Manufacturing Sales Use Tax Exemption

A new law beginning on July 1, 2014 allows manufacturers and certain research and developers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases. To be eligible under this law, you must meet all three of these conditions:

  • Be engaged in certain types of business, also known as a “qualified person.”
  • Purchase “qualified property.”
  • Use that qualified property for the uses allowed by this law.

Qualifications

The list of criteria to qualify for the manufacturing exemption can be quite complex. We suggest you take the time to determine if your business and purchases or leases qualify, click here for qualifications.

Sellers

The partial exemption rate applies to the sale, purchase, and lease of qualified tangible personal property on or after July 1, 2014 and before July 1, 2022. A sale occurs at the time title or possession of the property transfers to the buyer regardless of when a purchase order is issued or payment is made (unless the terms of the sale expressly provide otherwise). Click here for more seller details.

Purchasers

There is no need to apply to the BOE for the exemption. When you make qualifying purchases or leases, you must provide the seller with a timely partial exemption certificate to obtain the reduced tax rate. In May the BOE will have two sample certificates available on their website for the exemption, one for general purchases and one for construction contractors. Click here for more purchaser details.

Get it in Writing

Tax and fee laws can be complex and difficult to understand. If you have specific questions about this exemption and who or what qualifies, we recommend that you get answers in writing from the California State Board of Equalization (BOE). This will enable you to get the best advice and will protect you from tax, penalties and interest in case you are given erroneous information. Requests for written advice can be emailed to the Board of Equalization (BOE) or mailed directly to the BOE field office nearest you. For more details, please see publication 8Get It in Writing!

If You Need Help

If at any time you need assistance feel free to contact the California State Board of Equalization. BOE staff is developing a proposed regulation for consideration by elected Board members to help businesses understand what manufacturing equipment qualifies for the sales tax exemption. To receive copies of future discussion papers, including drafts of the proposed regulation, ask to be added to the list of interested parties at: btcinformationrequests@boe.ca.gov

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