California – Proposed Manufacturing Exemptions

2/19/2013

SALT Report 2163 – The California State Legislature introduced a bill that would provide an exemption for tangible personal property purchased for use in manufacturing, processing, refining, fabricating, or recycling; tangible personal property purchased for use by a contractor; and tangible personal property for use in research and development.

According to the language of the bill, section 6377.1 will be added to the Revenue and Taxation Code and states that the gross receipts from the sale, storage, use, or other consumption of any of the following business activities will be exempt from tax:

  • Manufacturing, processing, refining, fabricating, or recycling of property, beginning with the raw materials as they are received and introduced into the process and ending once the manufacturing, processing, refining, fabricating, or recycling has altered the property to its completed form.  This will apply to packaging materials necessary to the processes.
  • Qualified tangible personal property purchased for use by a contractor pursuant to a construction contract if the property will be used as an integral part of a manufacturing, processing, refining, fabricating, or recycling process, or as a storage facility used in connection with those processes.
  • Qualified tangible personal property purchased for use primarily in research and development.

Items that will qualify for the exemption include:

  • Machinery and equipment, including all component parts such as belts, shafts, moving parts, and operating structures.
  • Equipment or devices used or required to operate, control, regulate, or maintain the machinery and equipment.  This includes computers, data-processing equipment, computer software, and all repair and replacement parts that have a life of one or more years.  These items may be purchased separately or in conjunction with a complete machine.
  • Tangible personal property used in pollution control that meets the standards established by the state or any local or regional governmental agency within the state.
  • Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process or, research and storage facilities used during those processes.
  • Fuels used or consumed in the manufacturing, processing, refining, fabricating, or recycling process.

If passed, the exemptions will go into effect January 1, 2014.

For Further Information

California State Legislature – Senate Bill 235