California Issues Guide for Manufacturing and Research & Development Partial Exemption

The California Department of Tax and Fee Administration has issued an updated tax guide for the state’s manufacturing and research and development partial sales and use tax exemption. Legislation effective January 1, 2018 expanded the exemption to include:

• Specified electric power generation or distribution businesses as “qualified persons.”
• Special purpose buildings and foundations used as an integral part of the generation or production or storage and distribution of electric power as “qualified tangible personal property.”
• Certain persons engaged in agricultural business activities as “qualified persons.”

Under the exemption, qualifying manufacturers, researchers, and developers can pay a lower sales or use tax rate on qualifying equipment purchase and leases. In general, to be eligible for the partial exemption, the taxpayer must be primarily engaged in certain types of businesses (a “qualified person”), purchase qualified tangible personal property, and use the tangible personal property in a qualified manner.

For purposes of this exemption, the manufacturing process begins from the point raw materials are received and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified person and ending at the point at which the activity has altered the product to its completed form, including packaging, if required.

For more information about what qualifies, you can read the CDTFA Tax Guide or visit their webpage on the topic. (Manufacturing and Research & Development Exemption Tax Guide, Pub 541, California Department of Tax and Fee Administration, September 8, 2018).