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Manufacturing Sales Tax Exemption

Written by Christopher Girdwood | Sep 10, 2014 7:00:00 AM

Beginning on July 1, 2014 SCV manufacturers can obtain a partial sales tax exemption on certain equipment purchased or leased. This economic development incentive was created to improve the cost of doing business for California manufacturers.  

A tax exemption reduces the amount of tax paid at the time of purchase. Specifically, the sales tax exemption available to qualified SCV manufacturers would reduce their total sales tax rate from 9.0% to 4.8125% on qualified property. This could result in substantial savings for SCV firms given the large number of manufacturers in the our community.

According to the Board of Equalization (BOE), a SCV manufacturer must meet specific criteria to be eligible for the tax exemption. First, a SCV manufacturer must be designated a “qualified person” whose line of business is primarily active in (50% revenue or operating expenses related to) all forms of manufacturing, research and development in physical and life sciences, and engineering.

Second, a SCV manufacturer must purchase “qualified property”, which includes: machinery and equipment including component parts for equipment, equipment used to operate, control, regulate or maintain the equipment, tangible personal property used in pollution control, and/or special purpose buildings and foundations used as an integral part of manufacturing process.

SCV manufacturers will use BOE Form 230-M when working with retailers and vendors to document the sales tax exemption. It’s important to note that firms will be charged the reduced State sales tax rate of 3.3125% at the time of purchase. 

Please note that the sales tax exemption is limited to $200 Million in qualified purchases per calendar year. Also, if you remove the property within the first year of its use – you no longer qualify for the tax exemption. For more info please contact us!