State Tax Snapshot: U.S., Russia, China, Elon Musk: California and the Future of Private Space Flight


The California agency that administers property taxes is supporting legislation that would exempt rocket ship parts and fuel. The move would mark a reversal from the state’s current practice and would likely set the tone for how other states will treat property headed toward the “final frontier.”

The California State Board of Equalization voted unanimously (5-0) to support A.B. 777 at its monthly meeting March 25. The bill would exempt space flight property from property taxes through the 2024-25 tax year.

The bill was proposed after Los Angeles County attempted to tax the equipment of SpaceX, a space flight company founded by Elon Musk, the entrepreneur known for founding PayPal and Tesla Motors, in 2002. SpaceX, short for Space Exploration Technologies Corporation, was the first private company to launch a rocket into orbit, says a Feb. 2014 Senate committee report associated with the bill, and benefitted from NASA’s recent reliance on partnering with private companies.

The county assessor added property that SpaceX did not report in its business property statements dating back to the 2007-08 tax year, the report notes, and assessed $2 million for the storage of two propulsion systems. Although the bill would not affect SpaceX’s current appeals regarding those assessments, it would apply for tax years beginning Jan. 1, 2014.

However, the report notes that the Board may still decide to apply any changes to its rules on business inventories retroactively, which could create a thorny dispute between the Los Angeles County assessor and the Board.

The proposed bill defines space flight as any flight designed for orbital, suborbital, or interplanetary travel by a satellite, space vehicle, or space station or facility of any kind. The exemption would cover raw materials, works in progress and finished goods, and would include orbital facilities, space propulsion systems, space and launch vehicles, satellites and space stations.

Specifically, the bill would classify rocket ship parts and fuel as business inventory, which is exempt in California and distinguished from taxable tangible personal property generally.

“Business inventory” is defined broadly to mean “all tangible personal property, whether raw materials, work in process or finished goods, which will become a part of or are themselves items of personalty held for sale or lease in the ordinary course of business.”

However, to be exempt, the material or property must be intended to be launched into space, and only businesses with the primary purpose of space flight activities would be eligible.

The exemption would also cover fuel that is not usable in ordinary vehicles, and the property would not have to return to Earth for the exemption to apply. Additionally, assessors would be prohibited from denying the exemption because of a launch failure, postponement or cancellation.

The Senate report notes that a major problem with taxing propulsion systems is that such systems can only be used once, and thus, the assessment of a property tax represents a significant cost to private space industry for a one-time use property. However, on the flip side, the report recognizes that if the state provides an exemption for space property, other businesses, such as trucking companies, private railcar owners and air cargo carriers, will come forward with similar requests.

SpaceX’s website boasts of several milestones the company has achieved. For example, “the company made history again in May 2012 when its Dragon spacecraft attached to the International Space Station, exchanged cargo payloads, and returned safely to Earth—a technically challenging feat previously accomplished only by governments.”

In addition to its headquarters in California, SpaceX also has offices in D.C., Virginia, and Texas, and a second launch facility in Florida.

Additionally, Google recently leased a NASA-owned hangar in California for developing and testing space technology, and Virgin Galactic, headed by Richard Branson, has plans for private space flight as well.

SpaceX’s website notes that it has “the ultimate goal of enabling people to live on other planets,” a goal that will likely be easier to achieve with a property tax exemption. “Only four entities have launched a space capsule into orbit and successfully brought it back: the United States, Russia, China and Elon Musk,” reports CBS News from a transcript of a March 30 “60 Minutes” segment.

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