SB 412, as amended, Knight. Sales and use taxes: exemption: aerospace products manufacturing: research and development.
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 provides various exemptions from those taxes.
This bill would exempt from those taxes, on and after January 1, 2014, and before January 1, 2019, 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 in the aerospace products and parts manufacturing industry 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 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, 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.
The bill would remain in effect until January 1, 2019.
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 6377.2 is added to the Revenue and
2Taxation Code, to read:
(a) On and after January 1, 2014, and before January
41, 2019, 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 personal end insert property, beginning at the point any raw
11materials are received by the qualified person and introduced into
12the process and ending at the
point at which the manufacturing,
13processing, refining, fabricating, or recycling has alteredbegin insert tangible
14personalend insert property to its completed form, including packaging, if
15required.
16(2) Qualified tangible personal property purchased for use by
17a qualified person to be used primarily in qualified research and
18development.
19(3) Qualified tangible personal property purchased for use by
20a qualified person to be used primarily to maintain, repair, measure,
P3 1or test any qualified tangible personal property described in
2paragraph (1) or (2).
3(4) Qualified tangible personal property purchased for use by
4a contractor purchasing that
property for use in the performance
5of a construction contract for the qualified person, who will use
6that property as an integral part of the manufacturing, processing,
7refining, fabricating, or recycling process, or as a research or
8storage facility for use in connection with those processes.
9(b) For purposes of this section:
10(1) “Fabricating” means to make, build, create, produce, or
11assemble components orbegin insert tangible personalend insert property to work in a
12new or different manner.
13(2) “Manufacturing” means the activity of converting or
14conditioning tangible personal property by changing the form,
15composition, quality, or character of
the property for ultimate sale
16at retail or use in the manufacturing of a product to be ultimately
17sold at retail. Manufacturing includes any improvements to tangible
18personal property that result in a greater service life or greater
19functionality than that of the original property.
20(3) “Primarily” means 50 percent or more of the time.
21(4) “Process” means the period beginning at the point at which
22any raw materials are received by the qualified person and
23
introduced into the manufacturing, processing, refining, fabricating,
24or recycling activity of the qualified person and ending at the point
25at which the manufacturing, processing, refining, fabricating, or
26recycling activity of the qualified person has altered tangible
27personal property to its completed form, including packaging, if
28required. Raw materials shall be considered to have been
29introduced into the process when the raw materials are stored on
30the same premises where the qualified person’s manufacturing,
31processing, refining, fabricating, or recycling activity is conducted.
32Raw materials that are stored on premises other than where the
33qualified person’s manufacturing, processing, refining, fabricating,
34or recycling activity isbegin delete conducted,end deletebegin insert
conductedend insert shall not be
35considered to have been introduced into the manufacturing,
36processing, refining, fabricating, or recycling process.
37(5) “Processing” means the physical application of the materials
38and labor necessary to modify or change the characteristics of
39tangible personal property.
40(6) “Qualified person” means either of the following:
P4 1(A) A person who isbegin insert primarilyend insert engaged in those lines of business
2described in Code 3364 of the North American Industry
3Classification System (NAICS) published by the United States
4Office of Management and Budget (OMB), 2012 edition.
5(B) An affiliate of a person who is a qualified person pursuant
6to subparagraph (A) if the affiliate is included as a member of that
7person’s unitary group for which a combined report is required to
8be filed under Article 1 (commencing with Section 25101) of
9Chapter 17 of Part 11.
10(7) (A) “Qualified tangible personal property” includes, but is
11not limited to, all of the following:
12(i) Machinery and equipment, including component parts and
13contrivances such as belts, shafts, moving parts, and operating
14structures.
15(ii) Equipment or devices used or required to operate, control,
16regulate, or maintain the machinery, including, but not limited to,
17
computers, data-processing equipment, and computer software,
18together with all repair and replacement parts with a useful life of
19one or more years therefor, whether purchased separately or in
20conjunction with a complete machine and regardless of whether
21the machine or component parts are assembled by the qualified
22person or another party.
23(iii) Tangible personal property used in pollution control that
24meets standards established by this state or any local or regional
25governmental agency within this state.
