Manufacturing Exemption in California is here!

Beginning July 1, 2014, a partial exemption now applies to certain manufacturing and research and development exemptions.  These purchases are now subject to a reduced state rate of 3.3125% rather than the normal 7.5%.  It is important to note that district taxes will be at the same rate as prior to the exemption.

To be eligible for the exemption, the qualified purchase of tangible personal property must be made by one of the following:

  • A qualified person to be used primarily in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property.  California defines the process to begin with the raw materials are received and introduced to the process and will end when the tangible personal property is in its completed form, including packaging;
  • A qualified person to be used primarily in research and development;
  • A qualified person to be used primarily to maintain, repair, measure, or test any qualified tangible personal property described herein; and
  • A contractor purchasing that property for use in the performance of a construction contract for the qualified person that will use the property as an integral part of their manufacturing, processing, refining, fabricating, or recycling of tangible personal property process.

A completed, valid exemption certificate must be issued to the seller prior to any billing of the qualified property in order for the partial exemption to apply.  

 

It is important to note this partial exemption will not apply in either of the following scenarios:

  • Any tangible personal property purchased during any calendar year that exceeds $200 million of purchases of tangible personal property for which the exemption is claimed by a qualified person; or
  • The sale or storage, use, or consumption of property which will be removed from California within one year of purchase.

Finally, this partial exemption is currently set to expire June 30, 2022.

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