California Enacts New Sales and Use Tax Exemption for Manufacturers


The state of California recently enacted a state sales and use tax exemption on certain purchases and leases of tangible personal property. This exemption provides an up-front cash savings for qualifying transactions and applies to businesses in specific industries, which includes most of the manufacturing sector and research and development in Biotechnology, Physical, Engineering, and Life Sciences. The tangible personal property must be purchased for use in a manufacturing or research and development process, and be used in any stage of the manufacturing process, from receipt of raw materials to completed form, including packaging and on site storage for work in progress.

The new sales and use tax incentive is an exemption, not a credit, and will be in effect from July 1, 2014, through June 30, 2022. It is limited to the first $200 million of tangible personal property purchased per year for a business. The exemption applies only to the state sales and use tax rate portion, currently at 4.1875 percent and does not apply to any local, city, county, or district tax.

To qualify for the exemption, the purchaser must provide the seller with an exemption certificate in a timely manner. More details on the credit, as well as exemption certifications, can be found on the Board of Equalization website.