New Tax Frontier: California Offers Space Flight Rules

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By Laura Mahoney

California’s Franchise Tax Board may boldly go where no tax agency has gone before and adopt rules to apportion income from commercial space transportation.

Private companies such as SpaceX and the United Launch Alliance, a joint venture with Lockheed Martin and The Boeing Co, are starting to transport property into space for profit, with plans to expand to passengers. The private space flight companies have asked the FTB to establish rules to help compute their tax liabilities in California.

The FTB is asking for comments on proposed rules for apportioning commercial space flight income until June 5 and will consider adopting them at a public hearing June 16.

“Currently, only a small number of companies have the capability to engage in such activities,” the FTB said in its reasoning for the proposal. “However, future entrepreneurs may be encouraged by an atmosphere that provides tax certainty and fosters establishing space transportation-related businesses in this state.”

Special Rules

The income tax agency is using its authority under the Uniform Division of Income for Tax Purposes Act to draft special rules for the space transportation industry, as it has with sub-orbital transportation industries such as trucking, railroads, ships and airplanes. Standard rules won’t fairly reflect the space companies’ income that is subject to California income tax, the FTB said in a summary of its proposal.

California’s recent shift to market-based sourcing rules requires that income be apportioned based on where the benefit of the service is received, the FTB said. When goods or property are transported into space, it is unclear where the benefit is located.

The proposed rules would apply to companies that generate more than 50 percent of their gross receipts from transportation into space, which is defined as an altitude 62 miles or more from the Earth’s surface.

The Kármán Line

The 62-mile mark is known as the Kármán line, named for engineer and physicist Theodore Von Kármán, who helped the flying organization Fédération Aéronautique Internationale set the mark as the boundary between aeronautics and astronautics. Below the Kármán line, aircraft still need significant lateral thrust to stay aloft and fly in a straight line.

Under the proposed formula, space transportation companies would determine a mileage factor by looking at gross receipts and projected mileage from launch contracts in California compared to those factors elsewhere. If projected mileage isn’t available because of government secrecy or security, a launch’s mileage will be presumed to be 310 statutory miles. Taxpayers would use the number of departures in California compared to launches elsewhere to determine a departure factor.

The mileage factor would be weighted by 80 percent, and the departure factor would be weighted by 20 percent. Those two products would be added to set the California sales factor. The sales factor would be multiplied by the total gross receipts in the taxable year to determine the state income tax liability.

The FTB proposal is similar to one submitted by SpaceX before a first informal discussion meeting at the FTB in July 2015, although the industry proposal called for elimination of confidential contracts from the numerator and denominator of the formula. SpaceX also proposed that if a mishap occurs, revenue from the contract for that launch would be apportioned as if it succeeded. The FTB proposal doesn’t cover mishaps.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

More information about the proposed rules is at

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