AB 2091, as introduced, Mansoor. Sales and use taxes: exemption: manufacturing and research.
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. Those laws exempt from those taxes, for a specified period, the gross receipts from the sale of, and the storage, use, or other consumption of, specified tangible personal property used primarily in manufacturing or other processes, and in research and development.
This bill would make a technical, nonsubstantive change to that provision.
Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 6377.1 of the Revenue and Taxation
2Code is amended to read:
(a) Except as provided in subdivision (e), on or after
2July 1, 2014, and before July 1, 2022, there are exempted from the
3taxes imposed by this part the gross receipts from the sale of, and
4the storage, use, or other consumption in this state of, any of the
5following:
6(1) Qualified tangible personal property purchased for use by
7a qualified person to be used primarily in any stage of the
8manufacturing, processing, refining, fabricating, or recycling of
9tangible personal property, beginning at the point any raw materials
10are received bybegin delete theend deletebegin insert aend insert qualified person and introduced
into the
11process and ending at the point at which the manufacturing,
12processing, refining, fabricating, or recycling has altered tangible
13personal property to its completed form, including packaging, if
14required.
15(2) Qualified tangible personal property purchased for use by
16a qualified person to be used primarily in research and
17development.
18(3) Qualified tangible personal property purchased for use by
19a qualified person to be used primarily to maintain, repair, measure,
20or test any qualified tangible personal property described in
21paragraph (1) or (2).
22(4) Qualified tangible personal property purchased for use by
23a contractor purchasing that property for use in the performance
24of a construction contract for the qualified person, that will use
25that property as an integral part of the manufacturing, processing,
26
refining, fabricating, or recycling process, or as a research or
27storage facility for use in connection with those processes.
28(b) For purposes of this section:
29(1) “Fabricating” means to make, build, create, produce, or
30assemble components or tangible personal property to work in a
31new or different manner.
32(2) “Manufacturing” means the activity of converting or
33conditioning tangible personal property by changing the form,
34composition, quality, or character of the property for ultimate sale
35at retail or use in the manufacturing of a product to be ultimately
36sold at retail. Manufacturing includes any improvements to tangible
37personal property that result in a greater service life or greater
38functionality than that of the original property.
39(3) “Primarily” means 50 percent or more of the time.
P3 1(4) “Process” means the period beginning at the point at which
2any raw materials are received by the qualified person and
3introduced into the manufacturing, processing, refining, fabricating,
4or recycling activity of the qualified person and ending at the point
5at which the manufacturing, processing, refining, fabricating, or
6recycling activity of the qualified person has altered tangible
7personal property to its completed form, including packaging, if
8required. Raw materials shall be considered to have been
9introduced into the process when the raw materials are stored on
10the same premises where the qualified person’s manufacturing,
11processing, refining, fabricating, or recycling activity is conducted.
12Raw materials that are stored on premises other than where the
13qualified person’s manufacturing, processing, refining, fabricating,
14or recycling activity is conducted shall not be considered to have
15been
introduced into the manufacturing, processing, refining,
16fabricating, or recycling process.
17(5) “Processing” means the physical application of the materials
18and labor necessary to modify or change the characteristics of
19tangible personal property.
20(6) (A) “Qualified person” means a person that is primarily
21engaged in those lines of business described in Codes 3111 to
223399, inclusive, 541711, or 541712 of the North American Industry
23Classification System (NAICS) published by the United States
24Office of Management and Budget (OMB), 2012 edition.
25(B) Notwithstanding subparagraph (A), “qualified person” shall
26not include either of the following:
27(i) An apportioning trade or business that is required to apportion
28its business income
pursuant to subdivision (b) of Section 25128.
29(ii) A trade or business conducted wholly within this state that
30would be required to apportion its business income pursuant to
31subdivision (b) of Section 25128 if it were subject to apportionment
32pursuant to Section 25101.
33(7) (A) “Qualified tangible personal property” includes, but is
34not limited to, all of the following:
35(i) Machinery and equipment, including component parts and
36contrivances such as belts, shafts, moving parts, and operating
37structures.
38(ii) Equipment or devices used or required to operate, control,
39regulate, or maintain the machinery, including, but not limited to,
40computers, data-processing equipment, and computer software,
P4 1together with all repair and replacement
parts with a useful life of
2one or more years therefor, whether purchased separately or in
3conjunction with a complete machine and regardless of whether
4the machine or component parts are assembled by the qualified
5person or another party.
6(iii) Tangible personal property used in pollution control that
7meets standards established by this state or any local or regional
8governmental agency within this state.
9(iv) Special purpose buildings and foundations used as an
10integral part of the manufacturing, processing, refining, fabricating,
11or recycling process, or that constitute a research or storage facility
12used during those processes. Buildings used solely for warehousing
13purposes after completion of those processes are not included.
