SB 376, as introduced, Correa. Sales and use taxes: personal and corporate income tax: manufacturers’ credit and exemption.
(1) Existing laws impose state sales and use taxes 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, at the cumulative state rate of 6.5%, and provides various exemptions from those taxes.
This bill would exempt from those state taxes, on and after January 1, 2017, the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased for use by a qualified person for use primarily in any stage of manufacturing, processing, refining, fabricating, or recycling of property, as specified, or for use primarily in research and development, as specified, or to maintain, repair, measure, or test that property. The bill would also exempt from those taxes the gross receipts from the sale of, and the storage, use, or other consumption of, tangible personal property purchased for use by a contractor, as specified, for a qualified person. The bill would require the purchaser to furnish the retailer with an exemption certificate, 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 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 and transactions and use taxes.
(2) The Personal Income Tax Law and the Corporation Tax Law authorizes various credits against the taxes imposed by those laws.
This bill would allow a credit in amount equal to a specified portion of the amount of sales tax reimbursement paid to a retailer or use tax paid on a purchase of tangible personal property with respect to taxes paid on transactions occurring on and after January 1, 2014, and before January 1, 2017, that are imposed under sales and use tax laws for the sale of, or the storage, use, or other consumption in this state of, qualified tangible personal property purchased for use by a qualified person for use primarily in any stage of manufacturing, processing, refining, fabricating, or recycling of property, as specified, or for use primarily in research and development, as specified, or to maintain, repair, measure, or test that property. The credit would be applied in equal amounts over 3 successive taxable years beginning with the first taxable year beginning on or after January 1, 2017.
(3) 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 6377.4 is added to the Revenue and
2Taxation Code, to read:
(a) On and after January 1, 2017, there are exempted
4from the taxes imposed by this part the gross receipts from the sale
5of, and the storage, use, or other consumption in this state of, any
6of the following:
7(1) Qualified tangible personal property purchased for use by
8a qualified person to be used primarily in any stage of the
P3 1manufacturing, processing, refining, fabricating, or recycling of
2property, beginning at the point any raw materials are received by
3the qualified person and introduced into the process and ending at
4the point at which the manufacturing, processing, refining,
5fabricating, or recycling has altered property to its completed form,
6including packaging, if required.
7(2) Qualified tangible personal property purchased for use by
8a qualified person to be used primarily in research and
9development.
10(3) Qualified tangible personal property purchased for use by
11a qualified person to be used primarily to maintain, repair, measure,
12or test any qualified tangible personal property described in
13paragraph (1) or (2).
14(4) Qualified tangible personal property purchased for use by
15a contractor purchasing that property for use in the performance
16of a construction contract for the qualified person, who will use
17that property as an integral part of the manufacturing, processing,
18refining, fabricating, or recycling process, or as a research or
19storage facility for use in connection with those processes.
20(b) For purposes of this section:
21(1) “Fabricating” means to make, build, create, produce, or
22assemble components or property to work in a new or different
23manner.
24(2) “Manufacturing” means the activity of converting or
25conditioning tangible personal property by changing the form,
26composition, quality, or character of the property for ultimate sale
27at retail or use in the manufacturing of a product to be ultimately
28sold at retail. Manufacturing includes any improvements to tangible
29personal property that result in a greater service life or greater
30functionality than that of the original property.
31(3) “Primarily” means 50 percent or more of the time.
32(4) “Process” means the period beginning at the point at which
33any raw materials are received by the qualified person and
34introduced into the
manufacturing, processing, refining, fabricating,
35or recycling activity of the qualified person and ending at the point
36at which the manufacturing, processing, refining, fabricating, or
37recycling activity of the qualified person has altered tangible
38personal property to its completed form, including packaging, if
39required. Raw materials shall be considered to have been
40introduced into the process when the raw materials are stored on
P4 1the same premises where the qualified person’s manufacturing,
2processing, refining, fabricating, or recycling activity is conducted.
3Raw materials that are stored on premises other than where the
4qualified person’s manufacturing, processing, refining, fabricating,
5or recycling activity is conducted, shall not be considered to have
6been introduced into the manufacturing, processing, refining,
7fabricating, or recycling process.
8(5) “Processing” means the physical application of the materials
9and labor necessary to
modify or change the characteristics of
10tangible personal property.
