For manufacturers and companies with R&D costs in the sciences, this is a great opportunity to save on sales taxes!
A new law beginning July 1, 2014 allows companies to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. This exemption roughly replaces the Sales Tax Credit through the Enterprise Zone which expired 12/31/13.
The partial exemption is currently at the rate of 4.1875% instead of today’s state sales tax rate of 7.50%. District sales tax will still apply and be extra. The partial exemption is available through June 30, 2022.
In order to qualify for the partial exemption all three of these conditions must be met:
- Be a “Qualified Person”. A Qualified Person is an entity or sole proprietor business which is primarily engaged (50% or more of the time) in manufacturing, research and development in biotechnology, and research and development in the physical, engineering, and life sciences.
- Must purchase “Qualified Property”. Qualified Property includes machinery and equipment including component parts used to regulate, operate, control and maintain the machinery. This includes computers and software used in this capacity as well as all repair and replacement parts with a useful life of more than one year. Not included are consumables with a useful life of less than one year, furniture, inventory, and other tangible personal property used in warehousing and storage, administration, general management, and marketing.
- Must be a “Qualified Use”. Qualified Use means that the Qualified Property is used in any stage of the manufacturing or research and development process, including repairs, testing and construction.
Steps that a purchaser of Qualified Property must take in order to take advantage of the partial sales tax exemption:
- Provide the seller with a filled out Partial Exemption Certificate form BOE-230-M. There is a different Partial Exemption Certificate for construction contracts. This must be done in a timely manner.
- The form will include the seller’s name, address and permit number, primary use of the equipment, description of Qualified Property, and name, address and signature of the purchaser.
- The seller will charge sales tax at the partial exemption rate. A certificate can be provided for each transaction or a blanket certificate covering multiple transactions can be issued.