Amended in Senate April 30, 2013

Amended in Senate April 16, 2013

Senate BillNo. 376

Introduced by Senator Correa

(Principal coauthors: Assembly Members Alejo, Mullin, and V. Manuel Pérez)

(Coauthors: Senators Hill and Wyland)

February 20, 2013

An act to add Section 6377.4 tobegin delete, and to add and repeal Sections 17053.91 and 23649.1 of,end delete the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 376, as amended, Correa. Sales and use taxes:begin delete personal and corporate income tax: manufacturers’ credit and exemption.end deletebegin insert exemption: manufacturing: research and development.end insert

(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,begin insert and before January 1, 2022,end insert 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 ofbegin insert tangible personalend insert property, as specified, or for use primarily in research and development, as specified, or to maintain, repair, measure, or test thatbegin insert tangible personalend insert 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.begin insert This bill would also require the Legislative Analyst’s Office to conduct a study, by January 1, 2019, using information provided by the State Board of Equalization, to measure the effects of the exemption, as specified.end insert

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.

begin delete

(2) The Personal Income Tax Law and the Corporation Tax Law authorizes various credits against the taxes imposed by those laws.

end deletebegin delete

This bill would allow a credit in an 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.

end deletebegin delete

(3)

end delete

begin insert(2)end insert  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:

P3    1

SECTION 1.  

Section 6377.4 is added to the Revenue and
2Taxation Code, to read:

3

6377.4.  

(a) On and after January 1, 2017,begin insert and before January
41, 2022,end insert there are exempted from the taxes imposed by this part
5the gross receipts from the sale of, and the storage, use, or other
6consumption in this state of, any of the following:

7(1) Qualified tangible personal property purchased for use by
8a qualified person to be used primarily in any stage of the
9manufacturing, processing, refining, fabricating, or recycling of
10begin insert tangible personalend insert property, beginning at the point any raw materials
11are received by the qualified person and introduced into the process
12and ending at the point at which the manufacturing, processing,
13refining, fabricating, or recycling has alteredbegin insert tangible personalend insert
14 property to its completed form, including packaging, if required.

15(2) Qualified tangible personal property purchased for use by
16a qualified person to be used primarily in research and
17development.

18(3) Qualified tangible personal property purchased for use by
19a qualified person to be used primarily to maintain, repair, measure,
20or test any qualified tangible personal property described in
21paragraph (1) or (2).

22(4) Qualified tangible personal property purchased for use by
23a contractor purchasing thatbegin insert tangible personalend insert property for use in
24the performance of a construction contract for the qualified person,
25who will use thatbegin insert tangible personalend insert property as an integral part of
26the manufacturing, processing, refining, fabricating, or recycling
27process, or as a research or storage facility for use in connection
28with those processes.

29(b) For purposes of this section:

30(1) “Fabricating” means to make, build, create, produce, or
31assemble components orbegin insert tangible personalend insert property to work in a
32new or different manner.

33(2) “Manufacturing” means the activity of converting or
34conditioning tangible personal property by changing the form,
35composition, quality, or character of thebegin insert tangible personalend insert property
36for ultimate sale at retail or use in the manufacturing of a product
37to be ultimately sold at retail. Manufacturing includes any
38improvements to tangible personal property that result in a greater
P4    1service life or greater functionality than that of the originalbegin insert tangible
2personalend insert property.

3(3) “Primarily” means 50 percent or more of the time.

4(4) “Process” means the period beginning at the point at which
5any raw materials are received by the qualified person and
6introduced into the manufacturing, processing, refining, fabricating,
7or recycling activity of the qualified person and ending at the point
8at which the manufacturing, processing, refining, fabricating, or
9recycling activity of the qualified person has altered tangible
10personal property to its completed form, including packaging, if
11required. Raw materials shall be considered to have been
12introduced into the process when the raw materials are stored on
13the same premises where the qualified person’s manufacturing,
14processing, refining, fabricating, or recycling activity is conducted.
15Raw materials that are stored on premises other than where the
16qualified person’s manufacturing, processing, refining, fabricating,
17or recycling activity is conducted, shall not be considered to have
18been introduced into the manufacturing, processing, refining,
19fabricating, or recycling process.

20(5) “Processing” means the physical application of the materials
21and labor necessary to modify or change the characteristics of
22tangible personal property.