11(6) “Qualified person” means either of the following:
12(A) A person who is engaged in those lines of business described
13in Codes 3111 to 3399, inclusive, or 5112 of the North American
14Industry Classification System (NAICS) published by the United
15States Office of Management and Budget (OMB), 2012 edition.
16(B) An affiliate of a person who is a qualified person pursuant
17to subparagraph (A) if the affiliate is included as a member of that
18person’s unitary group for which a combined report is required to
19be filed under Article 1 (commencing with Section 25101) of
20Chapter 17 of Part 11.
21(7) (A) “Qualified tangible personal property” includes, but is
22not limited to, all
of the following:
23(i) Machinery and equipment, including component parts and
24contrivances such as belts, shafts, moving parts, and operating
25structures.
26(ii) Equipment or devices used or required to operate, control,
27regulate, or maintain the machinery, including, but not limited to,
28computers, data-processing equipment, and computer software,
29together with all repair and replacement parts with a useful life of
30one or more years therefor, whether purchased separately or in
31conjunction with a complete machine and regardless of whether
32the machine or component parts are assembled by the qualified
33person or another party.
34(iii) Tangible personal property used in pollution control that
35meets standards established by this state or any local or regional
36governmental agency within this state.
37(iv) Special purpose buildings and foundations used as an
38integral part of the manufacturing, processing, refining, fabricating,
39or recycling process, or that constitute a research or storage facility
P5 1used during those processes. Buildings used solely for warehousing
2purposes after completion of those processes are not included.
3(v) Fuels used or consumed in the manufacturing, processing,
4refining, fabricating, or recycling process.
5(B) “Qualified tangible personal property” shall not include any
6of the following:
7(i) Consumables with a useful life of less than one year, except
8as provided in clause (v) of subparagraph (A).
9(ii) Furniture, inventory, and equipment used in the extraction
10
process, or equipment used to store finished products that have
11completed the manufacturing, processing, refining, fabricating, or
12recycling process.
13(iii) Tangible personal property used primarily in administration,
14general management, or marketing.
15(8) “Research and development” means those activities that are
16described in Section 174 of the Internal Revenue Code or in any
17regulations thereunder.
18(9) “Refining” means the process of converting a natural
19resource to an intermediate or finished product.
20(10) “Useful life” for tangible personal property that is treated
21as having a useful life of one or more years for state income or
22franchise tax purposes shall be deemed to have a useful life of one
23or more years for purposes
of this section. “Useful life” for tangible
24personal property that is treated as having a useful life of less than
25one year for state income or franchise tax purposes shall be deemed
26to have a useful life of less than one year for purposes of this
27section.
28(c) An exemption shall not be allowed under this section unless
29the purchaser furnishes the retailer with an exemption certificate,
30completed in accordance with any instructions or regulations as
31the board may prescribe, and the retailer retains the exemption
32certificate in its records and furnishes it to the board upon request.
33The exemption certificate shall contain the sales price of the
34qualified tangible personal property that the sale of, or the storage,
35use, or other consumption of, is exempt pursuant to subdivision
36(a).
37(d) Notwithstanding the Bradley-Burns Uniform Local Sales
38and Use Tax Law (Part 1.5 (commencing with
Section 7200)) and
39the Transactions and Use Tax Law (Part 1.6 (commencing with
40Section 7251)), the exemption established by this section shall not
P6 1apply with respect to any tax levied by a county, city, or district
2pursuant to, or in accordance with, either of those laws.
3(e) (1) Notwithstanding subdivision (a), the exemption provided
4by this section shall not apply to any sale or storage, use, or other
5consumption of property that, within one year from the date of
6purchase, is removed from California, converted from an exempt
7use under subdivision (a) to some other use not qualifying for
8exemption, or used in a manner not qualifying for exemption.
9(2) If a purchaser certifies in writing to the seller that the
10property purchased without payment of the tax will be used in a
11manner entitling the seller to regard the gross receipts from the
12sale as exempt from
the sales tax, and within one year from the
13date of purchase, the purchaser removes that property outside
14California, converts that property for use in a manner not qualifying
15for the exemption, or uses that property in a manner not qualifying
16for the exemption, the purchaser shall be liable for payment of
17sales tax, with applicable interest, as if the purchaser were a retailer
18making a retail sale of the property at the time the property is so
19removed, converted, or used, and the sales price of the property
20to the purchaser shall be deemed the gross receipts from that retail
21sale.
