BILL NUMBER: AB 1911	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Donnelly

                        FEBRUARY 22, 2012

   An act to add Section 6377.5 to the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1911, as introduced, Donnelly. Sales and use taxes: exemption:
manufacturing.
   Existing sales and use tax laws impose 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.
That law provides various exemptions from those taxes.
   The bill would exempt from those taxes, on and after January 1,
2013, the gross receipts from the sale of, and the storage, use, or
other consumption of, qualified tangible personal property purchased
by a qualified person for use primarily in the manufacturing process,
as specified, and qualified tangible personal property purchased by
a contractor for specified purposes, as provided.
   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 sales and use taxes from which revenues are deposited into the
Local Public Safety Fund, the Local Revenue Fund, the Local Revenue
Fund 2011, the Fiscal Recovery Fund, or the Public Transportation
Account in the State Transportation Fund.
    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 state sales and use taxes for the sale of, or the
storage, use, or other consumption of, manufacturing equipment used
in the manufacturing process.
  SEC. 2.  Section 6377.5 is added to the Revenue and Taxation Code,
to read:
   6377.5.  (a) On or after January 1, 2013, 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) Qualified 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 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) Qualified tangible personal property purchased by a contractor
for use in the performance of a construction contract for the
qualified person that will use the qualified tangible personal
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.
   (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 improvements to qualified tangible personal
property that result in a greater service life or greater
functionality than that of the original property.
   (3) "Primarily" means 50 percent or more of the time. For purposes
of subdivision (a), "primarily" means qualified tangible personal
property is 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 raw
materials are received by the qualified person and introduced into
the manufacturing, processing, refining, fabricating, or recycling
activity of the qualified person and ending at the point at which the
manufacturing, processing, refining, fabricating, or recycling
activity of the qualified person has altered qualified 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 person's manufacturing, processing,
refining, fabricating, or recycling activity is conducted. Raw
materials that are stored on premises other than where the qualified
person'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 Industry Groups 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), 2012 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) (A) "Qualified tangible personal property" includes, but is
not limited to, all of the following:
   (i) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
   (ii) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, including, but not
limited to, 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
qualified person or another party.
   (iii) Property used in pollution control that meets standards
established by this state or any local or regional governmental
agency within this state.
   (iv) 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.
   (v) Fuels used or consumed in the manufacturing process.
   (B) Notwithstanding subparagraph (A), "qualified tangible personal
property" shall not include any of the following:
   (i) Consumables with a normal useful life of less than one year,
except as provided in clause (v) of subparagraph (A).
   (ii) Furniture and inventory.
   (iii) Equipment used in the extraction process or used to store
finished products that have completed the manufacturing process.
   (iv) Tangible personal property used primarily in administration,
general management, or marketing.
   (8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (c) An exemption shall not 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 qualified tangible
personal property that the sale of, or the storage, use, or other
consumption of, is exempt pursuant to subdivision (a).
   (d) (1) 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.
   (2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Section 6051.2, 6051.5, 6051.8, 6201.2, 6201.5, or 6201.8, or
pursuant to Section 35 of Article XIII of the California
Constitution, or to any tax levied pursuant to Sections 6051 and 6201
that is deposited in the State Treasury to the credit of the Local
Revenue Fund 2011 pursuant to Sections 6051.15 and 6201.15.
   (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 removes that property from California,
converts that property for use in a manner not qualifying for the
exemption, or 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 qualified 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).

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