California Considers Tax on Launches Within the State

A United Launch Alliance (ULA) Atlas V rocket carrying the WorldView-4 spacecraft lifts off from Space Launch Complex-3 at Vandenberg Air Force Base. (Credit: ULA)

California’s Franchise Tax Board is seeking public comment on a proposed new tax that would fall upon ULA, SpaceX, Virgin Galactic and other companies launching spacecraft from within the state.

The levy would apply to companies “that generates more than 50 percent of its gross receipts from the provision of space transportation activity for compensation in a taxable year,” the proposal states. Space is defined as 62 statute miles (100 km) or more above Earth.

The plan’s structure is similar to that used by California and other states to levy taxes on terrestrial transportation and logistics firms.

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.

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.

ULA launch the Atlas V and Delta IV boosters from Vandenberg Air Force Base. It also operates these boosters from Cape Canaveral Air Force Station in Florida.

SpaceX operates its Falcon 9 rocket from Vandenberg and launch complexes in Florida. It plans to begin launching larger Falcon Heavy boosters from Florida later this year. Falcon Heavy rockets might also be launched from Vandenberg in the future.

Virgin Galactic plans to launch satellites with its LauncherOne booster using a modified Boeing 747 that would operate out of the Mojave Air and Space Port.  The aircraft would fly from Mojave to the Pacific Ocean to launch its payloads.

Virgin Galactic is building and testing its SpaceShipTwo suborbital vehicle in Mojave. However, it plans to move operational flights with customers and scientific payloads to Spaceport America in New Mexico. Another issue is whether SpaceShipTwo will fly to 62 miles and above. Flights may end up going below those altitudes.

Stratolaunch is building a carrier aircraft at the Mojave spaceport that would air launch boosters carrying satellites. However, it is not clear whether the massive airplane would conduct launches from Mojave or facilities in other states.

Orbital ATK stores the aircraft that it uses to air launch Pegasus boosters in Mojave. However, the aircraft typically operates out of other locations such as Cape Canaveral in Florida when it launches spacecraft.

The proposal includes the following example of how taxes would be assessed on launch companies operating in California.

Example

Taxpayer is a space transportation company that has entered into three launch contracts that result in the recognition of revenue in taxable year 201X. The first contract (“Contract A”) is for two launches outside this state where the launch vehicles will each travel 1,000 miles from launch to separation. Taxpayer will recognize $2,000,000 of revenue in taxable year 201X from this contract. The second contract (“Contract B”) is for one launch from outside of this state where the launch vehicle will travel 10,000 miles from launch to separation. Taxpayer will recognize $500,000 of revenue in taxable year 201X from this contract. The third contract (“Contract C”) is for one launch from within this state where the launch vehicle will travel 1,000 miles from launch to separation. Taxpayer will recognize $1,000,000 of revenue in taxable year 201X from this contract. Taxpayer also has $500,000 of revenue from other than space transportation activities. The taxpayer’s sales factor numerator from launch-related revenue in the taxable year shall be determined as follows:

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