Although some experts agree that it is a first step in jump-starting the state's manufacturing industry, more incentives may need to be considered.
The proposal is one of five components to Schwarzenegger's California Jobs Initiative to create jobs and expand business in the state.
"This will help California attract and retain green businesses and jobs like this," Schwarzenegger said. "It will help us create jobs for the future. If it is in the area of developing alternative fuels or building solar panels or building wind turbines or building clean cars, in all of these areas it will be very helpful."
In 2009, an agreement was made with Tesla Motors and the California Alternative Energy and Advanced Transportation Financing Authority to give them exemption from paying sales tax on the equipment they purchase to produce zero-emissions vehicles.
The governor's proposal will expand the Tesla exemption to include other advanced transportation, renewable energy and green-technology projects.
This will be based on a bill by Assemblyman Sam Blakeslee, R-San Luis Obispo. The bill is expected to be introduced to the Legislature next month, according to members of Blakeslee's staff.
State Sen. Bob Dutton, R-Rancho Cucamonga, said he agrees with the exemption, but the term "green" is vague.
"This whole idea is great, but define `green' for me," Dutton said. "I'm fine with the program, but I personally would have a sales-tax exemption on all manufacturing equipment, green or otherwise. I don't care what color it is."
California has lost 600,000 manufacturing jobs since 2000, which equals 32 percent of the state's industrial base, according to the California Manufacturers and Technology Association.
California is one of the only states in the country that taxes manufacturing equipment purchases, association spokesman Gino DiCaro said.
"As for today, certainly green sales-tax exemption is helpful, but 47 other states don't tax the purchases at all," DiCaro said. "They don't necessarily pick and choose select industries. They understand that economic growth and active production is needed."
DiCaro said the association would like to see all manufacturing equipment purchases in California exempt from sales tax, not just "green" technology manufacturers.
Economically distressed areas have been designated "Enterprise Zones," offering businesses in those areas incentives to encourage investment and promote the creation of new jobs, according to the program's Web site.
Enterprise Zones started in 1984, and no more than 42 zones may be created in California.
Parts of San Bernardino County are in such a zone, and businesses receive incentives and tax credits.
Blakeslee's staff expects the new exemptions to apply within the zones as well as the rest of the state.
Brithinee Electric, a Colton- based company that specializes in electric motors and control-panel systems, is in an Enterprise Zone and already gets sales-tax refunds on the equipment it buys.
"The sales-tax rebate or refund is a modest incentive to us. It is a slight incentive but is not enough to make us go out and say, `We're going to buy a lot of equipment based on that,"' said Wally Brithinee, who owns the company with his brother Donald.
The company has also ventured into the clean and renewable energy field, specifically wind turbines.
Wally Brithinee said he is unsure how the new exemption for "green" technology would work because his company already receives tax incentives.
"Is it enough to make you go out and buy another piece of equipment or add production or add employees?" Brithinee said. "There are other issues in the economy that are more troubling for us."
Joe Mendoza, founder of Ontario-based Revvo Lighting Systems, which designs and manufactures solar and induction lighting, said he supports incentives to generate more revenue. But customers have to be willing to buy his product to make the incentives worthwhile.
"You could put whatever you want on the table. If I don't get people to buy my product, I can't manufacture it, and right now people aren't spending money," Mendoza said.
Schwarzenegger outlined two more components to his California Jobs Initiative. The first would allocate $500 million from the Unemployment Compensation Disability Fund to train up to 140,000 people and create up to 100,000 new or retained jobs. He also proposed a $10,000 tax credit to people who buy homes in California.