6.24.15 Economic Development Roundtable Presentation

Manufacturing and Research & Development

Equipment Exemption

As of July 1, 2014 through July 1, 2022 a new law (AB 93 and SB 90) allows manufacturers and certain

research and developers to obtain a partial exemption of sales and use tax on certain equipment

purchases and leases.

To qualify, you must meet all three of these conditions:Be a “qualified person,” i.e. engaged in

certain types of business.

Purchase or lease “qualified tangible personal property.”

Use that qualified tangible personal property in ways set forth by this new law.

QUALIFIED PERSON

A person primarily engaged (50 % or more of the time) during the previous or forthcoming financial year in the business of:

Research and development in biotechnology

Research and development in the physical, engineering, or life sciences

All forms of manufacturing

QUALIFIED PERSONIncludes manufacturers, biotechnology and other physical, engineering, and life science researcher and developers, as classified under NAICS Codes 3111 to 3399, plus 541711 and 541712.

http://www.census.gov/eos/www/naics/

QUALIFIED PERSON

If a primary business does not qualify, a portion of that business may…

Must qualify as separate “establishment”

Maintain separate “books and records”

That portion of business must fall under qualifying NAICS code

QUALIFIED TANGIBLE PERSONAL PROPERTY

Includes but is not limited to:

Machinery and equipment

Devices used to operate and maintain that equipment

Computers and software Data-processing equipment Repair or replacement parts

with a useful life of one or more years

QUALIFIED TANGIBLE PERSONAL PROPERTY

Includes but is not limited to:

TPP used in pollution control (meeting California standards)

Buildings and foundations used in manufacturing, processing, refining, fabricating, or recycling*

*Simple warehousing after completion of those processes not included

QUALIFIED TANGIBLE PERSONAL PROPERTY

Buildings and Foundations:

For the entire building to qualify, no more than one-third of the usable volume of the building can be used for non-manufacturing or other non-qualifying uses. However, in those instances when the entire building does not qualify, the portion of the building that is used for manufacturing or other qualifying use may qualify.

QUALIFIED TANGIBLE PERSONAL PROPERTY

Does not include:

Consumables with a useful life of less than one year

Furniture, inventory, and equipment used simply in the extraction and storage of finished product

TPP used primarily in administration, general management , or marketing

QUALIFIED TANGIBLE PERSONAL PROPERTY

Does not include:

Property “expensed” rather that “capitalized.”

Property purchased under the Manufacturers Exemption must be “capitalized” for income tax purposes to qualify.

QUALIFIED TANGIBLE PERSONAL PROPERTY

Leases also qualify:

Partial Exemption is available for all lease periods from 7/1/14 through 7/1/22 regardless of when lease agreement initiated.

QUALIFIED USE

Using the qualified TPP more than 50% of the time in one of the following manners:

Manufacturing, processing, refining, fabricating or recycling

Research and development

Maintaining, repairing, measuring or testing of qualified TPP

Contractor purchase on behalf of qualified person and use

If within one year from the date of purchase, TPP is removed from California, converted for use in a manner not qualifying for the exemption, or used in a manner not qualifying for the exemption, the purchaser is liable for payment of the sales tax, with applicable interest .

SellersThe partial exemption rate applies to the sale or lease of qualified TPP after July 1, 2014 and before July 1, 2022. The partial exemption rate is 4.1875%. Thus the selling rate will be 3.3125% plus any applicable district taxes.

7.50 CA. State Rate 4.1875 Part. Ex. Rate3.3125 Adj. Selling Rate + District Tax if applicable

…that’s a savings of $41.88

for every $1,000 in

purchases of qualifying

property

PurchasersThere is no need to apply to the BOE for the Manufacturing and Research & Development Equipment Exemption. Just provide the seller with a timely Partial Exemption Certificate to obtain the reduced tax rate.

Required Documentation – Partial Exemption Certificates 230M/MC

Required Documentation – Partial Exemption Certificates

Any document may be regarded as a Partial Exemption Certificate as long as it contains the following:

Partial Exemption Certificate

Purchaser’s signatureDate

Purchaser: name, address, phone

Purchaser: Sellers Permit # (or exemption reason)

Description of Property PurchasedStatement that purchase is Qualified TPP

Statement that purchaser is Qualified person or contractor

Statement that property is for a qualifying activity or for contractor

on behalf of Qualified person

Maximum Annual ExemptionA single taxpayer or combined

reporting unit cannot exceed $200 million in purchases subject to the partial exemption in a calendar year.

Maximum Annual ExemptionYou may not carry over any unused

amount to a following year. Each year you are limited to the total maximum of $200 million in purchases.

Maximum Annual ExemptionIndividual $200 million caps will

apply to a construction contractor (or subcontractor) representing numerous Qualified Persons in his purchase of qualifying fixtures and materials.

Contractors and Sub-contractorsAccept form 230-m from Qualified Person

Submit form 230-mc for qualifying materials & fixtures

How do I claim the partial exemption on my tax return?

Just enter the amount subject to the partial exemption on the newly created Manufacturing and Research and Development Equipment exemption line 72.

Enter here

How do I claim the partial exemption on my tax return…online?

Just enter the amount subject to the partial exemption on the newly created Manufacturing and Research and Development Equipment exemption line.

For more information visit our Manufacturing Exemption - Industry Guide web page:http://www.boe.ca.gov/sutax/manufacturing_exemptions.htm

Or search:

Regulation 1525.4 - Manufacturing and Research & Development Equipment

25

Taxpayer Information SectionTaxpayer Information Section (general tax questions answered)

1-800-400-7115

Mon – Fri, 8:00 a.m. to 5:00 p.m.

24 hr. fax-back service for commonly requested forms and publications to choose from automatically faxed

back to you.

For specific answers about whether you qualify for this partial exemption email the BOE or write your local BOE office.

Thank you for conducting business in California!