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California plans for collecting taxes on spaceflight

The earthly convention of paying taxes may soon extend into outer space, if California regulators have anything to say about it.

The state’s Franchise Tax Board is seeking public comment on its proposal for computing taxes on commercial space transportation companies.

The private spaceflight industry remains small, despite grand ambitions to shuttle everything from tourists to 3-D printers into space. But the board says it created the rules to give entrepreneurs the confidence that once their businesses really start to take off, California’s tax code will be ready to handle them.

The rules are designed to apply to any company operating in California that generates at least half the money it takes in from “space transportation” — defined as the movement of people or property 62 miles above the surface of the Earth. That’s the internationally recognized line that separates our planet from the rest of space. It would apply to companies that use California as a launchpad, not California companies launching from other states, like Texas or Florida.

Thomas Lo Grossman, a tax attorney at the Franchise Tax Board, said the proposed rules are designed to mirror the ways taxes are levied on terrestrial transportation and logistics firms operating in California, like trucking or train companies. Those rules are based largely on the way California and other states calculate taxes when goods are shipped from one state to another.

In what’s known as a market-based approach, companies tally sales — and then the taxes based on those sales — in the state where the good or service is received. But in the borderlessness of space, precisely where a product gets delivered is difficult to define.

According to the proposal, California will collect tax from space transportation companies based on a formula factoring in how often a company launches spacecrafts out of the state, and, most importantly, how far a commercial spacecraft travels from California soil. Between May and mid-October, there were eight launches from Vandenberg Air Force Base, in Santa Barbara County about 50 miles south of San Luis Obispo.

In short, the amount of tax on commercial spaceflight companies will decrease the farther the spacecraft travels from California. “More mileage will mean less tax, and less mileage will mean more tax,” Grossman said.

If a company can’t reveal the specifics of its mission due to confidentiality concerns — common with contracts with the military — a launch’s mileage will be presumed to be 310 miles under the proposed rules. (For reference, the International Space Station is about 250 miles above the Earth.)

The Franchise Tax Board says it received input from the private space companies on the proposed rules, which largely resemble a draft submitted by SpaceX, perhaps the industry’s most recognizable company. SpaceX, which is headquartered in Hawthorne (Los Angeles County), declined to comment.

The federal government already has its own system for taxing commercial spaceflight companies, Grossman said, but California was the only state he was aware of working to create a framework for taxing commercial spaceflight.

That may not last long, according to John Logsdon, a professor emeritus at George Washington University in Washington, D.C., and a co-founder of the school’s Space Policy Institute. States across the country are already competing to craft the most enticing regulatory regimes for the burgeoning commercial spaceflight industry.

“States that don’t levy taxes would have that competitive advantage over states that do,” Logsdon said. “If California puts in a tax and Florida or Texas doesn’t have a similar tax, I’m not sure that helps California in a competitive way.”

The Franchise Tax Board proposal said certainty about tax treatment “will lead to increased activity in the industry and will foster an atmosphere of growth and prosperity once present during the golden age of California’s aviation industry, thereby creating jobs as the industry thrives in this state.”

At least one company has already been lured away from California for the promise of greater financial incentives — though of a more earthly variety. Moon Express, a company working to mine the moon for natural resources, moved from Mountain View to Florida.

In an email, the company’s CEO and founder, Bob Richards, said the company “relocated from California to Florida in part due to the State of Florida’s progressive economic development incentives designed to attract commercial space companies.

“We are happy to be reaching for the moon as Space Coast residents now, thanks to the proactive efforts by Florida’s aerospace economic development agency, Space Florida,” Richards said.

California’s Franchise Tax Board is accepting comments on the proposed rules until June 5. The rules will be up for adoption at a public hearing on June 16.

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Originally posted by Scoutmaster:
Thanks for the article, it will be my lead business news story for my accounting classes next week.

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Originally posted by nhtagmember:....hey, tax board - here's an idea - tax breathing - and lets start with all State employees first and lets see how that works out for ya

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Originally posted by nhtagmember:
launch a rocket, don't pay

whats the State going to do - wet their panties?

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Originally posted by Scoutmaster:
Sidenote. I filed my taxes online, got my fed refund direct deposit about a week later. Seems CA says they will take about three months to process the electronic return and send the refund. I think CA gov't has bigger money problems than they admit.

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Originally posted by mjlennon:
Seems to me space is out of their jurisdiction.

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Originally posted by Scoutmaster:

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Originally posted by nhtagmember:....hey, tax board - here's an idea - tax breathing - and lets start with all State employees first and lets see how that works out for ya

Sidenote. I filed my taxes online, got my fed refund direct deposit about a week later. Seems CA says they will take about three months to process the electronic return and send the refund. I think CA gov't has bigger money problems than they admit.

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But the board says it created the rules to give entrepreneurs the confidence that once their businesses really start to take off, California’s tax code will be ready to handle them.