Manufacturing Exemption Coming to California in 2014
- Sales Tax News
- Oct 8, 2013 | Gail Cole
Sales tax exemptions are often used to encourage business and development. For example, Rhode Island has created a statewide exemption for works of art in hopes that the arts will stimulate economic growth. An exemption for certain machinery and equipment will take effect in Florida next spring; it is intended to draw more manufacturing to the state. And California lawmakers are considering the pros and cons of offering a sales and use tax exemption for manufacturers of unmanned aerial vehicles, also known as drones.
The California legislature has yet to decide whether or not drone manufacturers will get their own exemption. However, a California law set to take effect July 1, 2014, does allow “manufacturers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases” if they meet certain requirements. The tax incentives are designed to “create good jobs with middle class wages and benefits” within “areas of the state suffering from high rates of unemployment and poverty.” (AB 93).
The partial exemption only applies to the state sales and use tax, which is 4.1875%. Local sales and use taxes still apply.
In order to qualify for the exemption, businesses must meet all of the following conditions:
- Be engaged in certain types of business, also known as a qualified person;
- Purchase qualified property; and
- Use that qualified property for the uses allowed by this law.
Qualified persons are defined as those working in any type of manufacturing business or those in research and development in biotechnology, engineering, physical sciences or life sciences.
Goods eligible for the exemption include:
- Machinery and equipment;
- Equipment or devices used to operate, control, regulate or maintain the machinery;
- Tangible personal property used in pollution control;
- Special purpose buildings used as integral part of the manufacturing process.
Additional information is available in the following locations:
- The California State Board of Equalization website
- California Assembly Bill 93;
- California Senate Bill 90;
- Initial Discussion Paper
Managing sales tax exemptions is a critical but time consuming part of business. Managing exemption certificates in the cloud saves time and reduces risk. It's a win, win.
Get Free Tax Rate Tables