Space: The final(?) frontier of taxation

In its continuing quest to become a caricature of itself, California is announcing plans for a new tax policy targeting space travel. Commercial spaceflight companies based in the state will be expected to pay a fee to the government for every mile traveled.

If this sounds silly, it’s because it is. Commercial space travel is likely to become a major industry over the next several decades, and I guess California wants to get in early to claim a piece of the pie, but it’s a completely wrong-headed move on a number of levels.

First, conventional wisdom holds that when you tax something, you get less of it. As companies like Virgin Galactic and SpaceX ramp up their operations, they will be looking for tax-friendly environments to minimize the cost of this already unbelievably expensive undertaking. Why base operations in a state that is going to tax you heavily, when another state next door offers the same opportunities at no additional cost? If anything, California is working hard to ensure that the commercial space industry avoid the state like the plague, which is fairly backwards from a revenue standpoint.

Logically, there is no real justification for such a tax. There’s no obvious reason why companies should owe California any money for launching spacecraft within its borders, and the per-mile rate, which decreases with the distance traveled, makes no sense whatsoever. Unlike sin taxes, which are designed to discourage particular activities, this tax is not motivated by a desire to end commercial space travel. Instead, it’s a transparently opportunistic revenue grab, which, given California’s financial situation, is understandable, but you can’t fix bad policy with more bad policy.

The tax will not only apply to space tourism, but to cargo as well. The idea of commerce in space may seem like science fiction, but it is not at all unrealistic to assume that transporting goods to space could become a major industry, especially given that the international space station already requires regular deliveries.

California is trying to spin the tax as “actively engaging” with industry. I guess that’s one way of putting it, if your definition of “actively engaging” includes “chasing away.” The future is wide open and very exciting, but taxes and regulations are going to play a major role in how quickly and easily new technological developments can occur. It’s disappointing to see governments trying to smother innovations by levying taxes and regulations that hold back growth.

If California follows through on its plans, it will put itself at a significant competitive disadvantage to other states, and this will ultimately accelerate its decline into irrelevance. It is already starting to lose the movie industry, and bankruptcy looms around the corner. Excessive taxes will hurt the space travel industry, to be sure, but technology marches on. In the end, California will really only be hurting itself.