BILL NUMBER: AB 1422	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JUNE 1, 2011

INTRODUCED BY    Committee on Revenue and Taxation 
 (   Assembly Members Perea (Chair), Beall,
Charles Calderon, Cedillo, Fuentes, and Gordon   )
  Assembly Member   Perea 

                        MARCH 22, 2011

   An act to  amend Sections 69.5, 1150, 1154, 2821, and 5303
of   add and repeal Section 6377 of  the Revenue
and Taxation Code, relating to taxation  , to take effect
immediately, tax levy  .



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1422, as amended,  Committee on Revenue and Taxation
  Perea  .  Property taxation. 
 Sales and use taxes: exemption: manufacturing and research and
development.  
   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.  
   This bill would exempt from those taxes the sale of, and the
storage, use, or other consumption in this state, of tangible
personal property, as defined, purchased for use by a qualified
person, as defined, primarily in any stage of manufacturing,
processing, refining, fabricating, or recycling of property; in
research and development; to maintain, repair, measure, or test
specified property; and by a contractor for use in a construction
contract with a qualified person, as specified.  
   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 the Transactions and Use Tax Law
authorizes districts, as specified, to impose transactions and use
taxes in conformity with the Sales and Use Tax Law. Exemptions from
state sales and use taxes are incorporated in these laws.  
   This bill would specify that this exemption does not apply to
local sales and use taxes, transactions and use taxes, specified
state sales and use taxes. This bill would further specify, for a
qualified person that is not a new trade or business, that this
exemption only applies to 20% of other specified state sales and use
taxes.  
   This bill would take effect immediately as a tax levy, but would
be operative only so long as state sales and use taxes at the rate of
1% that are enacted during the 2011-12 Legislative Sessions are
operative.  
   Existing property tax law allows a person over the age of 55 years
or a severely and permanently disabled person to transfer the base
year value of his or her property, if that property is eligible for
the homeowners' exemption, to any replacement dwelling of equal or
lesser value, as specified. This law requires an owner to notify the
assessor in writing of the completion of new construction to a
replacement dwelling within 30 days of completion.  

   This bill would extend the amount of time that an owner has to
notify the assessor of the completion of new construction to within 6
months of completion.  
   Existing property tax law requires the personal property of an
aircraft be taxed at its fair market value, and the California
Constitution requires property subject to ad valorem property
taxation to be assessed in the county in which it is situated. This
law defines "certificated aircraft," "air taxi," and "aircraft."
 
   This bill would replace obsolete statutory references to the
"Civil Aeronautics Board of the United States" with the "Federal
Aviation Administration," would delete other obsolete statutory
references to the "California Public Utilities Commission" in these
definitions, and would make other technical, nonsubstantive changes.
 
   Existing property tax law authorizes any person filing an
affidavit of interest to apply to the tax collector to have any
parcel separately valued on the current roll for the purpose of
paying taxes, and requires the application to be made during the
current fiscal year and to set forth specific information describing
the parcel sought to be separately valued. Existing law authorizes a
county, upon approval of the board of supervisors, to prohibit these
applications during the 10 working days preceding each tax
installment delinquency date and during the 10 working days preceding
June 30 of each year.  
   This bill would instead authorize the county to allow these
applications between July 1 and March 31. 
   Vote: majority. Appropriation: no. Fiscal committee:  no
  yes  . State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 6377 is added to the  
Revenue and Taxation Code   , to read:  
   6377.  (a) (1) 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:
   (A) 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 tangible personal
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 the property to its completed
form, including packaging, if required.
   (B) Tangible personal property purchased for use by a qualified
person to be used primarily in research and development.
   (C) Tangible personal property purchased for use by a qualified
person to be used primarily to maintain, repair, measure, or test any
property described in subparagraph (A) or (B).
   (D) Tangible personal property purchased by a contractor for use
in the performance of a construction contract for a 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 research or storage facility for use in connection
with the manufacturing process.
   (2) The exemption described in paragraph (1) shall not apply to
the gross receipts from the sale of, or the storage, use, or other
consumption of tangible personal property that is used primarily in
administration, general management, or marketing.
   (b) For purposes of this section:
   (1) "Acquire" includes any gift, inheritance, transfer incident to
divorce, or any other transfer, whether or not for consideration.
   (2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.