Section 17053.91 is added to the Revenue and Taxation
23Code, to read:
(a) There shall be allowed to a qualified person as
25a credit against the “net tax” as defined in Section 17039, an
26amount equal to that portion of sales tax reimbursement paid to a
27retailer or use tax paid on a purchase of tangible personal property
28that is placed in service in this state, equal to 6.5 percent of the
29gross receipts or sales price on transactions described in paragraphs
30(1) to (4), inclusive, occurring on and after January 1, 2014, and
31before January 1, 2017, that are subject to tax under Part 1
32(commencing with Section 6001) of Division 2.
33(1) Qualified tangible personal property purchased for use by
34a qualified person to be used primarily in any stage of the
35manufacturing, processing, refining, fabricating, or recycling of
36
property, beginning at the point any raw materials are received by
37the qualified person and introduced into the process and ending at
38the point at which the manufacturing, processing, refining,
39fabricating, or recycling has altered property to its completed form,
40including packaging, if required.
P7 1(2) Qualified tangible personal property purchased for use by
2a qualified person to be used primarily in research and
3development.
4(3) Qualified tangible personal property purchased for use by
5a qualified person to be used primarily to maintain, repair, measure,
6or test any qualified tangible personal property described in
7paragraph (1) or (2).
8(4) Qualified tangible personal property purchased for use by
9a contractor purchasing that property for use in the performance
10of a construction contract for the qualified person, who
will use
11that property as an integral part of the manufacturing, processing,
12refining, fabricating, or recycling process, or as a research or
13storage facility for use in connection with those processes.
14(b) The amount of any credit allowed under subdivision (a) shall
15be applied in equal amounts over three successive taxable years
16beginning with the first taxable year beginning on or after January
171, 2017.
18(c) For purposes of this section:
19(1) “Fabricating” means to make, build, create, produce, or
20assemble components or property to work in a new or different
21manner.
22(2) “Manufacturing” means the activity of converting or
23conditioning tangible personal property by changing the form,
24composition, quality, or character of the
property for ultimate sale
25at retail or use in the manufacturing of a product to be ultimately
26sold at retail. Manufacturing includes any improvements to tangible
27personal property that result in a greater service life or greater
28functionality than that of the original property.
29(3) “Primarily” means 50 percent or more of the time.
30(4) “Process” means the period beginning at the point at which
31any raw materials are received by the qualified person and
32introduced into the manufacturing, processing, refining, fabricating,
33or recycling activity of the qualified person and ending at the point
34at which the manufacturing, processing, refining, fabricating, or
35recycling activity of the qualified person has altered tangible
36personal property to its completed form, including packaging, if
37required. Raw materials shall be considered to have
been
38introduced into the process when the raw materials are stored on
39the same premises where the qualified person’s manufacturing,
40processing, refining, fabricating, or recycling activity is conducted.
P8 1Raw materials that are stored on premises other than where the
2qualified person’s manufacturing, processing, refining, fabricating,
3or recycling activity is conducted, shall not be considered to have
4been introduced into the manufacturing, processing, refining,
5fabricating, or recycling process.
6(5) “Processing” means the physical application of the materials
7and labor necessary to modify or change the characteristics of
8tangible personal property.
9(6) “Qualified person” means either of the following:
10(A) A person who is engaged in those lines of
business described
11in Codes 3111 to 3399, inclusive, or 5112 of the North American
12Industry Classification System (NAICS) published by the United
13States Office of Management and Budget (OMB), 2012 edition.
14(B) An affiliate of a person who is a qualified person pursuant
15to subparagraph (A) if the affiliate is included as a member of that
16person’s unitary group for which a combined report is required to
17be filed under Article 1 (commencing with Section 25101) of
18Chapter 17 of Part 11.
19(7) (A) “Qualified tangible personal property” includes, but is
20not limited to, all of the following:
21(i) Machinery and equipment, including component parts and
22contrivances such as belts, shafts, moving parts, and operating
23structures.
24(ii) Equipment or devices used or required to operate, control,
25regulate, or maintain the machinery, including, but not limited to,
26computers, data-processing equipment, and computer software,
27together with all repair and replacement parts with a useful life of
28one or more years therefor, whether purchased separately or in
29conjunction with a complete machine and regardless of whether
30the machine or component parts are assembled by the qualified
31person or another party.
