Tax Guide for Manufacturing, and Research & Development, and Electric Power Equipment & Buildings Exemption
Purchasers

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There is no need to apply for the exemption with us. When you make qualifying purchases, you must provide the seller with a timely partial exemption certificate.

Partial Exemption Certificate

There are two sample certificates available on our website for the exemption.

You may provide the certificate for each purchase, or you may issue blanket certificates (a certificate for recurring future purchases until rescinded).

If you issue a blanket certificate, you must also advise the retailer on physical documentation, such as a purchase order or sales agreement, regarding any purchases that are not subject to the partial exemption.

Any document may be regarded as a partial exemption certificate if it contains all the following:

  • The signature of the purchaser, the purchaser's authorized representative, 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 the execution of the document.

Exemption Limitations

The law provides that a qualified person's or combined reporting unit's purchases subject to the partial exemption cannot exceed $200 million in any calendar year. You may not carry over any unused amount to a following year.

The law does not allow prorating the $200 million cap when you are a qualified person for only a portion of the year. For example, you begin business operations on October 1, 2022. You may still claim up to the $200 million annual cap for the year 2022.

You are responsible for tracking the amount of purchases you make per calendar year. If your purchases exceed the $200 million annual cap, you will be held liable for the full sales tax amount on the purchases exceeding the limit.

If, at the time of purchase, you do not know whether you will meet the qualifications but anticipate you will meet the qualifications in the one–year period following the date of purchase, you may issue a partial exemption certificate. If, however, you do not fulfill the requirements within that one–year period, you will be liable for the difference. That is, you will ultimately pay the tax on the full purchase price, plus applicable interest from the date of which the sales was originally made.

If you pay the full amount of sales tax reimbursement at the time of purchase, and later discover that you have met all the qualifications, you may issue a partial exemption certificate to your retailer. The retailer may then file a claim for refund for the overpaid portion of sales tax on your behalf. Once we issue the refund to the retailer, the retailer should reimburse you for the overpaid portion of the sales tax. If the transaction was subject to use tax, you may file a claim directly with us.

“Manufacturing” Exemption versus California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) Exclusion (R&TC section 6010.8)

The table below highlights the differences between the manufacturing exemption and CAEATFA exclusion.
Manufacturer's Partial Exemption SB1128/SB71 CAEATFA Sales and Use Tax Exclusion
Eligible Participants All manufacturers described in NAICS codes 3111 to 3399, 541711, or 541712, and beginning January 1, 2018, all electric power generators or distributors described in NAICS codes 22111 to 221118, and 221122 Companies that design, manufacture, produce or assemble advanced transportation technologies or alternative source products, components, or systems
Exemption/Exclusion Rate Partial — 3.9375 percent Full rate, including local and district taxes
Application requirements None Participants must apply with CAEATFA and be approved for a “project” for the exclusion to apply. The property purchased must be included in the approved “project.”
Fee requirements None Applicants are subject to an application and administration fee

If you are accepted into the CAEATFA program, you may also take advantage of the manufacturer's partial exemption (R&TC section 6377.1), where appropriate. Generally, the CAEATFA sales and use tax exclusion will take precedence over the manufacturer's partial exemption for property that is considered a “project” under the CAEATFA program. This is to your benefit since the full sales and use tax rate is subject to the exclusion under the CAEATFA.

You may not provide an exemption certificate for both the CAEATFA exclusion and the manufacturer's exemption for the same property. If you purchase property that is not considered part of a “project” under the CAEATFA program, but still qualifies for the R&TC section 6377.1 partial exemption, you may provide an exemption certificate for the partial exemption.

Please see the CAEATFA Sales and Use Tax Exclusion page for more information on the CAEATFA program.