Manufacturing Equipment Tax Exemption Legislation Introduced

On February 10, Assembly Bill 1951 was introduced jointly by Assembly Members Tim Grayson, Ken Cooley, Jim Cooper, Tom Daly, Mike Gipson, Cottie Petrie-Norris, Sharon Quirk-Silva, James Ramos, Rudy Salas, Carlos Villapudua, and Jim Wood to improve the existing sales/use tax exemption for the purchase and use of manufacturing equipment in California. The bill would make changes to Revenue and Taxation Code Section 6377.1.

Section One of the bill sets forth 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 in the United States, and thirty-eight states fully exempt manufacturing equipment from sales and use tax.

Finally, it is the intent of the Legislature to expand the sales and use tax exemption for manufacturing and research and development equipment to preserve California’s status as a hub of innovation and technology and encourage greater investment in California.

Section Two of the bill would amend Revenue and Taxation Code Section 6377.1 to provide that this section is operative until January 1, 2023 and is then repealed.

Section Three of the bill would add Revenue and Taxation Code Section 6377.1 which replicates existing law with specified change and it would take effect on January 1, 2023 until January 1, 2033 and is then repealed. Among other changes, the bill would:

• Update certain definitions 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; and,

• Terminate the specified annual transfer of moneys.

Section Four of the bill would set forth legislative findings and declarations that the sales and use tax exemption is to encourage new and continued investment in California in the areas of manufacturing and research and development. There would be performance indicators to determine if the exemption is achieving the objective, and Department of Tax and Fee Administration would be required to annually prepare a written report on specified information.

Section Five of the bill specifies that no appropriation is made by this act and the state will not reimburse any local agency for any sales and use tax revenues lost by it under this act.

Section Six of the bill provides that the bill is a tax levy and will go into immediate effect.