BILL NUMBER: SBX8 44 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Dutton
FEBRUARY 12, 2010
An act to add Section 6377 to the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 44, as introduced, Dutton. Sales and use tax: exemptions
manufacturing and research and development equipment.
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, and
provides various exemptions from the taxes imposed by that law.
This bill would provide a partial exemption from those taxes for
the gross receipts from the sale of, and the storage, use, or other
consumption of, tangible personal property, as defined, purchased for
use by a qualified person, as defined, to be used primarily in any
stage of manufacturing, processing, refining, fabricating, or
recycling of property, as specified or to be used primarily in
qualified research, as specified, or to be used to maintain, repair,
measure, or test that property. The bill would also partially 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 exemption would not apply to any tangible personal
property that is used primarily in administration, general
management, or marketing. The bill would require that the purchaser
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. Section 2230 of the Revenue and
Taxation Code provides that the state will reimburse counties and
cities for revenue losses caused by the enactment of sales and use
tax exemptions.
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 Local Revenue Fund, or the Fiscal Recovery Fund.
The California Constitution authorizes the Governor to declare a
fiscal emergency and to call the Legislature into special session for
that purpose. The Governor issued a proclamation declaring a fiscal
emergency, and calling a special session for this purpose, on January
8, 2010.
This bill would state that it addresses the fiscal emergency
declared by the Governor by proclamation issued on January 8, 2010,
pursuant to the California Constitution.
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. It is the intent of the Legislature to enact a
competitive tax policy for manufacturers by providing for an
exemption from the state sales and use taxes of purchases of
manufacturing equipment used in the manufacturing process.
SEC. 2. Section 6377 is added to the Revenue and Taxation Code, to
read:
6377. (a) On and after January 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:
(1) 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) Tangible personal property purchased for use by a qualified
person to be used primarily in qualified research.
(3) Tangible personal property purchased for use by a qualified
person to be used primarily to maintain, repair, measure, or test any
property described in paragraph (1) or (2).
(4) Tangible personal property purchased for use by a contractor
purchasing that property either as an agent of a qualified person or
for the contractor's own account and subsequent resale to a qualified
person for use in the performance of a construction contract for the
qualified person who will use the tangible personal property as an
integral part of the manufacturing, processing, refining,
fabricating, or recycling process, or as a research or storage
facility for use in connection with the manufacturing process.
The exemption provided by this subdivision shall not apply to any
tangible personal property that is used primarily in administration,
general management, or marketing.
(b) For purposes of this section the following terms have the
following meanings:
(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 either 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 of Part 11.
(7) "Qualified research" means research that meets the
requirements of Section 41(d)(1) of the Internal Revenue Code.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "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.
(10) "Tangible personal property" does 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 (9).
(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, the sale of, or the storage, use, or other consumption of
which is exempt pursuant to subdivision (a).
(d) 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) (1) 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 either removed from
California or 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 exemption.
(2) 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, and 6201.5, or pursuant to
Section 35 of Article XIII of the California Constitution.
(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.
(g) This section applies to leases of 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 addresses the fiscal emergency declared by the
Governor by proclamation on January 8, 2010, pursuant to subdivision
(f) of Section 10 of Article IV of the California Constitution.
SEC. 4. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.