Manufacturing Sales and Use Tax Exemption
Beginning on July 1, 2014, manufacturers and certain research and developers may qualify for a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. To be eligible for this partial exemption, you must meet all three of these conditions:
• Be engaged in certain types of business, also known as a "qualified person."
• Purchase "qualified tangible personal property."
• Use that qualified tangible personal property in a qualified manner.
New Information – Assembly Bill 398 (Chapter 135, Stats. 2017) which was signed into law July 25, 2017, amends the partial exemption provided in Revenue and Taxation Code (RTC) section 6377.1 and these amendments include:
• Expands the partial exemption to qualified tangible personal property purchased for use by a qualified person to be used primarily in the generation or production, or storage and distribution of electric power. (see Qualified Tangible Personal Property heading under Qualifications tab).
• Beginning January 1, 2018, expands the definition of "qualified tangible personal property" to include special purpose buildings and foundations used as an integral part of the generation or production or storage and distribution of electric power. (see Qualified Uses heading under the Qualifications tab)
• Beginning January 1, 2018, expands the definition of "qualified person" to include businesses primarily engaged in operating electric power generation facilities as described in NAICS codes 22111 to 221118, inclusive, or primarily engaged in electric power distribution as described in NAICS code 221122. (see Qualified Person heading under the Qualifications tab).
• Beginning January 1, 2018, removes the exclusion from the definition of a "qualified person" for certain persons engaged in agricultural business activities that were previously excluded as an apportioning trade or business under RTC section 25128. (see Qualified Person heading under the Qualifications tab).
• Amends the definition of "useful life" to state that tangible personal property that is deducted on the California state franchise or income tax return under RTC sections 17201 and 17255 or section 24356, is deemed to have a useful life of one or more years. (see Qualified Tangible Personal Property heading under Qualifications tab).
• Extends the sunset date of RTC 6377.1 from July 1, 2022 to July 1, 2030.
Please also see the Industry Topics tab, which includes the following topics:
• Useful Life
• Special Purpose Building
• Solar Power Equipment
• Construction Contractors
• Electric Power Generators or Distributors (new topic)
• Repair Parts
• Filing a Claim for Refund
Get it in Writing
Our tax and fee laws can be complex and difficult to understand. If you have specific questions about this exemption and who or what qualifies, we recommend that you get answers in writing from us. This will enable us to give you the best advice and will protect you from tax, penalties and interest in case we give you erroneous information.
For more details, please see publication 8, Get It in Writing!
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