at Vandenberg is perfectly situated to launch payloads into a polar orbit and is heavily utilized by companies such as SpaceX and ULA. One other facility capable of inserting payloads into polar orbit exists in Kodiak, Alaska, but currently on a much smaller scale. Still, if the tax and regulatory regime in California makes even polar orbit launches from that state cost prohibitive, one wonders if even the larger companies could be attracted away to more friendly climes. The expansion of Kodiak is one possibility. The northern coast of Puerto Rico, an island in dire need of some economic development after the effects of Hurricane Marie, also comes to mind.
In short, California had better watch out. The state may tax and regulate itself out of one of the big growth industries of the 21st century. Businesses ranging from asteroid and lunar mining to orbital tourism have the potential to rake in many billions for entrepreneurs willing to take risks. The merchant adventurers of space will be more likely to start and grow their businesses in states less intent on shaking them down.
Mark Whittington, who writes frequently about space and politics, has published a political study of space exploration entitled Why is It So Hard to Go Back to the Moon? as well as The Moon, Mars and Beyond. He blogs at Curmudgeons Corner.
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