As one of just a few states that impose a sales tax on manufacturing and R&D equipment, California imposes higher equipment costs on its manufacturers, which may drive them out of state, Annette Nellen, a professor at San Jose State University, writes in this week's issue of the Weekly State Tax Report.  Professor Nellen and other prominent state tax experts will analyze California's recent passage of tax-related ballot initiatives and tax issues ripe for reform in a Bloomberg BNA Webinar from 12:30 to 2 p.m. ET on March 26.

Notwithstanding its long history of companies engaged in in-state manufacturing and R&D, California has steadily lost manufacturing jobs as other states and countries have worked to make themselves more attractive to these businesses. The U.S. Bureau of Labor Statistics reports California lost approximately 425,000 manufacturing jobs from 2002 to 2012, and is having less success, relative to some other states including Texas and Ohio, in capturing the uptick in these jobs that started in 2010, she reports.

Suggestions in Nellen's article to improve the business climate and to support "high tech" work and innovation include:

• phasing in a sales tax exemption for manufacturing and R&D equipment. This can be funded through a broadening of the sales tax base, with funds also used for a rate reduction;

• shortening depreciation lives and using greater acceleration methods to better correlate with the equipment's economic life;

• reforming the research credit to allow a refundable option for start-up companies and the option of a simplified research credit (similar to the federal simplified credit); and

• evaluating the results obtained by states that have investment incentives for start-ups, for example, Minnesota's Angel Tax Credit or Nebraska's Advantage Microenterprise Tax Credit.

For a comprehensive look at the weaknesses in the California's tax system, as well as obstacles to reform, and a discussion of what could, and perhaps should, be in store for California's taxes in the 2013-2014 legislative session, check out Nellen's article here.

In other developments…

California Fracking Fight Has $25 Billion Taxes at Stake, by Bloomberg.com.

Facts & Figures Handbook: How Does Your State Compare?, a new publication by the Tax Foundation.

A look at the Texas Supreme Court's opinion in Roark Amusement, by the Texas State and Local Tax law Blog.

The End of 'No New Taxes' in Minnesota, by Stateline, the Daily News Service of The Pew Charitable Trusts.

Compiled by Priya D. Nair
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