On July 1, 2014, a new law will allow manufacturers and certain research and developers obtain a partial exemption of sales and use tax on certain qualified equipment purchases and leases. You must meet all three requirements:
- “Qualified Person” : These are enterprises that are engaged in certain types of businesses. A “qualified person” means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in the North American Industry Classification System (NAICS). These industries generally include those primarily engaged in the business of all forms of manufacturing, research and development in biotechnology, and research and development in the physical, engineering, and life sciences. (NAICS was developed under the auspices of the Office of Management and Budget (OMB), and adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico’s Instituto Nacional de Estadistica y Geografia , to allow for a high level of comparability in business statistics among the North American countries.)
To be primarily engaged as a legal entity or as an establishment you must, in the prior financial year, either derive 50 percent or more of gross revenue (including inter-company charges) from, or expend 50 percent or more of operating expenses in a qualifying line of business. Alternatively, an establishment is primarily engaged if, in the prior financial year, it allocates, assigns or derives 50 percent or more of either of the following to a qualifying line of business: (1) employee salaries and wages, (2) value of production, or (3) number of employees based on a full-time equivalency.
2. “Qualified Properties”: Machinery, equipment, and tangible personal property. However, look at the description because there are some exceptions.
3. Use Qualified personal property for uses (50% +) allowed by law:
- Any stage of manufacturing, processing, refining, fabricating, or recycling.
- Research and development
- Maintaining qualified personal and tangible property.
- Contractor’s purchases of property used in construction for a qualified person if that person uses it for a qualified purpose.
Make sure you understand the rules. These are explained on this site: https://www.boe.ca.gov/sutax/manufacturing_exemptions.htm#Qualifications
______________________________________________________________________________
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.