Taxing Satellites: Penny Wise Tax Assessor is Pound Foolish

By dennis_wingo
July 13, 2001
Filed under ,

In the July 10th edition of the Los Angeles Times it was reported that Los
Angeles County Tax Assessor Rick Auerbach was “boldly going where no tax
collector has gone before” in attempting to impose property taxes on
satellites owned by El Segundo based Hughes Electronics. Auerbach was
supported in this move by state and county tax attorneys. The stated reason
was that since nobody else was taxing the satellites and they were owned by
El Segundo based Hughes that this could bring millions of dollars a year in
taxes for the children (and the government of course). This is being penny
wise and pound foolish in the extreme.

The County of Los Angeles and southern California has lost billions of
dollars in revenue from the demise of the Aerospace industry in the early
nineties. This loss helped drive the worst recession in California since
the 1970’s. Added to this, the increasing pace of regulation and taxation
has driven many of the remaining aerospace companies to other locales. Just
recently Boeing completely ended production of the popular Delta rockets in
Huntington Beach and moved thousands of jobs to Decatur Alabama. This was
after spending over a billion dollars to build a new factory there. Many
other examples of this abound in the LA area.

To make this situation even worse there is a tremendous oversupply of
satellite manufacturing in the U.S. and the world. A recent article in
Space News, an industry publication predicted that two of the five suppliers
of these satellites would go out of business within three years. In an
environment where margins are being slashed, production oversupply abounds,
and government red tape has destroyed the market lead that Hughes and
Boeing, the new owners of the production facilities once enjoyed, Rick
Auerbach decides to drive another nail into the coffin of aerospace in LA
county. Never mind the tens of millions of dollars in property tax on the
facilities in LA and El Segundo. Never mind the taxes on the thousands of
remaining highly paid engineers and production workers. Never mind the
impact on the city of El Segundo. Wait a minute, could the impact on the
city of El Segundo be the real reason for this attack on Hughes?

In a follow up article on Reuters News yesterday Hughes explicitly
threatened to move elsewhere. Could all of this foolishness by Rick
Auerbach be a smoke screen used to hide behind a retaliation against El
Segundo’s maverick mayor who leads the opposition to the expansion of LAX?
What other gain could possibly come from this? Whatever the reason it is
clear that the temporary increase in tax revenue would be offset by the loss
of one of the last aerospace companies in LA County and would not result in
any net gain in tax revenue for the children of LA (or the government).

Fortunately the California State Board of Equalization is drafting a rule
declaring the satellites non taxable and voted 5-0 to “fast track” its
approval. This is gratifying and it is hoped that LA County will eventually
come to its senses. The satellite industry is in very perilous times today
with the U.S. government export regulations decimating what was once a
commanding lead for American suppliers and the global slowdown in technology
leading to a slack demand for new spacecraft. Couple this with a sharp drop
in revenue for those already in orbit and it is not a happy time. This new
move by LA County is at best a distraction and at worse a harbinger of the
loss of yet another industry for California and the nation.

Dennis Wingo

Member, Board of Directors

Space Frontier Foundation