AB 1951 – Full Exemption for Manufacturing Equipment Purchases

Assembly Bill 1951 is off to the Governor’s Desk for final action prior to the September 30 deadline for Governor Newsom to act on measures. The bill is jointly authored by Assembly Members Grayson, Cooley, Cooper, Daly, Gipson, Petrie-Norris, Quirk-Silva, Ramos, Salas, Villapudua, and Wood.

AB 1951 would amend, add, and repeal Revenue and Taxation Code Section 6377.1. As a tax levy, the bill would go into immediate effect when signed by the Governor. Existing law provides a partial (i.e., from the state’s share of the sales/use tax) exemption for the purchase of specified manufacturing equipment. The current partial exemption is in effect from January 1, 2014 through July 1, 2030. In addition, there is a cap of $200 million 

Between January 1, 2023 and December 31, 2027, this bill would make Section 6377.1 a full exemption for purchases of specified manufacturing equipment not exceeding $200 million. The bill would repeal this section on January 1, 2028 and reinstate the partial exemption on that same date.

The bill would require the California Department of Tax and Fee Administration to submit a report to the Legislature on the exemption and would provide findings and declarations relating to the goals of the exemption.

Section 1 of the bill provides four legislative findings and declarations including that businesses conducting manufacturing or research and development activities are essential to the economic well-being of the state of California and provide high-wage jobs for Californians. In addition, California has the highest state-level sales tax rate among the 50 states, and 38 states fully exempt manufacturing equipment from sales and use tax.

Section 2 of the bill would amend Revenue and Taxation Code Section 6377.1 to change dates and make technical changes, and make this section operative until January 1, 2023, and as of that date is repealed.

Section 3 of the bill would add Revenue and Taxation Code Section 6377.1 to replicate the existing exemption, but make it a full sales/use tax exemption until January 1, 2028, and as of that date is repealed.

Section 4 of the bill would add Revenue and Taxation Code Section 6377.1 to reinstate the partial exemption for tax years January 1, 2028 through June 30, 2030.

Section 5 of the bill sets forth compliance with Section 41 with legislative findings and declarations that the objective of the exemption is to encourage new and continued investment in California in the areas of manufacturing and research and development. Performance indicators are set forth and CDTFA would be required to annually prepare a written report on specified factors. In addition, the Legislative Analyst’s Office would be required to prepare a report by January 1, 2027 comparing the full exemption to the partial exemption and the report would have to include specified information.

Section 6 of the bill would provide that no appropriation is made by this act and no reimbursement will be made to any local agency. Section 7 of the bill provides that the bill is a tax levy and will take effect immediately.