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California: Sales Tax Exemption for Alternative Energy


California's SB 71 which was passed in 2003, was designed to promote California-based manufacturing, increase California-based jobs, and encourage the reduction of greenhouse gases and air and water pollution. It achieves this in part through sales and use tax exemptions. SB 71 provides financial assistance in the form of "sales and use tax exclusions (STE) for eligible projects on property utilized for the design, manufacture, production or assembly of advanced transportation technologies or alternative source -- including energy efficiency -- products, components or systems."

California SB 1128, which was signed into law late last month as Chapter 677, "would require the authority ... to study the efficacy and cost benefit of the sales and use tax exemption… [and] to submit to the Legislature a report on the study." The study is to determine "whether the exemption should be expanded or narrowed." Factors to be evaluated include, but are not limited to:

  1. "The number of California jobs created by the program.
  2. The number of businesses that have remained in California or relocated to California as a result of this program.
  3. The amount of state and local revenue and economic activity generated by the program.
  4. The amount of reduction in greenhouse gases, air pollution, water pollution, or energy consumption."

SB 1128 also requires the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to provide financial assistance for:

  • "projects for renewable energy generation facilities,
  • combined heat and power systems,
  • facilities designed for the production of renewable fuels,
  • distributed generation and energy storage technologies elegible under the self-generation incentive program as determined by the Public Utilities Commission, and
  • energy efficiency devices and technologies."

Under SB 71, CAEATFA may incur $1 billion in outstanding debts to provide financial assistance for participants in the program. SB 1128 eliminates the $1 billion limitation on financial assistance. It also alters the sales and use tax exemption by prohibiting "the authority from granting, on an annual basis, a sales and use tax exemption for a project exceeding $100,000,000." Instead, the sales and use tax exemption is to be applied "to the lease or transfer of title of tangible property constituting a project to any participating party."

Thus far, SB 71 "has approved financial assistance for private entities in the following fields: electric vehicle manufacturing, solar photovoltaic manufacturing, landfill gas capture and production, biogas capture and production (dairies and waste water treatment plants), demonstration hydrogen fuel production, electric vehicle battery manufacturing, biomass processing and fuel production, and others."

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.