32(iii) Tangible personal property used in pollution control that
33meets standards established by this state or any local or regional
34governmental agency within this state.
35(iv) Special purpose buildings and foundations used as an
36integral part of the manufacturing, processing, refining, fabricating,
37or
recycling process, or that constitute a research or storage facility
38used during those processes. Buildings used solely for warehousing
39purposes after completion of those processes are not included.
P9 1(v) Fuels used or consumed in the manufacturing, processing,
2refining, fabricating, or recycling process.
3(B) “Qualified tangible personal property” shall not include any
4of the following:
5(i) Consumables with a useful life of less than one year, except
6as provided in clause (v) of subparagraph (A).
7(ii) Furniture, inventory, and equipment used in the extraction
8process, or equipment used to store finished products that have
9completed the manufacturing,
processing, refining, fabricating, or
10recycling process.
11(iii) Tangible personal property used primarily in administration,
12general management, or marketing.
13(iv) Tangible personal property that, within one year from the
14date of purchase, is either removed from California, converted
15from a use described in subdivision (a) to some other use not
16described in subdivision (a), or used in a manner not described in
17subdivision (a).
18(8) “Research and development” means those activities that are
19described in Section 174 of the Internal Revenue Code or in any
20regulations thereunder.
21(9) “Refining” means the process of converting a natural
22resource to an intermediate or finished product.
23(10) “Useful life” for tangible personal property that is treated
24as having a useful life of one or more years for state income or
25franchise tax purposes shall be deemed to have a useful life of one
26or more years for purposes of this section. “Useful life” for tangible
27personal property that is treated as having a useful life of less than
28one year for state income or franchise tax purposes shall be deemed
29to have a useful life of less than one year for purposes of this
30section.
31(d) In the case where the credit otherwise allowed under this
32section exceeds the “net tax” for the taxable year, that portion of
33the credit that exceeds the “net tax” may be carried over to reduce
34the net tax in the following taxable year, and the succeeding four
35taxable years if necessary, until the credit is exhausted.
36(e) This section shall remain in effect only until December 1,
372020, and as of that date is repealed.
Section 23649.1 is added to the Revenue and Taxation
39Code, to read:
(a) There shall be allowed to a qualified person as a
2credit against the “tax” as defined in Section 23036, an amount
3equal to that portion of sales tax reimbursement paid to a retailer
4or use tax paid on a purchase of tangible personal property that is
5placed in service in this state, equal to 6.5 percent of the gross
6receipts or sales price on transactions described in paragraphs (1)
7to (4), inclusive, occurring on and after January 1, 2014, and before
8January 1, 2017, that are subject to tax under Part 1 (commencing
9with Section 6001) of Division 2.
10(1) Qualified tangible personal property purchased for use by
11a qualified person to be used primarily in any stage of the
12manufacturing, processing, refining, fabricating, or recycling of
13
property, beginning at the point any raw materials are received by
14the qualified person and introduced into the process and ending at
15the point at which the manufacturing, processing, refining,
16fabricating, or recycling has altered property to its completed form,
17including packaging, if required.
18(2) Qualified tangible personal property purchased for use by
19a qualified person to be used primarily in research and
20development.
21(3) Qualified tangible personal property purchased for use by
22a qualified person to be used primarily to maintain, repair, measure,
23or test any qualified tangible personal property described in
24paragraph (1) or (2).
25(4) Qualified tangible personal property purchased for use by
26a contractor purchasing that property for use in the performance
27of a construction contract for the qualified person, who
will use
28that property as an integral part of the manufacturing, processing,
29refining, fabricating, or recycling process, or as a research or
30storage facility for use in connection with those processes.
31(b) The amount of any credit allowed under subdivision (a) shall
32be applied in equal amounts over three successive taxable years
33beginning with the first taxable year beginning on or after January
341, 2017.
35(c) For purposes of this section:
36(1) “Fabricating” means to make, build, create, produce, or
37assemble components or property to work in a new or different
38manner.
39(2) “Manufacturing” means the activity of converting or
40conditioning tangible personal property by changing the form,
P11 1composition, quality, or character of the
property for ultimate sale
2at retail or use in the manufacturing of a product to be ultimately
3sold at retail. Manufacturing includes any improvements to tangible
4personal property that result in a greater service life or greater
5functionality than that of the original property.
