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New California Manufacturing Exemption: Get It in Writing

  • Jun 23, 2014 | Gail Cole

 Think you qualify for California's new partial exemption for manufacturers? Get the BOE to agree, in writing.

A new partialCalifornia State Board of Equalization offers a piece of advice for anyone wishing to take advantage of the new exemption: get it in writing.

Get what in writing?

Not everyone is eligible for the new exemption. In order to qualify, manufacturers, researchers and developers must meet the following three conditions (all of them):

  • Be engaged in certain types of business, also known as a “qualified person.”
  • Purchase “qualified property.”
  • Use that qualified property for the uses allowed by this law.

The BOE concedes that California “tax and fee laws can be complex and difficult to understand.” As a result, if businesses have “specific questions about this exemption and who or what qualifies, we recommend that you get answers in writing from us.” Sound advice, indeed.

In fact, getting it in writing isn’t recommended only for the new exemption. The BOE website features a page entitled Get It in Writing, which states that “for your protection, it is best to get tax advice in writing.”

Back to the exemption

According to the BOE, determining whether or not a business qualifies for the manufacturing exemption “can be quite complex.” Indeed, even determining the rate of sales tax that applies to qualifying purchases is tricky.

The new partial sales and use tax exemption applies “to the sale, purchase, and lease of qualified tangible personal property on or after July 1, 2014 and before July 1, 2022.” As of this writing, the rate of the partial exemption is 4.1875%. Therefore sales of qualifying property sold to qualified buyers should be “taxed at a rate of 3.3125%” (the 7.50% current statewide tax rate minus 4.1875% partial exemption) "plus any applicable district taxes.”

If you think you might qualify for California’s new partial exemption for manufacturing, research and development, head to the Manufacturing and Research & Development Exemption webpage and read the overview, qualifications, sellers and purchasers pages carefully. If you still think you qualify, follow the state’s advice and get it in writing.

Paper trail

Properly completed exemption certificates are required for this exemption to be valid.

Take the stress out of managing sales tax and sales tax exemptions. Learn how an automated sales tax solution helps manufacturers.

photo credit: Theen ... via photopin cc

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.