BILL NUMBER: SB 235	INTRODUCED
	BILL TEXT


INTRODUCED BY   Senator Wyland

                        FEBRUARY 12, 2013

   An act to add Section 6377.1 to the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 235, as introduced, Wyland. Sales and use taxes: exemption:
manufacturing: research.
   Existing sales and use tax laws impose 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 law provides various exemptions from those taxes.
   The bill would exempt from those taxes, on and after January 1,
2014, 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 manufacturing, processing,
refining, fabricating, or recycling of property, as specified,
qualified tangible personal property purchased for use by a
contractor for specified purposes, as provided, and qualified
tangible personal property purchased for use by a qualified person to
be used primarily in research and development, as provided. The bill
would require the purchaser to furnish the retailer with an
exemption certificate, as specified. The bill would further limit the
exemption for leases that are continuing sales or purchases to a
six-year period.
   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
conformity 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 Education Protection Account, the Local Revenue
Fund, the Fiscal Recovery Fund, or the Local Revenue Fund 2011.
    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.  (a) It is the intent of the Legislature to enact a
competitive tax policy for manufacturers by providing for an
exemption from state sales and use taxes for the sale of, or the
storage, use, or other consumption of, manufacturing equipment used
in the manufacturing process and property purchased for research.
   (b) California businesses are at competitive disadvantages, as
California is only one of three states in the United States that
currently impose a sales tax on manufacturing equipment.
  SEC. 2.  Section 6377.1 is added to the Revenue and Taxation Code,
to read:
   6377.1.  (a) On or 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 that
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a storage facility
for use in connection with those processes.
   (3) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
   (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 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 improvements to tangible
personal property that result in a greater service life or greater
functionality than that of the original property.
   (3) "Primarily" means 50 percent or more of the time.
   (4) "Process" means the period beginning at the point at which 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.
   (5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
tangible personal property.
   (6) "Qualified person" means any 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 who is a qualified person pursuant to
subparagraph (A) if 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
of Part 11.
   (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) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, including, but not
limited to, 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
qualified person or another party.
   (iii) Tangible personal 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, fabricating, or
recycling process, or that constitute a research or storage facility
used during those processes. Buildings used solely for warehousing
purposes after completion of those processes are not included.
   (v) Fuels used or consumed in the manufacturing, processing,
refining, fabricating, or recycling process.
   (B) "Qualified tangible personal property" shall not include any
of the following:
   (i) Consumables with a 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, processing, refining, fabricating, or
recycling process.
   (iii) Tangible personal property used primarily in administration,
general management, or marketing.
   (8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (9) "Research and development" means those activities defined in
Section 174 of the Internal Revenue Code or in any regulations
thereunder.
   (10) "Useful life" for tangible personal property that is treated
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 is treated 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) 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 retains the exemption
certificate in its records and furnishes it to the board upon
request. 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) Notwithstanding the Bradley-Burns Uniform Local Sales and
Use Tax Law (Part 1.5 (commencing with Section 7200)) and 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, pursuant to Sections 35
and 36 of Article XIII of the California Constitution, or any tax
levied pursuant to Sections 6051 or 6201 that is deposited in the
State Treasury to the credit of the Local Revenue Fund 2011 pursuant
to Sections 6051.15 or 6201.15.
   (e) (1) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or storage, use, or other
consumption of property that, 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 exemption,
or used in a manner not qualifying for exemption.
   (2) 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 from 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 applies to leases of qualified 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.
  SEC. 3.   This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.