BILL NUMBER: AB 1057 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 13, 2011
INTRODUCED BY Assembly Member Olsen
( Coauthors: Assembly Members
Garrick, Gorell, Harkey,
Portantino, Silva, and Wagner )
( Coauthor: Senator
Berryhill Coauthors: Senators
Berryhill, Dutton, and Harman )
FEBRUARY 18, 2011
An act to add and repeal Section 6377.1 of the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1057, as amended, Olsen. Sales and use taxes: exemption:
manufacturing.
The Sales and Use Tax Law imposes a tax on retailers measured by
the gross receipts from the sale of tangible personal property sold
at retail in this state, or on the storage, use, or other consumption
in this state of tangible personal property purchased from a
retailer for storage, use, or other consumption in this state. That
law provides various exemptions from those taxes.
The bill would exempt from those taxes, on and after January 1,
2014, and before January 1, 2020, the gross receipts from the sale
of, and the storage, use, or other consumption of, qualified tangible
personal property purchased by a qualified person for use primarily
in the manufacturing process, as specified, for use in research and
development, as specified, or for use in air pollution mitigation, as
provided. This bill would also exempt the gross receipts from the
sale of, and the storage, use, or other consumption of, qualified
tangible personal property purchased for use by a contractor for
specified purposes.
This bill would require the Legislative Analyst's Office to
complete and distribute a report to the Legislature on the effect of
this exemption by January 1, 2019.
The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes
counties and cities to impose local sales and use taxes in conformity
with the Sales and Use Tax Law, and existing law authorizes
districts, as specified, to impose transactions and use taxes in
accordance with the Transactions and Use Tax Law, which conforms to
the Sales and Use Tax Law. Exemptions from state sales and use taxes
are incorporated into these laws.
This bill would specify that this exemption does not apply to
local sales and use taxes, transactions and use taxes, and specified
state taxes from which revenues are deposited into the Local Public
Safety Fund, the Local Revenue Fund, or the Fiscal Recovery Fund.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares the following:
(a) California has the highest sales tax in the nation.
(b) California is one of only a few three
states that tax the manufacturing of equipment.
sale of equipment used in manufacturing.
(c) California has the fourth worst tax system for jobs in the
entire country.
(d) California has the third highest unemployment rate in the
country.
SEC. 2. Section 6377.1 is added to the Revenue and Taxation Code,
to read:
6377.1. (a) On and after January 1, 2014, there are exempted from
the taxes imposed by this part the gross receipts from the sale of,
and the storage, use, or other consumption in this state of, any of
the following:
(1) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in any stage of the
manufacturing, processing, refining, fabricating, or recycling of
property, beginning at the point any raw materials are received by
the qualified person and introduced into the process and ending at
the point at which the manufacturing, processing, refining,
fabricating, or recycling has altered property to its completed form,
including packaging, if required.
(2) Qualified tangible personal property purchased for use by a
contractor purchasing that property for use in the performance of a
construction contract for the qualified person who will use the
tangible personal property as an integral part of the manufacturing,
processing, refining, fabricating, or recycling process, or as a
storage facility for use in connection with the manufacturing
process.
(3) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
(4) Qualified tangible personal property purchased for use by a
qualified person for use primarily to mitigate air pollution, as
required by the Environmental Protection Agency and the State Air
Resources Board.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(3) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (a).
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified taxpayer's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified taxpayer's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(6) "Qualified person" means either of the following:
(A) A person who is engaged in those lines of business described
in Codes 3111 to 3399, inclusive, of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget (OMB), 2007 edition.
(B) An affiliate of a person qualified pursuant to subparagraph
(A) shall also be considered a qualified person as long as the
affiliate is included as a member of that person's unitary group for
which a combined report is required to be filed under Article 1
(commencing with Section 25101) of Chapter 17.
(7) (A) "Qualified tangible personal property" includes, but is
not limited to, all of the following:
(i) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(ii) All equipment or devices used or required to operate,
control, regulate, or maintain the machinery, including, without
limitation, computers, data-processing equipment, and computer
software, together with all repair and replacement parts with a
useful life of one or more years therefor, whether purchased
separately or in conjunction with a complete machine and regardless
of whether the machine or component parts are assembled by the
taxpayer or another party.
(iii) Property used in pollution control that meets standards
established by this state or any local or regional governmental
agency within this state.
(iv) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process. Buildings used solely for
warehousing purposes after completion of the manufacturing process
are not included.
(v) Fuels used or consumed in the manufacturing process.
(B) "Qualified tangible personal property" shall not include any
of the following:
(i) Consumables with a normal useful life of less than one year,
except as provided in clause (v) of subparagraph (A).
(ii) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(iii) Tangible personal property used primarily in administration,
general management, or marketing.
(8) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(9) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(c) An exemption shall not be allowed under this section unless
the purchaser furnishes the retailer with an exemption certificate,
completed in accordance with any instructions or regulations as the
board may prescribe, and the retailer subsequently furnishes the
board with a copy of the exemption certificate. The exemption
certificate shall contain the sales price of the qualified tangible
personal property that, the sale of, or the storage, use, or other
consumption of, is exempt pursuant to subdivision (a).
(d) (1) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section
7200)) or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)), the exemption established by this section shall not
apply with respect to any tax levied by a county, city, or district
pursuant to, or in accordance with, either of those laws.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Section 6051.2, 6051.5, 6201.2, or 6201.5, or pursuant to Section
35 of Article XIII of the California Constitution.
(e) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of property which,
within one year from the date of purchase, is removed from
California, converted from an exempt use under subdivision (a) to
some other use not qualifying for the exemption, or used in a manner
not qualifying for the exemption.
(f) If a purchaser certifies in writing to the seller that the
property purchased without payment of the tax will be used in a
manner entitling the seller to regard the gross receipts from the
sale as exempt from the sales tax, and within one year from the date
of purchase, the purchaser (1) removes that property outside
California, (2) converts that property for use in a manner not
qualifying for the exemption, or (3) uses that property in a manner
not qualifying for the exemption, the purchaser shall be liable for
payment of sales tax, with applicable interest, as if the purchaser
were a retailer making a retail sale of the property at the time the
property is so removed, converted, or used, and the sales price of
the property to the purchaser shall be deemed the gross receipts from
that retail sale.
(g) This section applies to leases of tangible personal property
classified as "continuing sales" and "continuing purchases" in
accordance with Sections 6006.1 and 6010.1. The exemption established
by this section shall apply to the rentals payable pursuant to such
a lease, provided the lessee is a qualified person and the property
is used in an activity described in subdivision (a). Rentals that
meet the foregoing requirements are eligible for the exemption for a
period of six years from the date of commencement of the lease. At
the close of the six-year period from the date of commencement of the
lease, lease receipts are subject to tax without exemption.
(h) The Legislative Analyst's Office shall complete and distribute
a report to the Legislature on the effect of this exemption by
January 1, 2019.
(i) This section shall cease to be operative on January 1, 2020,
and shall be repealed on December 1, 2020.
SEC. 3. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
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