Beginning on July 1, 2014, a new California law allows manufacturers and certain research and developers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. The partial exemption rate on sales and use taxes is 4.1875% and applies to purchases made and leases entered into on or after July 1, 2014, and before July 1, 2022. The exemption does not apply to any local, city, county, or district tax.
In order to qualify for the manufacturing exemption, the qualified equipment, which must be located within California, includes:
- Machinery and equipment, including component parts.
- Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including computers, data-processing equipment, and computer software, whether purchased separately or in conjunction with a complete machine.
- Tangible personal property used in pollution control meets governmental standards.
- Special purpose buildings and foundations are used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process. Buildings used solely for warehousing purposes after completion of those processes are not included.
The utilization of the qualified equipment is limited to the following specific activities:
- For manufacturing, processing, refining, fabricating, or recycling
- For research and development
- To maintain, repair, measure, or test any property being used for (1) or (2) above
- As a special purpose building and/or foundation.
In addition, the exemption does not apply if, within one year of purchase, the property is removed from California or converted to a non-exempt use.
Based on these guidelines, if your business qualifies for this exemption, you will have to provide a partial exemption certificate to the seller. The California Partial Exemption Certificate can be completed online here – http://www.boe.ca.gov/Partial Exemption Certificate.
To facilitate the review of qualified purchases and leases, we recommend The Tax Solutions Group for your reference. We can provide you with their contact information upon request. If you have any questions regarding the above information, please do not hesitate to contact us.
