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California: Sales Tax Exemptions on the Horizon for Manufacturers


5/8/13

Synopsis:

Manufacturers may be interested in two bills currently moving through the California Legislature that could provide qualified manufacturers with new exemptions from sales/use tax for qualified purchases.

Issue:

Earlier this year, the California Legislature expanded a sales tax exemption for advanced manufacturing expenses (click here to read the previous alert that CohnReznick issued on this). Two additional sales tax bills have been introduced to complement this exemption, reduce “tax pyramiding,” bring California more in line with sales tax provisions in other states, and further mitigate the state’s sales tax impact on certain California manufacturers.

General Assembly Bill:

The General Assembly introduced a bill to provide a state sales tax exemption for property purchased for manufacturing and research and development. The exemptions would apply to purchases of tangible personal property for use by:

  • Qualified manufacturers to be used primarily in any stage of the  “manufacturing, processing, refining, fabricating or recycling of property”
  • A contractor for use in the performance of construction contracts for qualified manufacturers
  • Qualified manufacturers  for use in research and development
     

The exemption would apply at the state level only and would not include any local sales tax that may be due. The exemption would be effective on January 1, 2014.
 
Senate Bill:

The Senate’s sales tax exemption bill applies to aerospace manufacturers. If enacted, the bill provides a sales tax exemption for purchases of property used in the research, development, and manufacture of aerospace products. This exemption would be effective January 1, 2014, and would remain in effect until January 1, 2019.

Suggested Action/Contact:

The Senate will hold a hearing on its bill on May 8, 2013 and the Assembly will hold a hearing on its bill on May 13, 2013. If enacted, we will provide additional information regarding the final legislation.

For more information on these bills, and to track their progress, please contact:

  • Alan Wolfson, Partner and Manufacturing and Distribution Practice Leader, at 646-254-7416
  • Scott Smith, Senior Manager, State and Local Tax Services, at 973-364-7720

For information on CohnReznick’s Manufacturing and Wholesale Distribution Industry Practice, please visit our webpage.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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