HomeMy WebLinkAboutLegislative Review - SB 552 (Alquist and Maldonado) - Sales and Use Taxes ExemptionsCITY OF PALM DESERT
Community Services Division
Staff Report
REQUEST: CONSIDERATION OF LEGISLATIVE REVIEW COMMITTEE ACTION
ON SB 552 (ALQUIST AND MALDONADO) RELATIVE TO SALES
AND USE TAXES EXEMPTIONS
SUBMITTED BY: Patricia Scully, CFEE, Senior Management Analyst
DATE: May 12, 2005
CONTENTS: SB 552 Language
RECOMMENDATION:
By Minute Motion, concur with the action taken by the Legislative Review Committee at Its
Meeting of April 26, 2005, and direct staff to prepare a letter of opposition for the Mayor's
signature with regard to SB 552 (Alquist and Maldonado) relative to sales and use tax
exemptions.
EXECUTIVE SUMMARY:
Passage of SB 552 would exempt sales and use tax from activities directly related to research
and development activities.
BACKGROUND:
The sales and use tax law imposes a tax on gross receipts from the sale, storage, use, or other
consumption of tangible personal property and provides various exemptions from taxes
imposed by this law. SB 552 would exempt from these taxes the gross receipts from the sale
of, and the storage, use, or other consumption of, tangible personal property purchased by a
qualified person for use in manufacturing, processing, or fabricating of property, or for the use
in research and development activities introduced into the process. This bill would also provide
that, for purchases made in calendar years beginning on or after January 1, 2006, the
exemption be implemented through a refund procedure commencing on January 1 of the first
fiscal year in which the State budget deficit is eliminated, and would continuously appropriate
moneys from the General Fund to the State Board of Equalization for payment of these
refunds. This bill would also specify that this exemption would apply to local sales or
transactions and use taxes unless the governing body of the taxing county, city, or district votes
otherwise. Since counties and cities are authorized to impose local sales and use taxes in
CITY COUNCIL STAFF REPORT
RE: SB 552
MAY 12, 2005
conformity with State sales and use taxes, such exemptions enacted by the Legislature are
incorporated into local taxes.
Because the City of Palm Desert opposes any legislation which would remove, reassign, or
reallocate sales and use taxes, the Legislative Review Committee recommends that the City
Council oppose SB 552 and direct staff to prepare a Letter stating that position to appropriate
Iegislrs for the Mayor's signature.
PATRICIA SCULLY, CFEE (J
SENIOR MANAGE NT ANALYST
(
SHEILA R. GILLIG
ACM/COMMUNITY SERVI
PS:mpg
CARLOS L. °VEGA
CITY MANAGER
2
SB 552 Senate Bill - 1N�1 KUl�UI;�ll 1n/� . � rage i oz o
��,`�
+�1
+ BILL NUMBER: SB 552 INTRODUCED �
BILL TEXT
INTRODUCED BY Senators Alquist and Maldonado
(Coauthors: Assembly Members Gordon, Houston, Huff, and Walters)
FEBRUARY 18, 2005
An act to add Section 6377 to the Revenue and Taxation Code,
relating to taxation, and making an appropriation therefor, to take
effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 552, as introduced, Alquist. Sales and use taxes: exemption:
telecommunication activities.
The Sales and Use Tax Law imposes a tax on the gross receipts from
the sale in this state of, or the storage,'use, or other consumption
in this state of, tangible personal property, and provides various
exemptions from the taxes imposed by that law.
This bill would exempt from those taxes the gross receipts from
the sale of, and the storage, use, or other consumption of, tanqible
personal property, as defined, purchased for use by a qualified
person, as defined, in manufacturing, processing, or fabricating of
property, or for use in research and development activities and
i�*r�ducprl intn the process, as snecified This bill would also
provide that, for purchases made in calendar years beginning on or
after January 1, 2006, the exemption be implemented through a refund
procedure commencing on January 1 of the first fiscal year in which
the state budget deficit is eliminated, and would continuously
appropriate moneys from the General Fund to the State Board of
Equalization for the payment of those refunda.
