The California Manufacturers’ Sales/Use Tax Exemption allows certain manufacturing and biotech companies (within NAICS codes 3111 to 3399, 541711, or 541712) to claim a partial exemption from sales and use tax on purchases of manufacturing and research and development (R&D) equipment. The partial exemption rate is 4.1875%.
On July 17, 2014 the California State Board of Equalization (BOE) adopted a regulation to implement the California Manufacturers’ Sales/Use Tax Exemption. The law and related regulation applies to equipment used primarily (greater than 50% of the time) in manufacturing or research and development. This regulation further clarified the Board’s view of the types of businesses and purchases that qualify for the exemption which took effect on July 1, 2014.
The Regulation discusses specific areas that might be of interest to our clients, including:
- Qualifications of an “establishment” within a business that might not be in a primarily qualified NAICS code.
- Definition of “qualified property” including special purpose buildings.
- Special rules for construction contractors.
Documentation is Key
The 13 pages of detailed regulations is further evidence that this exemption, while seemingly straightforward on its face, is more complicated than simply issuing an exemption certificate.
Qualified purchasers must be ready to document qualification, and have necessary supporting data in their files contemporaneously to maximize the benefit and be able to sustain it upon eventual audit by the BOE.
And, of course, Miles Consulting Group can help with that! Please stay tuned for further updates on the California Manufacturing Exemption or contact us with specific questions.