26(iv) Special purpose buildings and foundations used as an
27integral part of the manufacturing, processing, refining, fabricating,
28or recycling process, or that constitute a research or storage facility
29used during those processes. Buildings used solely for warehousing
30purposes
after completion of those processes are not included.
31(v) Fuels used or consumed in the manufacturing, processing,
32refining, fabricating, or recycling process.
33(B) “Qualified tangible personal property” shall not include any
34of the following:
35(i) Consumables with a useful life of less than one year, except
36as provided in clause (v) of subparagraph (A).
37(ii) Furniture, inventory, and equipment used in the extraction
38
process, or equipment used to store finished products that have
39completed the manufacturing, processing, refining, fabricating, or
40recycling process.
P5 1(iii) Tangible personal property used primarily in administration,
2general management, or marketing.
3(8) “Research and development” means those activities that are
4described in Section 174 of the Internal Revenue Code or in any
5regulation thereunder.
6(9) “Refining” means the process of converting a natural
7resource to an intermediate or finished product.
8(10) “Useful life”begin delete for tangible personal property that is treated
9as having a useful life of one or more years for state
income or
10franchise tax purposes shall be deemed to have a useful life of one
11or more years for purposes of this section. “Useful life” for tangible
12personal property that is treated as having a useful life of less than
13one year for state income or franchise tax purposes shall be deemed
14to have a useful life of less than one year for purposes of this
15section.end delete
16(commencing with Section 17001), or Part 11 (commencing with
17Section 23001), as applicable. end insert
18(c) An exemption shall not be allowed under this section unless
19the purchaser furnishes the retailer with an exemption certificate,
20completed in accordance with any instructions or regulations as
21the
board may prescribe, and the retailer retains the exemption
22certificate in its records and furnishes it to the board upon request.
23The exemption certificate shall contain the sales price of the
24qualified tangible personal property that the sale of, or the storage,
25use, or other consumption of, is exempt pursuant to subdivision
26(a).
27(d) (1) Notwithstanding the Bradley-Burns Uniform Local Sales
28and Use Tax Law (Part 1.5 (commencing with Section 7200)) and
29the Transactions and Use Tax Law (Part 1.6 (commencing with
30Section 7251)), the exemption established by this section shall not
31apply with respect to any tax levied by a county, city, or district
32pursuant to, or in accordance with, either of those laws.
33(2) Notwithstanding subdivision (a), the exemption established
34by
this section shall not apply with respect to any tax levied
35pursuant to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant
36tobegin delete Sectionsend deletebegin insert
Sectionend insert 35 and subdivision (f) ofbegin insert Sectionend insert 36 of Article
37XIII of the California Constitution, or to any tax levied pursuant
38tobegin delete Sectionsend deletebegin insert Section end insert 6051begin delete andend deletebegin insert orend insert 6201 that is deposited in the State
39Treasury to the credit of the Local Revenue Fund 2011 pursuant
40to Sections 6051.15 and 6201.15.
P6 1(e) (1) Notwithstanding subdivision (a), the
exemption provided
2by this section shall not apply to any sale or storage, use, or other
3consumption ofbegin insert
tangible personalend insert property that, within one year
4from the date of purchase, is removed from California, converted
5from an exempt use under subdivision (a) to some other use not
6qualifying for exemption, or used in a manner not qualifying for
7exemption.
8(2) If a purchaser certifies in writing to the seller that the
9begin insert tangible personal end insert property purchased without payment of the tax
10will be used in a manner entitling the seller to regard the gross
11receipts from the sale as exempt from the sales tax, and within one
12year from the date of purchase, the purchaser removes that property
13outside California, converts that property for use in a manner not
14qualifying for the exemption, or uses that property in a manner
15not qualifying for
the exemption, the purchaser shall be liable for
16payment of sales tax, with applicable interest, as if the purchaser
17were a retailer making a retail sale of thebegin insert tangible personalend insert property
18at the time the property is so removed, converted, or used, and the
19begin delete sales priceend deletebegin insert costend insert of thebegin insert tangible personalend insert property to the purchaser
20shall be deemed the gross receipts from that retail sale.
This act shall remain in effect only until January 1,
222019, and as of that date is repealed.
This act provides for a tax levy within the meaning of
24Article IV of the Constitution and shall go into immediate effect.
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