BILL NUMBER: SB 686 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 17, 2011
INTRODUCED BY Senator Padilla
( Principal coauthor: Senator
Strickland )
( Coauthor: Senator La Malfa
)
( Coauthor: Assembly Member
Fletcher )
FEBRUARY 18, 2011
An act to add and repeal Section 6377.1 to
of the Revenue and Taxation Code, relating to
taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 686, as amended, Padilla. Sales and use taxes: exemption:
biotechnology 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, and
provides various exemptions from the taxes imposed by that law
This bill would exempt from those taxes, on and after January 1,
2012, and before January 1, 2020, the gross receipts from
the sale of, and the storage, use, or other consumption of, tangible
personal property purchased by a qualified person for use primarily
in the biotechnology manufacturing process. The bill
additionally would require the Legislative Analyst's
Office to report to the Joint Legislative Budget Committee on the
effectiveness of this tax exemption.
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.
Section 2230 of the Revenue and Taxation Code provides that the
state will reimburse counties and cities for revenue losses caused by
the enactment of sales and use tax exemptions.
This bill would provide that, notwithstanding Section 2230 of the
Revenue and Taxation Code, no appropriation is made and the state
shall not reimburse local agencies for sales and use tax revenues
lost by them pursuant to this bill.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6377.1 is added to the Revenue and Taxation
Code, to read:
6377.1. (a) On and after January 1, 2012, 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
tangible personal property purchased for use in biotechnology
manufacturing by a qualified person to be used primarily in any stage
of manufacturing 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, has
altered property to its completed form, including packaging, if
required.
(b) For purposes of this section:
(1) "Biotechnology manufacturing" means manufacturing in the lines
of business described in Codes 325411, 325412, 325413, 325414,
334510, 33911, and 541711 , 541720, and 541910
of the North American Industry Classification System
(NAICS) published by the United States Office of Management and
Budget (OMB), 2007 edition, including medicinal and botanical
manufacturing, pharmaceutical preparation manufacturing, in-vitro
diagnostic substance manufacturing, biological product manufacturing,
research and development in biotechnology, research and
development in the social sciences and humanities, and marketing
research and public opinion polling. and marketing
research.
(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 activity of the qualified person and ending at
the point at which the manufacturing 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 activity is conducted. Raw materials that are stored on
premises other than where the qualified person's manufacturing
activity is conducted, shall not be considered to have been
introduced into the manufacturing process.
(5) "Qualified person" means a person who is engaged in
biotechnology manufacturing.
(6) (A) "Tangible personal property," as used in this section,
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, 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) Fuels used or consumed in the manufacturing process.
(B) "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 (iv) 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.
(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 machinery or
equipment, the sale of, or the storage, use, or other consumption of
which is exempt pursuant to subdivision (a).
(d) 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.
(e) 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 removes that property outside California,
converts that property for use in a manner not qualifying for the
exemption, or 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.
(f) This section shall remain in effect only through and including
December 31, 2019, and is repealed on January 1, 2020.
SEC. 2. (a) On or before January 1, 2020, the
Legislative Analyst's Office shall report to the Joint Legislative
Budget Committee on the effectiveness of the tax exemption
established in Section 6377.1 of the Revenue and Taxation Code by
evaluating various factors, including, but not limited to, all of the
following:
(1) The amount of tax revenue lost to the state as a result of the
tax exemption.
(2) The number of employers claiming the tax exemption and the
nature of the claims, such as the size of the employer, the location
of the employer, and the primary biotechnology emphasis of the
employer.
(3) The activities and products for which the tax exemption was
claimed.
(4) The number of jobs created in California as a result of the
tax exemption.
(5) The number of businesses that have remained in California or
relocated to California as a result of the tax exemption.
(6) The amount of state and local revenue and economic activity
generated by the tax exemption.
(b) The Legislative Analyst's Office shall evaluate the tax
exemption, as described in subdivision (a), with a focus on outcomes
and the fiscal and employment impacts of this exemption for the State
of California.
SEC. 2. SEC. 3. Notwithstanding
Section 2230 of the Revenue and Taxation Code, no appropriation is
made by this act and the state shall not reimburse any county or city
for any sales and use tax revenues lost by it under this act.
SEC. 3. SEC. 4. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.