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California May Court Drone Manufacturers with Sales Tax Exemptions

  • Mar 12, 2013 | Gail Cole

 California Lawmakers Seek to Court Drone Manufacturers with Sales Tax Exemptions.

Update 7.14.2016: AB 1326 died.

Drones are controversial.They're also, as a recent headline from CBS News announces, "A big industry waiting to be born." While the American Civil Liberties Union (ACLU) is concerned with how the unmanned flying machines might infringe on privacy, two California lawmakers would like to court drone manufacturers with sales tax exemptions for equipment used to manufacture drones.

According to a report prepared for the Association of Unmanned Vehicle Systems International, "[t]he market for commercial and non-military drones will top $13.5 billion within three years, and will grow to more than $80 billion between 2015 and 2025." The industry has the potential to create more than 100,000 well-paying jobs and generate approximately $482 million in national tax revenue by 2025. It's not surprising the state of California wants a piece of that action. (CBS News).

Sales Tax Exemption

California Assembly Bill 1326, introduced In February by Assemblymen Jeff Gorell (R-Camarillo) and Steven Bradford (D-Gardena), would:

"provide an exemption from [sales and use taxes] for the gross receipts from the sale of, and the storage, use, or other consumption of, tangible personal property, as defined, purchased for use in unmanned aerial vehicle manufacturing by a qualified person, as defined." 

The bill would exempt "component parts, devices used to operate or maintain machinery used in the manufacturing process, computers, software, machinery for pollution control and fuel used during drone production." It would also allow exemptions for expenses related to building drone manufacturing sites. Appropriate exemption certificates must be provided for the exemptions to be valid. (Ventura County Star).

Assemblyman Gorell said of the bill, "It is another effort to get ahead of an industry that is going to be one of the fastest-growing and that is going to create middle-class jobs."

Transformative Technology

The word "drone" may conjure thoughts of Afghanistan military strikes, but there are many potential non-military uses for drones. Analysts speak of a "transformative technology" that will impact farming (a more precise way to crop dust) and oil and gas exploration. More concerning to the ACLU, drones may also be used for law enforcement. Drones are already used to monitor United States borders.

The proposed bill addresses some privacy issues, and places the responsibility for creating guidelines on the shoulders of "the legislative bodies that oversee" law enforcement and other public agencies that would use the drones. Assemblyman Gorell acknowledged the need to address privacy issues "because we know we need to do that before the public will feel comfortable about having the benefits of the UAV industry here in California."(VCStar).

California is well poised to capture drone manufacturing, since it already has a well-established aerospace industry. Other states that may be in the running are Washington, Texas, Florida and Arizona. (CBS News).

How does your business handle exemption certificates?

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
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.