The state of California has provided a partial exemption from sales taxes on purchases of equipment used in manufacturing or research and development activities for years 2014 through 2022. This partial exemption is at a rate of 4.1875% from July 1, 2014 to December 31, 2016 and 3.9375% from January 1, 2017 to June 30, 2022.
The qualifications to take advantage of this partial sales tax exemption are straightforward and rather lenient. To qualify a company must meet three conditions:
I. Be engaged in a qualifying business:
- any form of manufacturing; or
- research and development in biotechnology, physical sciences, engineering or life sciences;
II. Purchase “qualified property”
- machinery or equipment;
- devices used to operate, control, regulate or maintain machinery or equipment;
- (Note: consumable supplies with a useful life of less than one year are excluded);
III. Use the qualified property for allowable uses
- manufacturing; or
- research and development
There is no need to apply for an exemption. Instead, companies simply need to provide a partial exemption certificate to each seller from whom they purchase equipment. Here is a link to the certificate: https://www.boe.ca.gov/pdf/boe230m.pdf.
For any equipment that qualified under the exemption, for which full sales tax has already been paid, a company may issue a partial exemption certificate along with supporting documentation to the appropriate vendor, who can issue a refund (the vendor will in turn need to file a claim for a refund for itself from the BOE). If the transaction was subject to use tax (typically in an out-of-state purchase), a company may file a claim directly with the BOE using this form: https://www.boe.ca.gov/pdf/boe101.pdf.
The California Board of Equalization ("BOE") - (what a name!) - provides information about this partial sales tax exemption on its website: https://www.boe.ca.gov/sutax/manufacturing_exemptions.htm#Overview.