23(6) “Qualified person” meansbegin delete either of the following:end deletebegin insert a person
24that is primarily engaged in those lines of business described in
25Codes 3111 to 3399, inclusive, or 5112 of the North American
26Industry Classification System (NAICS) published by the United
27States Office of Management and Budget (OMB), 2012 edition.end insert

begin delete

28(A) A person who is engaged in those lines of business described
29in Codes 3111 to 3399, inclusive, or 5112 of the North American
30Industry Classification System (NAICS) published by the United
31States Office of Management and Budget (OMB), 2012 edition.

32(B) An affiliate of a person who is a qualified person pursuant
33to subparagraph (A) if the affiliate is included as a member of that
34person’s unitary group for which a combined report is required to
35be filed under Article 1 (commencing with Section 25101) of
36Chapter 17 of Part 11.

end delete

37(7) (A) “Qualified tangible personal property” includes, but is
38not limited to, all of the following:

P5    1(i) Machinery and equipment, including component parts and
2contrivances such as belts, shafts, moving parts, and operating
3structures.

4(ii) Equipment or devices used or required to operate, control,
5regulate, or maintain the machinery, including, but not limited to,
6computers,begin delete data-processingend deletebegin insert data processingend insert equipment, and
7computer software, together with all repair and replacement parts
8with a useful life of one or more years therefor, whether purchased
9separately or in conjunction with a complete machine and
10regardless of whether the machine or component parts are
11assembled by the qualified person or another party.

12(iii) Tangible personal property used in pollution control that
13meets standards established by this state or any local or regional
14governmental agency within this state.

15(iv) Special purpose buildings and foundations used as an
16integral part of the manufacturing, processing, refining, fabricating,
17or recycling process, or that constitute a research or storage facility
18used during those processes. Buildings used solely for warehousing
19purposes after completion of those processes are not included.

20(B) “Qualified tangible personal property” shall not include any
21of the following:

22(i) Consumables with a useful life of less than one year.

23(ii) Furniture, inventory, and equipment used in the extraction
24 process, 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(8) “Research and development” means those activities that are
30described in Section 174 of the Internal Revenue Code or in any
31regulations thereunder.

32(9) “Refining” means the process of converting a natural
33resource to an intermediate or finished product.

34(10) “Useful life” has the same meaning as provided for in Part
3510 (commencing with Section 17001), or Part 11 (commencing
36with Section 23001), as applicable.

37(c) An exemption shall not be allowed under this section unless
38the purchaser furnishes the retailer with an exemption certificate,
39completed in accordance with any instructions or regulations as
40the board may prescribe, and the retailer retains the exemption
P6    1certificate in its records and furnishes it to the board upon request.
2The exemption certificate shall contain thebegin delete sales priceend deletebegin insert costend insert of the
3qualified tangible personal property that the sale of, or the storage,
4use, or other consumption of, is exempt pursuant to subdivision
5(a).

6(d) Notwithstanding the Bradley-Burns Uniform Local Sales
7and Use Tax Law (Part 1.5 (commencing with Section 7200)) and
8the Transactions and Use Tax Law (Part 1.6 (commencing with
9Section 7251)), the exemption established by this section shall not
10apply with respect to any tax levied by a county, city, or district
11pursuant to, or in accordance with, either of those laws.

12(e) (1) Notwithstanding subdivision (a), the exemption provided
13by this section shall not apply to any sale or storage, use, or other
14consumption ofbegin insert tangible personalend insert property that, within one year
15from the date of purchase, is removed from California, converted
16from an exempt use under subdivision (a) to some other use not
17qualifying for exemption, or used in a manner not qualifying for
18 exemption.

19(2) If a purchaser certifies in writing to the seller that the
20begin insert tangible personalend insert property purchased without payment of the tax
21will be used in a manner entitling the seller to regard the gross
22receipts from the sale as exempt from the sales tax, and within one
23year from the date of purchase, the purchaser removes thatbegin insert tangible
24personalend insert property outside California, converts thatbegin insert tangible
25personalend insert property for use in a manner not qualifying for the
26exemption, or uses thatbegin insert tangible personalend insert property in a manner
27not qualifying for the exemption, the purchaser shall be liable for
28payment of sales tax, with applicable interest, as if the purchaser
29were a retailer making a retail sale of thebegin insert tangible personalend insert property
30at the time thebegin insert tangible personalend insert property is so removed, converted,
31or used, and thebegin delete sales priceend deletebegin insert costend insert of thebegin insert tangible personalend insert property
32to the purchaser shall be deemed the gross receipts from that retail
33sale.

begin insert

34(f) The Legislative Analyst’s Office shall, by January 1, 2019,
35with information provided by the State Board of Equalization,
36conduct a study measuring the following:

end insertbegin insert

37(1) The exemption’s effect on the employment levels for
38manufacturing, research and development, and associated
39industries.

end insertbegin insert

P7    1(2) Where new and expanded manufacturing and research and
2development facilities resulting from the exemption are located.

end insertbegin insert

3(3) The exemption’s effect on capital investment in
4manufacturing equipment and all other tangible personal property,
5the sale or use of which is qualified for exemption under this act.

end insertbegin insert

6(g) The Legislative Analyst’s Office shall submit the study
7required by subdivision (f) to the Senate and Assembly Committees
8on Budget, the Assembly Committee on Revenue and Taxation,
9and the Senate Committee on Governance and Finance.

end insert
begin delete
10

SEC. 2.  

