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

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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. (Revenue and Taxation Code [R&TC] section 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 (R&TC section 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 less the 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

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:

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 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 the time of 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 of the purchaser to relate them to exemption certificates. We recommend you examine your certificates on a regular basis and keep the purchaser's information current.

You, as the retailer, must maintain exemption certificates received from qualified persons for a period of not less than four years from the date on which you claim the partial exemption.