Bill Text: CA AB486 | 2013-2014 | Regular Session | Amended
Bill Title: Sales and use taxes: exemption: manufacturing research and development.
Spectrum: Bipartisan Bill
Status: (Introduced - Dead) 2014-02-03 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB486 Detail]
Download: California-2013-AB486-Amended.html
BILL NUMBER: AB 486 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 10, 2013
INTRODUCED BY Assembly Member Mullin
( Principal coauthor: Assembly Member
V. Manuel Pérez )
( Principal coauthor: Senator
Correa )
(Coauthors: Assembly Members Alejo, Donnelly,
Harkey, Maienschein, Patterson, and Perea
Perea, and Wilk )
(Coauthors: Senators Correa, Fuller,
and Hill Gaines, Hill, and
Nielsen )
FEBRUARY 19, 2013
An act to add Section 6377.4 to Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 486, as amended, Mullin. Sales and use taxes: exemption:
manufacturing research and development.
Existing sales and use tax laws impose taxes on retailers measured
by the gross receipts from the sale of tangible personal property
sold at retail in this state, or on the storage, use, or other
consumption in this state of tangible personal property purchased
from a retailer for storage, use, or other consumption in this state.
That law provides various exemptions from those taxes.
The bill would exempt from those taxes, on and after January 1,
2014, the gross receipts from the sale of, and the storage, use, or
other consumption of, qualified tangible personal property purchased
by a qualified person for use primarily in manufacturing, processing,
refining, fabricating, or recycling of property, as specified,
qualified tangible personal property purchased for use by a
contractor for specified purposes, as provided, and tangible personal
property purchased for use by a qualified person to be used
primarily in research and development, as provided.
The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes
counties and cities to impose local sales and use taxes in conformity
with the Sales and Use Tax Law, and existing law authorizes
districts, as specified, to impose transactions and use taxes in
conformity with the Transactions and Use Tax Law, which conforms to
the Sales and Use Tax Law. Exemptions from state sales and use taxes
are incorporated into these laws.
This bill would specify that this exemption does not apply to
local sales and use taxes, transactions and use taxes, and specified
state taxes from which revenues are deposited into the Local Public
Safety Fund, the Education Protection Account, and the Local Revenue
Fund.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) California is one of only three states that tax the sale of
equipment used in manufacturing.
(b)
(a) While manufacturing is increasing in other parts of
the United States, it continues to decline in California.
(c)
(b) The Legislative Analyst's Office has indicated that
exempting the sales and use tax "would reduce 'tax
pyramiding'--an 'tax pyramiding'-- an
economically distortionary feature of our tax code whereby
manufacturers pay sales tax on their equipment and their customers
then pay additional sales tax on the final product itself. Moreover,
such a policy change would bring California more in line with sales
tax policies of other states."
(d)
(c) While California's economy is recovering from the
great recession, it is important to find ways to accelerate economic
growth.
SEC. 2. Section 6377.4 is added to the Revenue and Taxation Code,
to read:
6377.4. (a) Beginning January 1, 2014, there are exempted from
the taxes imposed by this part, the gross receipts from the sale of,
and the storage, use, or other consumption in this state of, all of
the following:
(1) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in any stage of the
manufacturing, processing, refining, fabricating, or recycling of
property, beginning at the point any raw materials are received by
the qualified person and introduced into the process and ending at
the point at which the manufacturing, processing, refining,
fabricating, or recycling has altered property to its completed form,
including packaging, if required.
(2) Qualified tangible personal property purchased for use by a
contractor purchasing that property for use in the performance of a
construction contract for the qualified person, who will use the
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a storage facility
for use in connection with those processes.
(3) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(2) "Manufacturing" means the activity of converting or
conditioning tangible personal property by changing the form,
composition, quality, or character of the property for ultimate sale
at retail or use in the manufacturing of a product to be ultimately
sold at retail. Manufacturing includes any improvements to tangible
personal property that result in a greater service life or greater
functionality than that of the original property.
(3) "Primarily" means 50 percent or more of the time.
(4) "Process" means the period beginning at the point at which any
raw materials are received by the qualified person and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person has altered tangible
personal property to its completed form, including packaging, if
required. Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified person's manufacturing, processing,
refining, fabricating, or recycling activity is conducted. Raw
materials that are stored on premises other than where the qualified
person's manufacturing, processing, refining, fabricating, or
recycling activity is conducted shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
tangible personal property.