   (3) "Manufacturing" means the activity of converting or
conditioning tangible personal 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.
   (4) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in paragraph (1) of
subdivision (a).
   (5) "Process" means the period beginning at the point at which any
raw materials are received by the qualified person and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person 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 person's manufacturing, processing,
refining, fabricating, or recycling activity is conducted. Raw
materials that are stored on premises other than where the qualified
person'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.
   (6) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
   (7) "Qualified person" means a person that is either of the
following:
   (A) A new trade or business that is primarily engaged in those
lines of business classified 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. In determining whether a trade or business activity
qualifies as a new trade or business, the following rules shall
apply:
   (i) In any case where a person purchases or otherwise acquires all
or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by that person (or any related person) shall not
be treated as a new business if the aggregate fair market value of
the acquired assets (including, real, personal, tangible, and
intangible property) used by that person (or any related person) in
the conduct of his or her trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the person (or any related person). For
purposes of this subparagraph only, the following rules shall apply:
   (I) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the month following the quarterly period in which the person (or
any related person) first uses any of the acquired trade or business
assets in his or her business activity.
   (II) Any acquired assets that constituted property described in
Section 1221(a) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(a) of the Internal Revenue Code in the
hands of the acquiring person (or related person).
   (ii) In any case where a person (or any related person) is engaged
in one or more trade or business activities in this state, or has
been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
NAICS published by the United States OMB, 2007 edition, than are any
of the person's (or any related person's) current or prior trade or
business activities in this state.
   (iii) In any case where a person, including all related persons,
is engaged in trade or business activities wholly outside of this
state and that person first commences doing business in this state
(within the meaning of Section 23101) on or after the effective date
of the act adding this section (other than by purchase or other
acquisition described in clause (i)), the trade or business activity
shall be treated as a new business.
   (iv) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
person as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
clause (i).
   (B) A trade or business, other than a new trade or business
described in subparagraph (A), that is primarily engaged in those
lines of business classified in Codes 3111 to 3399, inclusive, of the
NAICS published by the United States OMB, 2007 edition.
   (8) "Qualified person" shall not include a person that is either
of the following:
   (i) A new trade or business when the person has conducted business
activities in a new trade or business for three or more years.
   (ii) An apportioning trade or business described in subdivision
(b) of Section 25128.
   (9) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (10) "Related person" means any person that is related to that
person under either Section 267 or 318 of the Internal Revenue Code.
   (11) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (12) "Tangible personal property" includes, but is not limited to,
all of the following:
   (A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
   (B) 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.
   (C) Property used in pollution control that meets or exceeds
standards established by this state or any local or regional
governmental agency within this state.
   (D) 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.
   (E) Property used in recycling.
   (13) "Tangible personal property" does not include any of the
following:
   (A) Consumables with a useful life of less than one year.
   (B) Furniture, inventory, equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
   (14) "Useful life" for tangible personal property that a qualified
person treats as having a useful life of one or more years for state
income or franchise tax purposes shall be deemed to have a useful
life of one or more years for purposes of this section. Useful life
for tangible personal property that a qualified person treats as
having a useful life of less than one year for state income or
franchise tax purposes shall be deemed to have a useful life of less
than one year for purposes of this section.
   (c) No exemption shall 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 tangible personal
property that the sale of, or the storage, use or other consumption
of, is exempt pursuant to subdivision (a).
   (d) (1) For a qualified person described in subparagraph (B) of
paragraph (7) of subdivision (b), the exemption established by this
section shall apply only with respect to 20 percent of any tax levied
pursuant to Sections 6051, 6051.3, 6201, and 6201.3.
   (2) 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, any tax
levied pursuant to Sections 6051.2, 6051.5, 6201.2, and 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 either removed from
California or converted from an exempt use under subdivision (a) to
some other use 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 pursuant to this section, 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) At the time necessary information technologies and electronic
data warehousing capabilities of the board are sufficiently
established, the board shall determine an efficient means by which
qualified persons may electronically apply for, and receive, an
exemption certificate that contains information that would assist
retailers in complying with this part with respect to the exemption
described by this section.
   (h) This section shall be operative only so long as either an
extension of the sales and use taxes described in subdivision (a) of
Sections 6051.7 and 6201.7, as those sections read on January 1,
2011, or other state sales and use taxes at a rate of 1 percent, that
are enacted during the 2011-12 Legislative Session, whether during
the regular session or during an extraordinary session, are
operative. This section is repealed as of the date that those
extensions or other state sales and use taxes at the rate of 1
percent, are inoperative. 
   SEC. 2.    This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.  All matter omitted in this version of the
bill appears in the bill as introduced in the Assembly, March 22,
2011. (JR11)