United States

New California sales and use tax exemption now available

Manufacturing and R&D businesses

TAX ALERT  | 

The new California sales and use tax exemption for purchases of tangible personal property used in manufacturing or research and development (R&D) that was enacted as part of the package of reforms in 2013 AB 93 is now available. As of July 1, 2014, businesses primarily engaged in manufacturing and R&D activities may exempt calendar-year purchases of up to $200 million of qualified property put primarily to qualified uses. A business is primarily engaged in manufacturing and R&D activities if more than 50 percent of the time it engages in the activities described under NAICS codes 3111–3399 (manufacturing), 541711 (biotech R&D), and 541712 (physical, engineering, and life sciences R&D).

"Qualified property" for the purposes of the exemption includes:

  • Machinery and equipment
  • Equipment or devices used or required to operate, control, regulate or maintain machinery and equipment
  • Tangible personal property used in pollution control
  • Special purpose buildings and foundations used as an integral part of the manufacturing, manufacturing, processing, refining, fabricating or recycling process, or that constitute a research or storage facility used during those processes

"Qualified uses" include:

  • Manufacturing, processing, refining, fabricating or recycling
  • Research and development
  • Maintenance, repair, measurement or testing of property described above
  • The performance of a construction contract for a qualified person, provided that the qualified person will use the resulting improvement to real 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 those processes

The exemption is effective for the next eight years, and is scheduled to sunset after June 30, 2022. Additional information is available on the California Board of Equalization's website.

Businesses primarily engaged in manufacturing and R&D activities should analyze their business activities, purchasing plans and accounting records in order to properly claim any allowable exemption for qualifying purchases.

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