This bill would specify that this exemption would apply to local
sales or transactions and use taxes, unless the governing body of the
taxing county, city, or district votes otherwise.
Counties and cities are authorized to impose local sales and use
taxes in conformity with state sales and use taxes. Exemptions from
_�a�� sales and_use taxes enacted by the Legislature are incorporated
into the local taxes.
Section 2230 of the Revenue and Taxation Code pronides that the
state will reimburse counties and cities for revenue losses caused by
the enactment of sales and use tax exemptiona.
This bill would provide that, notwithstanding Section 2230 of the
Revenue and Taxation Code, no appropriation is made and the state
shall not reimburse local agencies for sales and use tax revenuea
lost by them pursuant to this bill.
This bill would take effect
Vote: 2/3. Appropriation: 5
State-mandated local program:
immediately as a tax levy.
es. Fiscal committee: yes.
yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 6377 is added to the Revenue and Taxation Code
to read:
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SB 552 Senate Bill - INTRODUCED
6377. (a) For calendar years beginning on or after January 1,
2006, there are exempted from the taxes imposed by this part the
gross receipts from the sale of, and the storage, use, or other
consumption in this state of, by a qualified person any of the
following:(2) Tangible personal property that will become an
ingredient or component part of tangible personal property
manufactured, processed, fabricated or used in research and
development activities.
(2) Tangible personal property directly used or consumed in or
during the actual manufacturing, processing, fabrication or research
and development of tangible personal property if the use or
consumption of the property is necessary or essential to the
manufacturing, processing, fabrication operation or research and
development, and directly makes or causes a chemical or physical
change to either of the following:
(A? The product being manufactured, processed, fabricated, or used
in a research and development activity.
(B) Any intermediate or preliminary product that will become an
ingredient or component part of the product being manufactured,
processed, fabricated, or used in a research and development
activity.
(3) Actuators, steam production equipment and its fuel, in-procese
flow through tanks, coolinq towers, generators, heat exchangers,
transformers and the switche.s, breakers, capacitor banks, regulators,
relays, reclosers, fuses, interruptors, reactors, arrestors,
resistors, insulators, instrument transformers, and telemetry units
that are related to the transformers, electronic control room
equipment, computerized control units, pumps, compressors, and
------�ydrauii�--units th�t a�e—used-�-e-�owe�-,-- s�M„�31�j`nr* .,,- r�nnrrnl
equipment that qualifies for exemption under paragraph (2) or
paragraph (6) of this subdivision, or to generate electricity,
chilled water, or steam for ultimate sale.
(4) Transformers located at an electric generating facility that
increase the voltage of electricity generated for ultimate sale, the
electrical cable that carries the electricity from the electric
generating equipment to the step-up transformers, and the switches,
breakers, capacitor banks, regulators, relays, reclosers, fuses,
interruptors, reactors, arrestors, resistors, insulators, instrument
transformers, and telemetry units that are related to the step-up
transformers.
(5) Transformers that decrease the voltage of electricity
generated �r uSfiinate sale-�nd the switch�es, breakers, capacitor
banks, regulators, relays, reclosers, fuses, interruptors, reactor�,
arrestors, resistors, insulators, instrument transformers, and
telemetry units that are related to the step-down transformera.
(6) Tangible personal property used or consumed in manufacturing,
processing, fabrication, or research and development of tangible
personal property if the use or consumption of the property ia
necessary and essential to a pollutfon control process.
(7) Lubricants, chemicals, chemieal compounds, gases, or liquids
that are used or consumed during manufacturing, processing,
fabrication, or research and development, of tangible personal
property if their use or consumption is necessary and essential to
prevent the decline, failure, lapse, or deterioration of equipment
exempted by this section.
(8) Gases used on the premises of a manufacturing plant or
facility used in performing research and development activities to
prevent contamination of raw material or product, or to prevent a
fire, explosion, or other hazardous or environmentally damaginq
situation at any stage in the.manufacturinq or research and
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SB 552 Senate Bill -1NTRODUCED
F development process, or in loading or storage of the product or raw
material on the premises.