Section 17053.91 is added to the Revenue and Taxation
11Code, to read:

12

17053.91.  

(a) There shall be allowed to a qualified person as
13a credit against the “net tax” as defined in Section 17039, an
14amount equal to that portion of sales tax reimbursement paid to a
15retailer or use tax paid on a purchase of tangible personal property
16that is placed in service in this state, equal to 6.5 percent of the
17gross receipts or sales price on transactions described in paragraphs
18(1) to (4), inclusive, occurring on and after January 1, 2014, and
19before January 1, 2017, that are subject to tax under Part 1
20(commencing with Section 6001) of Division 2.

21(1) Qualified tangible personal property purchased for use by
22a qualified person to be used primarily in any stage of the
23manufacturing, processing, refining, fabricating, or recycling of
24 property, beginning at the point any raw materials are received by
25the qualified person and introduced into the process and ending at
26the point at which the manufacturing, processing, refining,
27fabricating, or recycling has altered property to its completed form,
28including packaging, if required.

29(2) Qualified tangible personal property purchased for use by
30a qualified person to be used primarily in research and
31development.

32(3) Qualified tangible personal property purchased for use by
33a qualified person to be used primarily to maintain, repair, measure,
34or test any qualified tangible personal property described in
35paragraph (1) or (2).

36(4) Qualified tangible personal property purchased for use by
37a contractor purchasing that property for use in the performance
38of a construction contract for the qualified person, who will use
39that property as an integral part of the manufacturing, processing,
P8    1refining, fabricating, or recycling process, or as a research or
2storage facility for use in connection with those processes.

3(b) The amount of any credit allowed under subdivision (a) shall
4be applied in equal amounts over three successive taxable years
5beginning with the first taxable year beginning on or after January
61, 2017.

7(c) For purposes of this section:

8(1) “Fabricating” means to make, build, create, produce, or
9assemble components or property to work in a new or different
10manner.

11(2) “Manufacturing” means the activity of converting or
12conditioning tangible personal property by changing the form,
13composition, quality, or character of the property for ultimate sale
14at retail or use in the manufacturing of a product to be ultimately
15sold at retail. Manufacturing includes any improvements to tangible
16personal property that result in a greater service life or greater
17functionality than that of the original property.

18(3) “Primarily” means 50 percent or more of the time.

19(4) “Process” means the period beginning at the point at which
20any raw materials are received by the qualified person and
21introduced into the manufacturing, processing, refining, fabricating,
22or recycling activity of the qualified person and ending at the point
23at which the manufacturing, processing, refining, fabricating, or
24recycling activity of the qualified person has altered tangible
25personal property to its completed form, including packaging, if
26required. Raw materials shall be considered to have been
27introduced into the process when the raw materials are stored on
28the same premises where the qualified person’s manufacturing,
29processing, refining, fabricating, or recycling activity is conducted.
30Raw materials that are stored on premises other than where the
31qualified person’s manufacturing, processing, refining, fabricating,
32or recycling activity is conducted, shall not be considered to have
33been introduced into the manufacturing, processing, refining,
34fabricating, or recycling process.

35(5) “Processing” means the physical application of the materials
36and labor necessary to modify or change the characteristics of
37tangible personal property.

38(6) “Qualified person” means either of the following:

39(A) A person who is engaged in those lines of business described
40in Codes 3111 to 3399, inclusive, or 5112 of the North American
P9    1Industry Classification System (NAICS) published by the United
2States Office of Management and Budget (OMB), 2012 edition.

3(B) An affiliate of a person who is a qualified person pursuant
4to subparagraph (A) if the affiliate is included as a member of that
5person’s unitary group for which a combined report is required to
6be filed under Article 1 (commencing with Section 25101) of
7Chapter 17 of Part 11.

8(7) (A) “Qualified tangible personal property” includes, but is
9not limited to, all of the following:

10(i) Machinery and equipment, including component parts and
11contrivances such as belts, shafts, moving parts, and operating
12structures.

