California Taxes Lithium, a Key Component in EV Batteries
Opponents argue that the tax will harm the emerging California lithium industry and make imports from China more economic.
California legislators approved a $400 per ton tax on lithium, a metal widely used in batteries for electric vehicles, in a bill passed as part of the state budget. The bill, SB 125, implements a tiered tax system on a per-ton basis. The tax starts at $400 per metric ton for up to 20,000 tons produced, $600 per metric ton for 20,000 tons to 30,000 tons, and $800 per metric ton for more than 30,000 tons produced. The tax will go into effect January 1, 2023.
Revenue raised by the tax would fund infrastructure and environmental restoration projects in the Salton Sea area in Southern California’s Imperial County. The law allocates 80% of the tax proceeds to Imperial County to fund infrastructure, public services, and community programs; 20% of the tax proceeds would fund environmental restoration in the Salton Sea.
Lithium Valley
The Imperial Valley in Southern California has become known as Lithium Valley due to the potentially large resource of lithium in the Salton Sea. Geothermal power plants in the Salton Sea Geothermal Field have been producing geothermal energy with geothermal brine, which is pumped to the surface and converted to a gas that turns a turbine to generate electricity. The operations then extract lithium from the brine.
The California lithium industry is still in its early stages, as companies operating in the Salton Sea area have also not produced enough battery-grade lithium to sell on an open market and other geothermal and lithium plants are in the planning stages.
Volume or Value
The bill also requires the California Department of Tax and Fee Administration (CDTFA) to study whether the tax should be based on gross receipts rather than volume. Natural resource extraction taxes in other states are often based on a percentage of gross receipts.
Opponents of the volume-based tax argue that it will harm the California lithium industry by discouraging financiers and investors and delaying the production and delivery of lithium to automakers. They argue that it will make lithium produced in California more costly than lithium imported from China.
They argue that a percentage based tax, known as an ad valorem tax, will not harm the industry and will raise sufficient revenue. They also note that an ad valorem tax would be more easily administered, as the CDTFA has experience with the assessment and collection of a gross receipt tax but does not have expertise in volume-based taxes.