(9) Tangible personal property used or consumed durinq
manufacturing, processing, fabrication, or research and development
of tangible personal property if the use or consumption of the
property is necessary and essential to a quality co�trol process that
tests tangible personal property that is beinq manufactured,
processed, fabricated, or used in performing research and development
activities.
(10) Tangible personal property used or consumed in manufacturing,
processinq, fabrication, or research and development of tangible
personal property if the use or consumption of the property is
necessary and essential to comply with federal, state, or local laws,
� or rules and regulations that establish requirements related to
public health.
(11) Tangible personal property specifically installed to do any
of the following:
(A) Reduce water use and wastewater flow volumes from the
manufacturing, processing, fabrication, research and development or
repair operation.
(B) Reuse and recycle wastewater streams generated within the
manufacturing, processing, fabrication, research and development or
repair operation.
(C) Treat wastewater from another industrial or municipal source
for the purpose of replacinq existing freshwater.sources in the
manufacturing, processing, fabrication, research an development or
repair operation.
(12j Chemicals, catalysts, and other materials that are used
- - during a manufactu�ir�g,� processing,--fabrication�_�r r.esearch_ and_ __..___
development operation to produce or induce a chemical or physical
change, to remove impurities, or to make the.product more marketable.
(13} Semiconductor, pharmaceutical or biotechnology fabrication,
or research and development clean rooms and equipment.
(b) For purposes of this section all of the following apply:
(1) "Qualified person" means a manufacturer or an entity
perfozming research and development, or engaged in telecommunication
activities.
(2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.
(3) "Manufacturing" means the actinity of convertinq or
conditioning property by changing the forsa, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
(9) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processinq, refininq, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processinq, refininq, fabricatinq, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed forsa if required.
(5) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
(6) "Research and development" means those activities that are
described in Section 179 of the Internal Revenue Code or in any
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SB 552 Senate �3ill -1N 1KU1�UL�U rage 4 ot o
regulations thereunder.
(c) For purposes of this section, all of the following apply:
(1) The production of a publication for the dissemination of news
of a general character and of a general interest that is printed on
newsprint and distributed to the general public at a daily, weekly,
or other short intervals is considered manufacturing.
(2) The manufacturing or research and development of computer
software begins with the design and writing of the code or program
for the software and includes the testing or demonstration of the
software.
(3) "Semiconductor, pharmaceutical or biotechnology fabrication
cleanrooms and equipment" means all tangible personal property,
without regard to whether the property is affixed to or incorporated
into realty, used in connection with the manufacturing, processing,
fabrication, or research and development in a cleanroom environment
of a semiconductor, pharmaceutical, or biotechnology product, without
regard to whether the property is actually contained in the
cleanroom environment. The term includes integrated systems,
fixtures, and piping, all property necessary or adapted to reduce
contamination or to control airflow, temperature, humidity, chemical
purity, or other environmental conditions or manufacturing or
research and development tolerances, and production equipment and
machinery. The term does not include the building or a permanent,
nonremovable component of the buildinq, that houses the cleanroom
environment. The term includes moveable cleanroom partitions and
cleanroom lighting.
(d) No exemption shall be allowed under this section unless the
purchaser furnishes the retailer with an exemption certificate,
completed in accordance with any instructions-nr reguiati�ns as the --
board may prescribe, and the retailer subsequently furnishes the
board with a copy of the exemption certificate. The exemption
certificate shall contain the sales price of the machinery or
equipment that is exempt pursuant to subdivision (a).
(e) Notwithstanding any provision of the Bradley-Burns Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200))
or the Transactions and Use Tax Law (Part 1.6 (commencing with
Section 7251)), the exemption established by this section shall apply
with respect to any tax levied by a county, city, or district
pursuant to, or in accordance with, either of those laws, unless the
local government that would otherwise receive the sales tax votes for
the exception not to apply.
(f) (1) Notwithstanding subdivision (a), the exemption provided by
this section shall not apply to any sale or use of property which,
within one year from the date of purchase, is either removed from
California or converted from an exempt use under subdivision (a) to
some other use not qualifying for the exemption.
