California is conducting hearings to consider legislative changes to expand the sales and use tax exemption for manufacturing and research and development equipment. Assembly Bill 1951 was introduced to expand the existing sales and use tax exemption for the purchase and use of manufacturing equipment in California through temporary changes to Revenue and Taxation Code Section 6377.1. The purpose of the bill is to encourage greater investment in California and to preserve the state’s status as a hub of innovation and technology. The California Taxpayers Association and the California Manufacturers and Technology Association are sponsors of this proposed bill.
The bill acknowledges that businesses conducting manufacturing or research and development activities are essential to the economic well-being of the state and provide high-wage jobs for its residents. It is also noted that California has the highest state-level sales tax rate among the 50 states and that 38 states fully exempt manufacturing equipment from sales and use tax.
Under this bill, the current Revenue and Taxation Code Section 6377.1 would be repealed on January 1, 2023. The changes to this section would be effective from January 1, 2023, until January 1, 2033, and would then be repealed. The proposed changes would:
- Update certain definitions of eligible equipment to correspond to current federal guidelines
- Eliminate the limitation of $200 million in purchases by a qualified person, making this a full exemption
- Eliminate the exception to the exemption that pertains to an apportioning trade or business
- Extend the exclusion to specified consumables that are an integral part of a manufacturing operation
- Eliminate the requirement that qualified tangible personal property have a useful life of one year or more
- Eliminate the reporting requirement currently imposed on the Department of Finance
- Terminate the specified annual transfer of moneys from the Greenhouse Gas Reduction Fund to the General Fund
The vote by the Assembly Revenue and Taxation Committee on this bill will be held on May 5, 2022. We will keep you updated as this bill progresses.
TECHNICAL INFORMATION CONTACTS:
Mark L. Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com
Mary Bernard
Manager
Ryan
401.272.3363
mary.bernard@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.