The partial exemption rate applies to the sale, use, purchase, and lease of qualified tangible personal property on or after July 1, 2014, and before July 1, 2030. Generally, a sale occurs at the time title or possession of the property transfers to the buyer regardless of when a purchase order is issued or payment is made (unless the terms of the sale expressly provide otherwise). Use includes the exercise of any right or power over tangible personal property incident to the ownership of that property but it does not include the sale of that property in the regular course of business. (Rev. & Tax. Code, § 6009.) In addition, “storage” and “use” does not include the keeping, retaining, or exercising of any right or power over tangible personal property for the purpose of transporting the property outside California for use thereafter solely outside the state. (Rev. & Tax. Code, § 6009.1.)
Partial Exemption Rate
The partial exemption rate is currently 3.9375 percent. Accordingly, when the partial exemption applies, the sales or use of the qualifying tangible personal property is taxed at a rate of 3.3125 percent (7.25 percent current statewide tax rate — 3.9375 percent partial exemption rate) plus any applicable district taxes. You can lookup tax rates by city, county, or address on the California City & County Sales & Use Tax Rates webpage.
Required Documentation
In order to document the partially exempt transaction, you need to obtain a timely exemption certificate from your customer.
There are two sample certificates available on our website for your use in documenting the partial exemption.
- Partial Exemption Certificate for Manufacturing, Research and Development Equipment
- Construction Contracts — Partial Exemption Certificate for Manufacturing, Research and Development Equipment
Any document may be regarded as a partial exemption certificate if it contains all of the following:
- The signature of the purchaser, the purchaser's agent, or the purchaser's employee.
- The name, address, and telephone number of the purchaser.
- The purchaser's seller's permit number, or if the purchaser is not required to hold a seller's permit, a notation to that effect and the reason.
- A statement that the property purchased is:
- to be used primarily for a qualifying activity, or
- for use by a contractor performing a construction contract for a qualified person.
- A statement that the purchaser is:
- a qualified person primarily engaged in a qualifying line of business, or
- a contractor performing a construction contract for a qualified person.
- A statement that the property purchased is qualified tangible personal property.
- A description of the property purchased.
- The date of execution of the document.
Certificates are considered timely if they are taken any time before the seller bills the purchaser for the property, any time within the seller's normal billing or payment cycle, or at any time at or prior to delivery of the property to the purchaser.
When you take a timely partial exemption certificate in the proper form and in good faith, the partial exemption certificate relieves you from the liability for the sales tax or the duty of collecting the use tax subject to the exemption.
Invoices with claimed exempt sales should specify the name(s) of the purchasers in order to relate them to exemption certificates. It is highly recommended that you examine your certificates on a regular basis and keep the purchasers information up to date.
Exemption certificates received from qualified persons must be maintained for a period of not less than four years from the date on which you claim the partial exemption.