BILL NUMBER: AB 1972	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Huber

                        FEBRUARY 23, 2012

   An act to add and repeal Section 6377 of the Revenue and Taxation
Code, relating to taxation, to take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1972, as introduced, Huber. Sales and use taxes: exemption:
manufacturing equipment: research and development.
   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.
   On and after January 1, 2013, and before January 1, 2019, this
bill would exempt from those taxes the sale of, and the storage, use,
or other consumption in this state of, tangible personal property,
as defined, purchased for use by a qualified person, as defined,
primarily in any stage of manufacturing, processing, refining,
fabricating, or recycling of tangible personal property; in research
and development; to maintain, repair, measure, or test specified
tangible personal property; and by a contractor for use in a
construction contract with a qualified person, 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 provide that, notwithstanding Section 2230 of the
Revenue and Taxation Code, no appropriation is made and the state
shall not reimburse local agencies for sales and use tax revenues
lost by them pursuant to this bill.
   This bill would take effect immediately as a tax levy.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.


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 and 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, all
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 tangible personal
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 qualified
person to be used primarily in research and development.
   (C) Tangible personal property purchased for use by a qualified
person to be used primarily to maintain, repair, measure, or test any
tangible personal property described in subparagraph (A) or (B).
   (D) Tangible personal property purchased by a contractor for use
in the performance of a construction contract for a qualified person
that 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.
   (2) The exemption established by this section shall not apply to
the gross receipts from the sale of, or the storage, use, or other
consumption of, any of the following:
   (A) Tangible personal property that is used primarily in
administration, general management, or marketing.
   (B) Consumables with a useful life of less than one year.
   (C) Furniture or inventory or equipment used in the extraction
process, or equipment used to store finished products that have
completed 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 tangible personal property by changing the form,
composition, quality, or character of the tangible personal 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
tangible personal property. Manufacturing includes the generation of
electricity.
   (3) "Primarily" means 50 percent or more of the time. For purposes
of subdivision (a), "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 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 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
tangible personal property.
   (6) "Qualified person" means either of the following:
   (A) A person who is primarily engaged in those lines of business
classified in Industry Groups 3111 to 3399, inclusive, Industry Group
5112, NAICS Industry 221119, or NAICS Industry 541711 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 described in subparagraph (A)
provided that the affiliate is a member of the qualified 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) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (8) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (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 qualified person or another
person.
   (C) Tangible personal property used in pollution control that
meets or exceeds 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) Tangible personal property used in recycling.
   (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 retains the exemption
certificate in its records. The exemption certificate shall contain
the sales price of the tangible personal property, the sale of, or
the storage, use, or other consumption of which is exempt pursuant to
subdivision (a) and shall be furnished to the board upon request.
   (d) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of tangible personal
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.
   (e) If a purchaser certifies in writing to the seller that the
tangible personal 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 pursuant to this section,
and within one year from the date of purchase, the purchaser (1)
removes that tangible personal property outside California, (2)
converts that tangible personal property for use in a manner not
qualifying for the exemption, or (3) uses that tangible personal
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
tangible personal property at the time the tangible personal property
is so removed, converted, or used, and the sales price of the
tangible personal property to the purchaser shall be deemed the gross
receipts from that retail sale.
   (f) The exemption established by this section shall apply to a
lease of tangible personal property classified as a "continuing sale"
or "continuing purchase" in accordance with Section 6006.1 or
6010.1, and to the rentals payable pursuant to such a lease, provided
the lessee is a qualified person and the tangible personal property
is used in an activity described in subdivision (a).
   (g) At the time necessary information technologies and electronic
data warehousing capabilities of the board are sufficiently
established, the board shall determine an efficient means by which
qualified persons may electronically apply for, and receive, an
exemption certificate that contains information that would assist
them in complying with this part with respect to the exemption
established by this section.
   (h) This section shall remain in effect only until January 1,
2019, and as of that date is repealed.
  SEC. 2.  Notwithstanding Section 2230 of the Revenue and Taxation
Code, no appropriation is made by this act and the state shall not
reimburse any local agency for any sales and use tax revenues lost by
it under this act.
  SEC. 3.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.