California Issues Update on Sales Tax Exemption for Manufacturing and Research and Development Equipment

DALLAS, April 12, 2017 /PRNewswire/ -- The California Legislative Analyst's Office has issued an update addressing the utilization of the partial manufacturing exemption that went into effect in 2014. Under the exemption, certain sales of manufacturing or research and development (R&D) equipment are excluded from the state portion of the sales tax rate. The exemption was passed in 2013 as part of the Governor's Economic Development Initiative (GEDI), which was designed to retain and attract manufacturing and R&D jobs and investment.

The State Board of Equalization (BOE) issued its annual report to the Legislature regarding use of the exemption on March 1, 2017. The BOE reported that an estimated $165 million was claimed in 2016, which was a 6% increase from the prior year. However, current estimates for 2016 are only about one-third the amount projected at the time the exemption was passed into law. The BOE's report provides options for expanding the use of the exemption for the consideration of the Legislature, which include allowing businesses to qualify more equipment for the exemption, increasing the annual cap on the amount of eligible equipment, and expanding the businesses that are eligible to claim the exemption

Legislation (AB 600 and SB 600) has been introduced that incorporates the BOE's recommendations and will bring the incentive program closer to its original revenue-neutral targets. Options include expanding the definition of "useful life," increasing the amount of the annual cap, extending the sunset date, and expanding the definition of qualified person to include agricultural processors and producers of electric power from alternate sources.  

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