(6) "Qualified person" means either of the following:
(A) A person who is primarily engaged in those lines of business
described in Codes 3111 to 3399, inclusive, or
5112 , 541711, or 541712 of the North American Industry
Classification System (NAICS) published by the United States Office
of Management and Budget, 2012 edition.
(B) An affiliate of a person who is a qualified person pursuant to
subparagraph (A) if the affiliate is included as a member of the
qualified person's unitary group for which a combined report is
required to be filed under Article 1 (commencing with Section 25101)
of Chapter 17 of Part 11.
(7) (A) "Qualified tangible personal property" includes, but is
not limited to, all of the following:
(i) Machinery and equipment, including component parts and
contrivances such as belts, shafts, moving parts, and operating
structures.
(ii) Equipment or devices used or required to operate, control,
regulate, or maintain the machinery and equipment, including, without
limitation, computers, data processing equipment, and computer
software, together with all repair and replacement parts with a
useful life of one or more years, whether purchased separately or in
conjunction with a complete machine and regardless of whether the
machine or component parts are assembled by the qualified person or
another party. Any repair and replacement parts that the qualified
person treats as having a useful life of one or more years for state
income or franchise tax purposes shall be presumed to have a useful
life of one or more years for purposes of this section.
(iii) Qualified tangible personal property used in pollution
control that exceeds standards established by this state or any local
or regional governmental agency within this state.
(iv) Special purpose buildings and foundations used as an integral
part of the manufacturing, processing, refining, fabricating, or
recycling process, or that constitute a research or storage facility
used during those processes. Buildings used solely for warehousing
purposes after completion of those processes are not included.
(B) "Qualified tangible personal property" does not include any of
the following:
(i) Consumables with a useful life of less than one year.
(ii) Furniture, inventory, and equipment used in the extraction
process, or equipment used to store finished products that have
completed the manufacturing process.
(iii) Tangible personal property used primarily in administration,
general management, or marketing.
(8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
(9) "Research and development" means those activities defined in
Section 174 of the Internal Revenue Code.
(10) "Useful life" for tangible personal property that is treated
as having a useful life of one or more years for state income or
franchise tax purposes shall be deemed to have a useful life of one
or more years for purposes of this section. "Useful life" for
tangible personal property that is treated as having a useful life of
less than one year for state income or franchise tax purposes shall
be deemed to have a useful life of less than one year for purposes of
this section.
(c) An exemption shall not be allowed under this section unless
the purchaser furnishes the retailer with an exemption certificate,
completed in accordance with any instructions or regulations as the
board may prescribe, and the retailer retains the exemption
certificate in its records and furnishes the board with a
copy of the exemption upon request. The exemption certificate shall
contain the sales price of the machinery or equipment that is exempt
pursuant to subdivision (a).
(d) (1) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section
7200)) or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)), the exemption established by this section shall not
apply with respect to any tax levied by a county, city, or district
pursuant to, or in accordance with, either of those laws.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Section 6051.2, or 6201.2, or pursuant to Sections
Section 35 and subdivision (f) of Section
36 of Article XIII of the California Constitution.
(e) (1) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of property which,
within three years from the date of purchase, is either removed from
California, converted from an exempt use under subdivision (a) to
some other use not qualifying for the exemption, or used in a manner
not qualifying for the exemption. The taxpayer that has received the
exemption under this section for purchasing qualifying personal
property shall notify the board if the property is either removed
from California, converted from an exempt use under subdivision (a)
within three years from the date of purchase, or used in a manner not
qualifying for the exemption.
(2) If a purchaser certifies in writing to the seller that the
property purchased without payment of the tax will be used in a
manner entitling the seller to regard the gross receipts from the
sale as exempt from the sales tax, and within three years from the
date of purchase, the purchaser (1) removes that property outside
California, (2) converts that property for use in a manner not
qualifying for the exemption, or (3) uses that property in a manner
not qualifying for the exemption, the purchaser shall be liable for
payment of sales tax, with applicable interest, as if the purchaser
were a retailer making a retail sale of the property at the time the
property is so removed, converted, or used, and the sales price of
the property to the purchaser shall be deemed the gross receipts from
that retail sale.
SEC. 3. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
