AB 52: Manufacturing Equipment Tax Credit

Assembly Bill 52 by Assemblyman Tim Grayson (D-Concord) was amended to provide a manufacturing equipment purchase tax credit. The bill would add and repeal Sections 17053.90 and 23623 of the Revenue and Taxation Code.

Section 1 of the bill contains three legislative findings and declarations, including that California has the highest state-level sales tax rate, and that 38 states fully exempt manufacturing equipment from sales and use taxes.

Section 2 of the bill would add Revenue and Taxation Code Section 17053.90, which would allow a taxpayer under the Personal Income Tax Law to claim a credit from January 1, 2024 through January 1, 2029. The credit would be in an amount equal to the amount of tax reimbursement paid during the taxable year for sales tax (or use tax paid) on gross receipts that would be exempt from taxation under the Sales and Use Tax Law.

Any deduction allowed for any amount paid or incurred by the taxpayer upon which the credit is based would be reduced by the amount of the credit allowed. If the credit allowed exceeds the taxpayer’s net tax, the excess amount would be allowed to be carried over for eight years. The Franchise Tax Board would be allowed to adopt regulations to carry out this credit.

Pursuant to Revenue and Taxation Code Section 41, the Legislature would declare the specific goal that the credits will achieve is to encourage new and continued investment in California in the areas of manufacturing and research and development. The Legislative Analyst would be required, prior to January 1, 2027, to review the effectiveness of the credits allowed and post the review on the office’s internet website.

Section 3 of the bill would add Revenue and Taxation Code Section 23623, which would allow a taxpayer under the Corporation Tax Law to claim a credit from January 1, 2024 through January 1, 2029. The credit would be in an amount equal to the amount of tax reimbursement paid during the taxable year for sales tax (or use tax paid) on gross receipts that would be exempt from taxation under the Sales and Use Tax Law.

Any deduction allowed for any amount paid or incurred by the taxpayer upon which the credit is based would be reduced by the amount of the credit allowed. If the credit allowed exceeds the taxpayer’s net tax, the excess amount would be allowed to be carried over for eight years. The FTB would be allowed to adopt regulations to carry out this credit.

Pursuant to Revenue and Taxation Code Section 41, the Legislature would declare the specific goal that the credits will achieve is to encourage new and continued investment in California in the areas of manufacturing and research and development. The LAO would be required, prior to January 1, 2027, to review the effectiveness of the credits allowed and post the review on the office’s internet website.