Use Tax Exemptions

Article 3 of Chapter 4 of Part 1 of Division 2 of the Revenue and Taxation Code deals with exemptions under the California Use Tax Law.

Section 6401 provides that the storage, use, or other consumption in this state of property, the gross receipts from the sale of which the purchaser establishes to the satisfaction of the board were included in the measure of the sales tax, is exempted from the use tax; provided, however, that this exemption does not extend to the possession of, or the exercise of any right or power over, tangible personal property by a lessee under a lease.

Section 6402 specifies that the storage, use or other consumption in this State of property purchased from any unincorporated agency or instrumentality of the United States, except any property reported to the Surplus Property Board of the United States, or to any agency succeeding to the functions of that board, as surplus property by any owning agency and any property included in any contractor inventory, is exempted from the use tax. The terms “surplus property,” “owning agency,” and “contractor inventory” are defined.

Section 6403 states that the storage, use, or other consumption in this state of property donated by any seller to any organization described in Section 170(b)(1)(A) of the Internal Revenue Code and located in California, is exempt from the use tax. A museum is not a qualifying donee organization under this section unless the museum is a nonprofit museum and uses the donated property exclusively for display purposes within a museum.

Section 6404 provides that the loan by any retailer of any tangible personal property to any school district for an educational program conducted by the district is exempt from the use tax.

Section 6405 specifies that the storage, use, or other consumption in this state of the first $800 of tangible personal property purchased in a foreign country by an individual from a retailer and personally hand-carried into this state from the foreign country within any 30-day period is exempt from the use tax. This section does not apply to property sent or shipped to this state.

Section 6406 provides a credit against, but cannot exceed, the taxes imposed on any person, by any ordinance enacted by reason of the storage, use, or other consumption of tangible personal property in this state to the extent that the person has paid a retail sales or use tax, or reimbursement therefor, imposed with respect to that property by any other state, political subdivision thereof, or the District of Columbia prior to the storage, use, or other consumption of that property in this state. The credit must be apportioned to the taxes against which it is allowed in proportion to the amounts of those taxes.

Section 6407 states that the possession of, or the exercise of any right or power over, tangible personal property under a lease of such property is exempt from the use tax for any period of time for which the lessee is obligated to lease the property for an amount fixed by the lease. The lessee is deemed not to be obligated for any period of time for which he has the unconditional right to terminate the lease upon notice, whether or not the right is exercised.

Section 6408 provides the storage, use, or other consumption in this state of medical health information literature purchased by any organization formed and operated for charitable purposes which qualifies for the exemption known as the “welfare exemption”, which is engaged in the dissemination of medical health information, is exempted from the use tax; provided, however, that such purchases are made from a national office, or another branch of that national office, of the same organization.

Section 6409 states that the storage, use, or other consumption in this state of health and safety educational materials and insignia routinely sold in connection with health and safety and first aid classes, purchased or sold by any national organization formed and operated for charitable purposes which qualifies for the exemption known as the “welfare exemption”, which is engaged in the dissemination of health and safety information, is exempted from the use tax; provided, however, that such purchases are made from a national office or another branch or chapter of such national office of the same organization.

Section 6410 says the storage, use, or other consumption in this state of new or used trailers or semitrailers which involves the moving or operation laden of those trailers or semitrailers in accordance with a one-trip permit is exempted from the use tax.

Section 6411 states that the storage, use, or other consumption in this state of tangible personal property becoming a component part of any railroad equipment in the course of repairing, cleaning, altering, or improving that railroad equipment outside of this state, and charges made for labor and services rendered with respect to that repairing, cleaning, altering, or improving, are exempt from the use tax. The term “railroad equipment” is defined.

Section 6414 provides that the storage, use, or other consumption in this state of medicinal cannabis or medicinal cannabis product is exempt from the use tax in either of the specified circumstances.