Tax Break Proposed

The next hot California vacation package could include the surf, wine country and a tour of the Tesla Motors factory.

A Bay Area lawmaker's bill would give tax breaks to out-of-state customers picking up their Teslas at the electric-vehicle maker's Fremont factory.

Sen. Bob Wieckowski said Senate Bill 680 would encourage tourism and apply to Tesla and other, green-friendly vehicle makers. "Tesla is an exciting car," said Wieckowski, D-Fremont. "It's cool, cutting-edge manufacturing. They want to come and see it."

But opponents say buyers of the luxury car don't need any more breaks.

Sen. Connie Leyva, D-Chino, said it would only benefit high-income, out-of-state residents who don't need tax incentives. Although she supports the growth of the California electric-vehicle maker, she said, "I don't even know if anyone in our district even owns a Tesla."

Under current law, an out-of-state car buyer who comes to California to pick up their car pays California sales tax on their purchase. The buyer may receive a credit on their home state taxes, but since California generally has a higher tax rate, out-of-state buyers pay more here than they would at home. A car purchased in Alameda County, for example, would be subject to a 9.5 percent sales tax, or $8,550 on a $90,000 Tesla.

The proposed law would give an out-of-state buyer a California tax waiver, as long as the new vehicle is registered in another state within 30 days. The buyer would be liable for taxes in their home state.

State officials estimate the bill would reduce annual tax revenues slightly but would be more than offset by increased tourism spending.

Wieckowski said Tesla, the largest employer in his Senate district, approached him with the bill last year.

Tesla hopes to mimic the factory tourism models of European automakers like Volvo and Mercedes-Benz. Those companies offer customers guided factory tours, test drives, museums and gift shops. Customers are immersed in the company's history, culture and products. They can also pick up their new vehicles and drive away through the cities and countryside.

Sens. Leyva and Mike Morrell, R-Rancho Cucamonga, objected to another round of state tax breaks aimed at luxury electric-car buyers and voted against the measure last month.

Morrell said he supports sales tax cuts, but faulted the bill for primarily helping one company that's already received state subsidies. The exemption is aimed at Tesla customers, he said, and "is mostly limited to those with higher incomes."

The bill adds to a list of tax incentives aimed at promoting the growth of the electric-vehicle company and others affiliated with CEO Elon Musk. A Senate committee's analysis of the tax bill noted that Musk's companies have already received at least two other tax breaks: an extended property tax exemption for solar-generation technology, and a personal property tax exemption for property used in space flight, which arose from a county audit of Musk's Hawthorne-based SpaceX. Tesla Motors has also received sales tax exemptions from the state treasurer worth $128 million for the purchase of equipment to build its vehicles.

While the proposal would not reduce taxes for Tesla, state officials estimate "it would provide a significant tax benefit for its potential customers, which could potentially increase sales for the firm." Anecdotal evidence cited by Senate staff showed that just one out-of-state customer went to the factory to pick up a Tesla in 2014.

State budget officials estimate the proposal would reduce revenue by $25,000 annually. The cost is expected to be offset by Tesla holiday-takers. In addition to its high-priced Model S sedan and Model X crossover, the company has taken more than 400,000 reservations for its Model 3, a midsize sedan starting at $35,000.

Musk told investors last week the company is looking to pump up production at the Fremont plant to 500,000 vehicles annually by 2018. That would match the production level the plant had under its previous owner, Toyota.

The measure has drawn support from the California Travel Association and tech-industry lobbyist TechNet. An Assembly committee is scheduled to hear the proposal next.