13(ii) Equipment or devices used or required to operate, control,
14regulate, or maintain the machinery, including, but not limited to,
15computers, data-processing equipment, and computer software,
16together with all repair and replacement parts with a useful life of
17one or more years therefor, whether purchased separately or in
18conjunction with a complete machine and regardless of whether
19the machine or component parts are assembled by the qualified
20person or another party.

21(iii) Tangible personal property used in pollution control that
22meets standards established by this state or any local or regional
23governmental agency within this state.

24(iv) Special purpose buildings and foundations used as an
25integral part of the manufacturing, processing, refining, fabricating,
26or recycling process, or that constitute a research or storage facility
27used during those processes. Buildings used solely for warehousing
28purposes after completion of those processes are not included.

29(v) Fuels used or consumed in the manufacturing, processing,
30refining, fabricating, or recycling process.

31(B) “Qualified tangible personal property” shall not include any
32of the following:

33(i) Consumables with a useful life of less than one year, except
34as provided in clause (v) of subparagraph (A).

35(ii) Furniture, inventory, and equipment used in the extraction
36process, or equipment used to store finished products that have
37completed the manufacturing, processing, refining, fabricating, or
38recycling process.

39(iii) Tangible personal property used primarily in administration,
40general management, or marketing.

P10   1(iv) Tangible personal property that, within one year from the
2date of purchase, is either removed from California, converted
3from a use described in subdivision (a) to some other use not
4described in subdivision (a), or used in a manner not described in
5subdivision (a).

6(8) “Research and development” means those activities that are
7described in Section 174 of the Internal Revenue Code or in any
8regulations thereunder.

9(9) “Refining” means the process of converting a natural
10resource to an intermediate or finished product.

11(10) “Useful life” for tangible personal property that is treated
12as having a useful life of one or more years for state income or
13franchise tax purposes shall be deemed to have a useful life of one
14or more years for purposes of this section. “Useful life” for tangible
15personal property that is treated as having a useful life of less than
16one year for state income or franchise tax purposes shall be deemed
17to have a useful life of less than one year for purposes of this
18section.

19(d) In the case where the credit otherwise allowed under this
20section exceeds the “net tax” for the taxable year, that portion of
21the credit that exceeds the “net tax” may be carried over to reduce
22the net tax in the following taxable year, and the succeeding four
23taxable years if necessary, until the credit is exhausted.

24(e)  This section shall remain in effect only until December 1,
252020, and as of that date is repealed.

26

SEC. 3.  

Section 23649.1 is added to the Revenue and Taxation
27Code, to read:

28

23649.1.  

(a) There shall be allowed to a qualified person as a
29credit against the “tax” as defined in Section 23036, an amount
30equal to that portion of sales tax reimbursement paid to a retailer
31or use tax paid on a purchase of tangible personal property that is
32placed in service in this state, equal to 6.5 percent of the gross
33receipts or sales price on transactions described in paragraphs (1)
34to (4), inclusive, occurring on and after January 1, 2014, and before
35January 1, 2017, that are subject to tax under Part 1 (commencing
36with Section 6001) of Division 2.

37(1) Qualified tangible personal property purchased for use by
38a qualified person to be used primarily in any stage of the
39manufacturing, processing, refining, fabricating, or recycling of
40 property, beginning at the point any raw materials are received by
P11   1the qualified person and introduced into the process and ending at
2the point at which the manufacturing, processing, refining,
3fabricating, or recycling has altered property to its completed form,
4including packaging, if required.

5(2) Qualified tangible personal property purchased for use by
6a qualified person to be used primarily in research and
7development.

8(3) Qualified tangible personal property purchased for use by
9a qualified person to be used primarily to maintain, repair, measure,
10or test any qualified tangible personal property described in
11paragraph (1) or (2).

12(4) Qualified tangible personal property purchased for use by
13a contractor purchasing that property for use in the performance
14of a construction contract for the qualified person, who will use
15that property as an integral part of the manufacturing, processing,
16refining, fabricating, or recycling process, or as a research or
17storage facility for use in connection with those processes.

18(b) The amount of any credit allowed under subdivision (a) shall
19be applied in equal amounts over three successive taxable years
20beginning with the first taxable year beginning on or after January
211, 2017.

22(c) For purposes of this section:

23(1) “Fabricating” means to make, build, create, produce, or
24assemble components or property to work in a new or different
25manner.

