BILL NUMBER: SBX6 18 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Steinberg
APRIL 21, 2010
An act to amend Section 25128.5 of, and to add Section 6377 to,
the Revenue and Taxation Code, relating to taxation, to take effect
immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 18, as introduced, Steinberg. Sales and use taxes: exemption:
manufacturing equipment: corporate income tax: single sales factor.
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. That
law provides various exemptions from those taxes.
This bill would exempt from those taxes, on or after July 1, 2011,
the gross receipts from the sale of, and the storage, use, or other
consumption of, tangible personal property purchased by a qualified
person, as defined, for use in the manufacturing process, as
specified, and tangible personal property purchased for use by a
contractor to perform a construction contract for a qualified person,
for specified purposes.
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.
The Corporation Tax Law imposes taxes measured by income and, in
the case of a business with income derived from or attributable to
sources both within and without this state, apportions the income
between this state and other states and foreign countries in
accordance with a specified 4-factor formula based on the property,
payroll, and sales within and without this state, except that in the
case of an apportioning trade or business that derives more than 50%
of its gross business receipts from conducting one or more qualified
business activities, as defined, business income is apportioned in
accordance with a specified 3-factor formula. Existing law, for
taxable years beginning on or after January 1, 2011, allows a
taxpayer to make an annual election to have that income apportioned
in accordance with a single sales factor formula, except as provided.
This bill would, for a taxpayer that would otherwise be able to
elect to have its income apportioned in accordance with a single
sales factor formula, require the taxpayer to apportion its income in
accordance with a single sales factor formula.
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. Section 6377 is added to the Revenue and Taxation Code,
to read:
6377. (a) (1) On or after July 1, 2011, 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:
(A) 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.
(B) Tangible personal property purchased for use by a contractor
for use in the performance of a construction contract for the
qualified person who will use the property as an integral part of the
manufacturing, processing, refining, fabricating, or recycling
process, or as a storage facility for use in connection with the
manufacturing process.
(2) This exemption shall not apply to the sale of, or the storage,
use, or other consumption of, tangible personal property that is
purchased to be used primarily in administration, general management,
or marketing.
(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 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, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer 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 taxpayer's manufacturing, processing,
refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified taxpayer'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
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, or 5112 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 qualified pursuant to subparagraph
(A) shall also be considered a qualified person as long as 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.
(7) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(8) "Tangible personal property" includes, but is not limited to,
all of the following:
(A) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(B) 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 therefor, 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.
(C) Property used in pollution control that meets standards
established by this state or any local or regional governmental
agency within this state.
(D) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, or fabricating
process, or that constitute a research or storage facility used
during the manufacturing process. Buildings used solely for
warehousing purposes after completion of the manufacturing process
are not included.
(E) Fuels used or consumed in the manufacturing process.
(9) "Tangible personal property" shall not include any of the
following:
(A) Consumables with a normal useful life of less than one year,
except as provided in subparagraph (E) of paragraph (8).
(B) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(c) No exemption shall 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 whose sale of, or storage, use, or other consumption is
exempt pursuant to subdivision (a).
(d) (1) Notwithstanding subdivision (a), the exemption established
by this section shall not apply with respect to any tax levied
pursuant to Sections 6051.2, 6051.5, 6201.2, or 6201.5, or pursuant
to Section 35 of Article XIII of the California Constitution.
(2) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
or 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.
(e) 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.
(f) 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 (1) removes that property outside
California, (2) converts that property for use in a manner not
qualifying for the exemption, or (3) 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.
SEC. 2. Section 25128.5 of the Revenue and Taxation Code is
amended to read:
25128.5. (a) Notwithstanding Section 38006, for taxable years
beginning on or after January 1, 2011, any apportioning trade or
business, other than an apportioning trade or business described in
subdivision (b) of Section 25128, may make an irrevocable
annual election on an original timely filed return, in the manner and
form prescribed by the Franchise Tax Board to shall
apportion its income in accordance with this section, and not
in accordance with Section 25128.
(b) Notwithstanding Section 38006, for taxable years beginning on
or after January 1, 2011, all business income of an apportioning
trade or business making an election described in
subdivision (a) shall be apportioned to this state by multiplying the
business income by the sales factor.
(c) The Franchise Tax Board is authorized to issue regulations
necessary or appropriate regarding the making of an election
under administration of this section ,
including regulations that are consistent with rules prescribed for
making an election under Section 25113 .
SEC. 3. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.