California Enacts Exemption for Manufacturing and Research and Development Equipment

Jul 16th, 2013

California enacted a sales tax exemption for manufacturing and research and development equipment. The exemption becomes effective July 1, 2014.

This exemption will apply to qualified tangible personal property sold to a qualified person for use primarily (1) in manufacturing, processing, refining, fabricating, or recycling tangible personal property; (2) in research and development; or (3) to repair, maintain, measure, or test qualified tangible personal property described above. A construction contractor may also claim this exemption for certain purchases of tangible personal property. The purchased item must be for a construction contract for a qualified person, and that qualified person must use the item as an integral part of an exempt activity.

To qualify for exemption, the property sold must be "qualified tangible personal property" and the purchaser must be a "qualified person." "Qualified tangible personal property" includes (1) machinery and equipment, including component parts and contrivances; (2) equipment or devices used or required to operate, control, regulate, or maintain the machinery; (3) tangible personal property used in pollution control; and (4) special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process or that constitute a research or storage facility used during those processes. This property must be used "primarily" - that is, 50 percent or more of the time - for an exempt activity such as manufacturing or processing. A "qualified person" is one primarily engaged in a listed manufacturing business. Eligible manufacturers include those in the fields of aerospace, textiles, pharmaceuticals, and printing.