26(2) “Manufacturing” means the activity of converting or
27conditioning tangible personal property by changing the form,
28composition, quality, or character of the property for ultimate sale
29at retail or use in the manufacturing of a product to be ultimately
30sold at retail. Manufacturing includes any improvements to tangible
31personal property that result in a greater service life or greater
32functionality than that of the original property.

33(3) “Primarily” means 50 percent or more of the time.

34(4) “Process” means the period beginning at the point at which
35any raw materials are received by the qualified person and
36introduced into the manufacturing, processing, refining, fabricating,
37or recycling activity of the qualified person and ending at the point
38at which the manufacturing, processing, refining, fabricating, or
39recycling activity of the qualified person has altered tangible
40personal property to its completed form, including packaging, if
P12   1required. Raw materials shall be considered to have been
2introduced into the process when the raw materials are stored on
3the same premises where the qualified person’s manufacturing,
4processing, refining, fabricating, or recycling activity is conducted.
5Raw materials that are stored on premises other than where the
6qualified person’s manufacturing, processing, refining, fabricating,
7or recycling activity is conducted, shall not be considered to have
8been introduced into the manufacturing, processing, refining,
9fabricating, or recycling process.

10(5) “Processing” means the physical application of the materials
11and labor necessary to modify or change the characteristics of
12tangible personal property.

13(6) “Qualified person” means either of the following:

14(A) A person who is engaged in those lines of business described
15in Codes 3111 to 3399, inclusive, or 5112 of the North American
16Industry Classification System (NAICS) published by the United
17States Office of Management and Budget (OMB), 2012 edition.

18(B) An affiliate of a person who is a qualified person pursuant
19to subparagraph (A) if the affiliate is included as a member of that
20person’s unitary group for which a combined report is required to
21be filed under Article 1 (commencing with Section 25101) of
22Chapter 17 of Part 11.

23(7) (A)   “Qualified tangible personal property” includes, but is
24not limited to, all of the following:

25(i) Machinery and equipment, including component parts and
26contrivances such as belts, shafts, moving parts, and operating
27structures.

28(ii) Equipment or devices used or required to operate, control,
29regulate, or maintain the machinery, including, but not limited to,
30computers, data-processing equipment, and computer software,
31together with all repair and replacement parts with a useful life of
32one or more years therefor, whether purchased separately or in
33conjunction with a complete machine and regardless of whether
34the machine or component parts are assembled by the qualified
35person or another party.

36(iii) Tangible personal property used in pollution control that
37meets standards established by this state or any local or regional
38governmental agency within this state.

39(iv) Special purpose buildings and foundations used as an
40integral part of the manufacturing, processing, refining, fabricating,
P13   1or recycling process, or that constitute a research or storage facility
2used during those processes. Buildings used solely for warehousing
3purposes after completion of those processes are not included.

4(v) Fuels used or consumed in the manufacturing, processing,
5refining, fabricating, or recycling process.

6(B) “Qualified tangible personal property” shall not include any
7of the following:

8(i) Consumables with a useful life of less than one year, except
9as provided in clause (v) of subparagraph (A).

10(ii) Furniture, inventory, and equipment used in the extraction
11process, or equipment used to store finished products that have
12completed the manufacturing, processing, refining, fabricating, or
13recycling process.

14(iii) Tangible personal property used primarily in administration,
15general management, or marketing.

16(iv) Tangible personal property that, within one year from the
17date of purchase, is either removed from California, converted
18from a use described in subdivision (a) to some other use not
19described in subdivision (a), or used in a manner not described in
20subdivision (a).

21(8) “Research and development” means those activities that are
22described in Section 174 of the Internal Revenue Code or in any
23regulations thereunder.

24(9) “Refining” means the process of converting a natural
25resource to an intermediate or finished product.

26(10) “Useful life” for tangible personal property that is treated
27as having a useful life of one or more years for state income or
28franchise tax purposes shall be deemed to have a useful life of one
29or more years for purposes of this section. “Useful life” for tangible
30personal property that is treated as having a useful life of less than
31one year for state income or franchise tax purposes shall be deemed
32to have a useful life of less than one year for purposes of this
33section.

34(d) In the case where the credit otherwise allowed under this
35section exceeds the “net tax” for the taxable year, that portion of
36the credit that exceeds the “net tax” may be carried over to reduce
37the net tax in the following taxable year, and the succeeding four
38taxable years if necessary, until the credit is exhausted.

39(e)  This section shall remain in effect only until December 1,
402020, and as of that date is repealed.

end delete
P14   1

begin deleteSEC. 4.end delete
2begin insertSEC. 2.end insert  

This act provides for a tax levy within the meaning
3of Article IV of the Constitution and shall go into immediate effect.


O

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