As of July 1, 2014, manufacturers and certain research and developers, and as of January 1, 2018, certain electric power generators and distributors, may qualify for a partial exemption from sales and use tax on the purchase or lease of qualified machinery and equipment primarily used in manufacturing, research and development, and electric power generation or production, storage or distribution. To be eligible, they must meet all these conditions:
- Be primarily engaged in certain types of business, also known as being a “qualified person.”
- Purchase “qualified tangible personal property.”
- Use that qualified tangible personal property in a qualified manner.
The partial exemption is provided by Revenue and Taxation Code (R&TC) section 6377.1.
Assembly Bill 398 (Stats. 2017, ch. 135) amended R&TC section 6377.1 which:
- Expanded the partial exemption to qualified tangible personal property purchased for use by a qualified person to be used primarily in the generation or production, storage or distribution of electric power. (See Qualified Tangible Personal Property on the Qualifications page.)
- Beginning January 1, 2018, expanded the definition of “qualified tangible personal property” to include special purpose buildings and foundations used as an integral part of the generation or production or storage and distribution of electric power. (See Qualified Tangible Personal Property on the Qualifications page.)
- Beginning January 1, 2018, expanded the definition of “qualified person” to include businesses primarily engaged in operating electric power generation facilities as described in NAICS codes 22111 to 221118, inclusive, or primarily engaged in electric power distribution as described in North American Industry Classification System (NAICS) code 221122. (See Qualified Person on the Qualifications page.)
- Beginning January 1, 2018, removed the exclusion from the definition of a “qualified person” for certain persons engaged in agricultural business activities that were previously excluded as an apportioning trade or business under R&TC section 25128. (See Qualified Person on the Qualifications page.)
- Amended the definition of “useful life” to state that tangible personal property that is deducted on the California state franchise or income tax return under R&TC sections 17201 and 17255 or 24356, is deemed to have a useful life of one or more years. (See Qualified Tangible Personal Property on the Qualifications page.)
- Extended the sunset date of R&TC section 6377.1 from June 30, 2022, to June 30, 2030.
Please also see the Industry Topics page, which includes the following topics:
- Useful Life
- Special Purpose Building
- Solar Power Equipment
- Construction Contractors
- Electric Power Generation or Production, Storage or Distribution
- Repair Parts
- Filing a Claim for Refund
Get it in Writing
Our tax and fee laws can be complex and difficult to understand. If you have specific questions about this exemption and who or what qualifies, we recommend that you get answers in writing from us. This will enable us to give you the best advice and may protect you from tax, penalties, and interest in case we give you erroneous information.
Requests for written advice can be emailed to us or mailed directly your local CDTFA office.
For more details, please see publication 8, Get it in Writing!
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