6(3) “Primarily” means 50 percent or more of the time.
7(4) “Process” means the period beginning at the point at which
8any raw materials are received by the qualified person and
9introduced into the manufacturing, processing, refining, fabricating,
10or recycling activity of the qualified person and ending at the point
11at which the manufacturing, processing, refining, fabricating, or
12recycling activity of the qualified person has altered tangible
13personal property to its completed form, including packaging, if
14required. Raw materials shall be considered to have
been
15introduced into the process when the raw materials are stored on
16the same premises where the qualified person’s manufacturing,
17processing, refining, fabricating, or recycling activity is conducted.
18Raw materials that are stored on premises other than where the
19qualified person’s manufacturing, processing, refining, fabricating,
20or recycling activity is conducted, shall not be considered to have
21been introduced into the manufacturing, processing, refining,
22fabricating, or recycling process.
23(5) “Processing” means the physical application of the materials
24and labor necessary to modify or change the characteristics of
25tangible personal property.
26(6) “Qualified person” means either of the following:
27(A) A person who is engaged in those lines of
business described
28in Codes 3111 to 3399, inclusive, or 5112 of the North American
29Industry Classification System (NAICS) published by the United
30States Office of Management and Budget (OMB), 2012 edition.
31(B) An affiliate of a person who is a qualified person pursuant
32to subparagraph (A) if the affiliate is included as a member of that
33person’s unitary group for which a combined report is required to
34be filed under Article 1 (commencing with Section 25101) of
35Chapter 17 of Part 11.
36(7) (A) “Qualified tangible personal property” includes, but is
37not limited to, all of the following:
38(i) Machinery and equipment, including component parts and
39contrivances such as belts, shafts, moving parts, and operating
40structures.
P12 1(ii) Equipment or devices used or required to operate, control,
2regulate, or maintain the machinery, including, but not limited to,
3computers, data-processing equipment, and computer software,
4together with all repair and replacement parts with a useful life of
5one or more years therefor, whether purchased separately or in
6conjunction with a complete machine and regardless of whether
7the machine or component parts are assembled by the qualified
8person or another party.
9(iii) Tangible personal property used in pollution control that
10meets standards established by this state or any local or regional
11governmental agency within this state.
12(iv) Special purpose buildings and foundations used as an
13integral part of the manufacturing, processing, refining, fabricating,
14or
recycling process, or that constitute a research or storage facility
15used during those processes. Buildings used solely for warehousing
16purposes after completion of those processes are not included.
17(v) Fuels used or consumed in the manufacturing, processing,
18refining, fabricating, or recycling process.
19(B) “Qualified tangible personal property” shall not include any
20of the following:
21(i) Consumables with a useful life of less than one year, except
22as provided in clause (v) of subparagraph (A).
23(ii) Furniture, inventory, and equipment used in the extraction
24process, or equipment used to store finished products that have
25completed the manufacturing,
processing, refining, fabricating, or
26recycling process.
27(iii) Tangible personal property used primarily in administration,
28general management, or marketing.
29(iv) Tangible personal property that, within one year from the
30date of purchase, is either removed from California, converted
31from a use described in subdivision (a) to some other use not
32described in subdivision (a), or used in a manner not described in
33subdivision (a).
34(8) “Research and development” means those activities that are
35described in Section 174 of the Internal Revenue Code or in any
36regulations thereunder.
37(9) “Refining” means the process of converting a natural
38resource to an intermediate or finished product.
39(10) “Useful life” for tangible personal property that is treated
40as having a useful life of one or more years for state income or
P13 1franchise tax purposes shall be deemed to have a useful life of one
2or more years for purposes of this section. “Useful life” for tangible
3personal property that is treated as having a useful life of less than
4one year for state income or franchise tax purposes shall be deemed
5to have a useful life of less than one year for purposes of this
6section.
7(d) In the case where the credit otherwise allowed under this
8section exceeds the “net tax” for the taxable year, that portion of
9the credit that exceeds the “net tax” may be carried over to reduce
10the net tax in the following taxable year, and the succeeding four
11taxable years if necessary, until the credit is exhausted.
12(e) This section shall remain in effect only until December 1,
132020, and as of that date is repealed.
This act provides for a tax levy within the meaning
15of Article IV of the Constitution and shall go into immediate effect.
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