Bill Text: CA AB922 | 2015-2016 | Regular Session | Amended
Bill Title: Sales and use taxes: exemption manufacturing.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Failed) 2016-02-01 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB922 Detail]
Download: California-2015-AB922-Amended.html
BILL NUMBER: AB 922 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 26, 2015
INTRODUCED BY Assembly Member Gallagher
FEBRUARY 26, 2015
An act relating to economic development.
An act to amend Section 6377.1 of the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 922, as amended, Gallagher. Economic development.
Sales and use taxes: exemption manufacturing.
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,
and provides various exemptions from those taxes.
Existing law exempts from those taxes, on and after July 1, 2014,
and before January 1, 2022, 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 qualified tangible personal property purchased for use
by a qualified person to be used primarily in research and
development, as provided. Existing law defines a "qualified person"
to be a person that is primarily engaged in specified lines of
business.
Existing law specifies 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, the Local Revenue Fund, the
Fiscal Recovery Fund, or the Local Revenue Fund 2011.
This bill would delete that repeal date, thereby extending the
application of the exemption indefinitely. The bill, on or after
January 1, 2023, would limit the exemption to a qualified person that
is located in a county, city and county, or metropolitan statistical
area that had an unemployment rate of 10% or more in the previous
calendar quarter.
This bill would take effect immediately as a tax levy.
Existing law provides for various economic development programs
that foster community sustainability and for community and economic
development initiatives throughout the state.
This bill would express the intent of the Legislature to develop a
new economic program that would operate in areas with high
unemployment.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6377.1 of the
Revenue and Taxation Code is amended to read:
6377.1. (a) Except as provided in subdivision (e), on or after
July 1, 2014, and before July 1, 2022, 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, any 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
tangible personal 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 tangible personal
property to its completed form, including packaging, if required.
(2) Qualified tangible personal property purchased for use by a
qualified person to be used primarily in research and development.
(3) Qualified tangible personal property purchased for use by a
qualified person to be used primarily to maintain, repair, measure,
or test any qualified tangible personal property described in
paragraph (1) or (2).
(4) 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, that will use that
property as an integral part of the manufacturing, processing,
refining, fabricating, or recycling process, or as a research or
storage facility for use in connection with those processes.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or
assemble components or tangible personal 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) (A) (i) "Qualified person" means a
person that is primarily engaged in those lines of business described
in Codes 3111 to 3399, inclusive, 541711, or 541712 of the North
American Industry Classification System (NAICS) published by the
United States Office of Management and Budget (OMB), 2012 edition.
(ii) On or after January 1, 2023, "qualified person" means a
qualified person, as defined in clause (i), that is located in a
county, city and county, or metropolitan statistical area that had an
unemployment rate of 10 percent or more in the previous calendar
quarter.
(B) Notwithstanding subparagraph (A), "qualified person" shall not
include either of the following:
(i) An apportioning trade or business that is required to
apportion its business income pursuant to subdivision (b) of Section
25128.
(ii) A trade or business conducted wholly within this state that
would be required to apportion its business income pursuant to
subdivision (b) of Section 25128 if it were subject to apportionment
pursuant to Section 25101.
(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, including, but not limited to,
computers, data-processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or
more years therefor, 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.
(iii) Tangible personal property used in pollution control that
meets 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" shall 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, processing, refining, fabricating, or
recycling 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 that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
(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 it to the board upon
request.
(d) (1) Notwithstanding the Bradley-Burns Uniform Local Sales and
Use Tax Law (Part 1.5 (commencing with Section 7200)) and 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, 6051.5, 6201.2, or 6201.5, pursuant to Section 35
of Article XIII of the California Constitution, or any tax levied
pursuant to Section 6051 or 6201 that is deposited in the State
Treasury to the credit of the Local Revenue Fund 2011 pursuant to
Section 6051.15 or 6201.15.
(e) (1) The exemption provided by this section shall not apply to
either of the following:
(A) Any tangible personal property purchased during any calendar
year that exceeds two hundred million dollars ($200,000,000) of
purchases of qualified tangible personal property for which an
exemption is claimed by a qualified person under this section. For
purposes of this subparagraph, in the case of a qualified person that
is required to be included in a combined report under Section 25101
or authorized to be included in a combined report under Section
25101.15, the aggregate of all purchases of qualified personal
property for which an exemption is claimed pursuant to this section
by all persons that are required or authorized to be included in a
combined report shall not exceed two hundred million dollars
($200,000,000) in any calendar year.
(B) The sale or storage, use, or other consumption of property
that, within one year from the date of purchase, is removed from
California, converted from an exempt use under subdivision (a) to
some other use not qualifying for exemption, or used in a manner not
qualifying for exemption.
(2) If a purchaser certifies in writing to the seller that the
tangible personal 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 the purchase exceeds
the two-hundred-million-dollar ($200,000,000) limitation described
in subparagraph (A) of paragraph (1), or within one year from the
date of purchase, the purchaser removes that property from
California, converts that property for use in a manner not qualifying
for the exemption, or 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 tangible personal property at the time
the tangible personal property is so purchased, removed, converted,
or used, and the cost of the tangible personal property to the
purchaser shall be deemed the gross receipts from that retail sale.
(f) This section shall apply to leases of qualified tangible
personal property classified as "continuing sales" and "continuing
purchases" in accordance with Sections 6006.1 and 6010.1. The
exemption established by this section shall apply to the rentals
payable pursuant to the lease, provided the lessee is a qualified
person and the tangible personal property is used in an activity
described in subdivision (a).
(g) (1) Upon the effective date of this section, the Department of
Finance shall estimate the total dollar amount of exemptions that
will be taken for each calendar year, or any portion thereof, for
which this section provides an exemption.
(2) No later than each March 1 next following a calendar year for
which this section provides an exemption, the board shall provide to
the Joint Legislative Budget Committee a report of the total dollar
amount of exemptions taken under this section for the immediately
preceding calendar year. The report shall compare the total dollar
amount of exemptions taken under this section for that calendar year
with the department's estimate for that same calendar year. If that
total dollar amount taken is less than the estimate for that calendar
year, the report shall identify options for increasing exemptions
taken so as to meet estimated amounts.
(h) This section is repealed on January 1, 2023.
SEC. 2. This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.
SECTION 1. It is the intent of the Legislature
to develop a new economic program that would operate in areas with
high unemployment.