14(B) “Qualified tangible personal property” shall not include any
15of the following:
16(i) Consumables with a useful life of less than one year.
17(ii) Furniture, inventory, and equipment used in the extraction
18process, or equipment used to store finished products that have
19completed the manufacturing, processing, refining, fabricating, or
20recycling process.
21(iii) Tangible personal property used primarily in administration,
22general management, or marketing.
23(8) “Refining” means the process of converting a natural
24resource to an intermediate or finished product.
25(9) “Research and development” means those activities that are
26described in Section 174 of the Internal Revenue Code or in any
27regulations thereunder.
28(10) “Useful life” for tangible personal property that is treated
29as having a useful life of one or more years for state income or
30franchise tax purposes shall be deemed to have a useful life of one
31or more years for purposes of this section. “Useful life” for tangible
32personal property that is treated as having a useful life of less than
33one year for state income or franchise tax purposes shall be deemed
34to have a useful life of less than one year for purposes of this
35section.
36(c) An exemption shall not be allowed under this section unless
37the purchaser furnishes the retailer with an exemption certificate,
38completed in accordance with any instructions or regulations as
39the board may prescribe, and the retailer retains the exemption
40certificate in its records and furnishes it to the board upon request.
P5 1(d) (1) Notwithstanding the Bradley-Burns
Uniform Local
2Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
3and the Transactions and Use Tax Law (Part 1.6 (commencing
4with Section 7251)), the exemption established by this section
5shall not apply with respect to any tax levied by a county, city, or
6district pursuant to, or in accordance with, either of those laws.
7(2) Notwithstanding subdivision (a), the exemption established
8by this section shall not apply with respect to any tax levied
9pursuant to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant
10to Section 35 of Article XIII of the California Constitution, or any
11tax levied pursuant to Section 6051 or 6201 that is deposited in
12the State Treasury to the credit of the Local Revenue Fund 2011
13pursuant to Section 6051.15 or 6201.15.
14(e) (1) The exemption provided by this section shall not apply
15to either of the following:
16(A) Any tangible personal property purchased during any
17calendar year that exceeds two hundred million dollars
18($200,000,000) of purchases of qualified tangible personal property
19for which an exemption is claimed by a qualified person under
20this section. For purposes of this subparagraph, in the case of a
21qualified person that is required to be included in a combined report
22under Section 25101 or authorized to be included in a combined
23report under Section 25101.15, the aggregate of all purchases of
24qualified personal property for which an exemption is claimed
25pursuant to this section by all persons that are required or
26authorized to be included in a combined report shall not exceed
27two hundred million dollars ($200,000,000) in any calendar year.
28(B) The sale or storage, use, or other consumption of property
29that, within one year from the date of purchase, is removed from
30California,
converted from an exempt use under subdivision (a)
31to some other use not qualifying for exemption, or used in a manner
32not qualifying for exemption.
33(2) If a purchaser certifies in writing to the seller that the tangible
34personal property purchased without payment of the tax will be
35used in a manner entitling the seller to regard the gross receipts
36from the sale as exempt from the sales tax, and the purchase
37exceeds the two-hundred-million-dollar ($200,000,000) limitation
38described in subparagraph (A) of paragraph (1), or within one year
39from the date of purchase, the purchaser removes that property
40from California, converts that property for use in a manner not
P6 1qualifying for the exemption, or uses that property in a manner
2not qualifying for the exemption, the purchaser shall be liable for
3payment of sales tax, with applicable interest, as if the purchaser
4were a retailer making a retail sale of the tangible personal property
5at the time the
tangible personal property is so purchased, removed,
6converted, or used, and the cost of the tangible personal property
7to the purchaser shall be deemed the gross receipts from that retail
8sale.
9(f) This section shall apply to leases of qualified tangible
10personal property classified as “continuing sales” and “continuing
11purchases” in accordance with Sections 6006.1 and 6010.1. The
12exemption established by this section shall apply to the rentals
13payable pursuant to the lease, provided the lessee is a qualified
14person and the tangible personal property is used in an activity
15described in subdivision (a).
16(g) (1) Upon the effective date of this section, the Department
17of Finance shall estimate the total dollar amount of exemptions
18that will be taken for each calendar year, or any portion thereof,
19for which this section provides an exemption.
20(2) No later than each March 1 next following a calendar year
21for which this section provides an exemption, the board shall
22provide to the Joint Legislative Budget Committee a report of the
23total dollar amount of exemptions taken under this section for the
24immediately preceding calendar year. The report shall compare
25the total dollar amount of exemptions taken under this section for
26that calendar year with the department’s estimate for that same
27calendar year. If that total dollar amount taken is less than the
28estimate for that calendar year, the report shall identify options for
29increasing exemptions taken so as to meet estimated amounts.
30(h) This section is repealed on January 1, 2023.
O
99