SAN FRANCISCO - A new financing program developed by the California state treasurer's office was the key to this week's announcement by electric car developer Tesla Motors Inc. that it will build its next vehicle in California, company officials said.

Gov. Arnold Schwarzenegger and Treasurer Bill Lockyer traveled to Tesla's San Francisco Bay Area headquarters in San Carlos Monday for the firm's announcement that it would build its forthcoming "Model S" sedan in California.

The announcement came after the California Alternative Energy and Advanced Transportation Financing Authority last week approved a program designed to exempt manufacturers of "zero emission vehicles" from paying sales and use tax on the purchase of manufacturing equipment if they locate in California.

"The governor and Lockyer were extremely interested in convincing Tesla to manufacture in California and worked together to develop this policy as a way to make that happen," Lockyer spokesman Tom Dresslar said yesterday. Lockyer is CAEATFA's chair.

CAEATFA's new ZEV policy uses a financing tool to pass through the sales tax exemption.

Existing law exempts the authority from paying the sales tax on equipment used to manufacture advanced transportation products. The new policy allows the authority to pass the tax break through a "sales-lease-back" agreement.

According to the staff report prepared last week for CAEATFA, the authority would buy the equipment, and finance the purchase by taking out a loan or selling bonds, and the transaction would be exempt from sales tax. The state sales tax rate is 7.25%, plus local add-ons that bring rates as high as 8.75%.

The manufacturer would make lease payments to CAEATFA for the equipment, and CAEATFA uses these payments to repay the bonds or loan. Alternatively, the manufacturer would have the option to purchase the equipment soon afterward, retaining the benefit of the sales tax exemption.

"They won't be able to obtain the benefits of the tax exemption until they're ready to start building cars," Dresslar said.

CAEATFA adopted a general policy last week. Tesla - or any other qualifying firm - would have to apply individually for the program, which in addition to pure electric vehicles could be used by makers of a variety of alternative fuel and hybrid vehicles.

"We have some landmark laws on the books with regards to reducing climate change emissions, and these vehicles can play a big role in helping implement those laws," Dresslar said.

Tesla says its Model S will be a fully electric, five-passenger sedan with a 225-mile range per charge, and cost about $60,000. The company says it wants to begin production by late 2010. Until Monday, the company had said it planned to build the sedan in New Mexico.

The company has experienced delays in bringing to market its first product, the two-seat, $109,000 Tesla Roadster. Originally planned for 2007, the company announced earlier this year that it has commenced production, though most observers believe the number of customer deliveries remains in the single digits.

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