For Immediate Release
July 21, 2014

CALIFORNIA – CALIFORNIA GOVERNOR PASSED LEGISLATION MAKING THE PURCHASE OF MANUFACTURING AND R/D EQUIPMENT PARTIALLY TAX EXEMPT

CALIFORNIA – CALIFORNIA GOVERNOR PASSED LEGISLATION MAKING THE PURCHASE OF MANUFACTURING AND R/D EQUIPMENT PARTIALLY TAX EXEMPT

CALIFORNIA – CALIFORNIA GOVERNOR PASSED LEGISLATION MAKING THE PURCHASE OF MANUFACTURING AND R/D EQUIPMENT PARTIALLY TAX EXEMPT

CALIFORNIA

In July 2013, the California Governor passed legislation that will partially make the purchase of manufacturing and R/D equipment tax exempt, beginning July 1, 2014.

The exemption only applies to certain state-level components of California’s sales and use tax that total 4.19% of the overall 7.5% statewide sales and use tax rate.

Specifically, the exemption would apply to purchases of:

(1) Qualified tangible personal property primarily used (i.e., more than 50% of the time) by a qualified person in any stage of manufacturing, processing, refining, fabricating or recycling of tangible personal property, beginning at the point any raw materials are received by the qualified person and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating or recycling has altered the tangible personal property to its completed form, including packaging, if required.

(2) Qualified tangible personal property purchased by a qualified person to be used primarily in research and development (as defined in IRC section 174 and the associated regulations).

(3) Qualified tangible personal property used primarily to maintain, repair, measure or test any qualified property in 1 or 2.

(4) Qualified tangible personal property purchased by a contractor for use in the performance of a construction contract for a qualified person that will use the property as an integral part of the manufacturing, processing, refining, fabricating or recycling activity, or as a research or storage facility for use in connection with those processes.

Terms defined for exemption

A “qualified person” means a person that is primarily engaged in those lines of business described in North American Industry Classification System (NAICS) codes 3111 to 3399 (inclusive), 541711 or 541712. A “qualified person” does not include a business that is required or would be required to use a three-factor evenly weighted apportionment formula (e.g., agricultural businesses, financial corporations, and extractive businesses). “Qualified tangible personal property” is broadly defined and includes, but is not limited to, machinery and equipment; equipment and devices used or required to operate and control machinery, including computers, data processing equipment, and computer software together with all replacement parts having a useful life of more than one year; certain pollution control equipment; and special purpose buildings and foundations.

Rev. & Tax Code § 6337.1

California State BOE Manufacturing and R&D Exemption

If you would like additional information on this topic or have any questions, please contact the taxdesk@thesaltgroup.com

 

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