(2) Notwithstanding subdivision (a), the exemption established by
this section shall not apply with respect to any tax levied pursuant
to Sections 6051.2 and 6201.2, or pursuant to Section 35 of Article
XIII of the California Constitution.
-(g) If a purchaser certifi�s--in wrtting to the seller that the
property purchased without payment of the tax will be used in a
manner entitling the seller to regard the gross receipts from the
sale as exempt from the sales tax, and within one year from the date
of purchase, the purchaser (1) removes that property outside
California, (2) converts that property for use in a manner not
qualifying for the exemption, or (3) uses that property in a manner
not qualifyinq for the exemption, the purchaser shall be liable for
payment of sales tax, with applicable interest, as if the purchaser
were a retailer making a retail sale of the property at the time the
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SB 552 Senate BiII - INTRODUCED
property is so removed, converted, or used, and the sales price of
the property to the purchaser shall be deemed the gross receipts from
that retail sale.
(h) This section applies to leases of tangible personal property
classified as "continuing sales" and "continuing purchases" in
accordance with Sections 6006.1 and 6010.1. The exemption established
by.this section shall apply to the rentals payable pursuant to such
a lease, provided the lessee is a qualified person and the property
is used in an activity described in subdivision (a). Rentals that
meet the foregoing requirements are eligible for the exemption for a
period of six years from the date of commencement of the lease. At
the close of the six-year period from the date of commencement of the
lease, lease receipts are subject to tax without exemption.
(i) (1) The granting of exemptions pursuant to this section for
purchases made in calendar years beginning on or after January 1,
2006, shall be postponed until after January 1 of the first fiscal
year in which the state budget deficit is eliminated, and shall be
granted thereafter in the form of a refund to a qualified person,
only upon submission by a qualified person of a claim for refund to,
and acceptance of the claim by, the board, as provided in paragraph
(2) •
(2) A qualified person who has paid sales tax reimbursement to a
retailer or use tax on a purchase or purchases of property for which
an exemption is allowed pursuant to this section for purchases made
in calendar years beginning on or after January 1, 2006, may file a
claim for refund equal to the tax on the exempt amount that would
otherwise be allowed pursuant to this section. Any claim so filed
shall be submitted to the board on a form prescribed by the board,
and may be filed no earlier than the date of the transaction for
which a sales tax exemption under this section is allowed. A claim
for refund shall, unless the sale or use of the property is otherwise
exempt under this part, be accompanied by proof of payment of the
tax to a retailer, including, but not limited to, a copy of an
invoice or purchase contract that indicates the following:
(A) The date on which the purchase occurred.
(B) A description of the property purchased.
(C) The price paid for the property.
(D) The amount of tax paid with respect to the purchase.
(3) In the case of a person who has self-reported use tax to the
board, the claim for refund shall also indicate the amount of use tax
-�id-a�d-the-period_for.which that tax was remitted.
(4) Interest shall be paid on any refund made pursuant to this
section.
(5) Notwithstanding Section 6961, the board may recover any refund
or part thereof that is erroneously made pursuant to this section.
Zn recovering any erroneous refund made pursuant to this section, the
board, in its discretion, may issue a deficiency determination in
accordance with Article 2(commencing with Section 6481j of Article 4
(commencing with Section 6536) of Chapter S. Except in the case of
fraud, that determination shall be made within three years from the
last day oE the month following the quarterly period in which the
board approved the refund.
(6) Any refund approved by the board pursuant to this section
shall be payable from the General Fund.
(7) Notwithstanding Section 13340 of the Government Code, the
amount necessary for the payment of refunds approved under this
subdivision fs hereby continuously appropriated, without reference to
fiscal year, from the General FUnd to the State Board of
Equalization for the payment of those refunds.
SEC. 2. Notwithstanding Section 2230 of the Revenue and Taxation
r a�v � vi v
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SB 552 Senate Bill - INTRODUCED
Code, no appropriation is made by this act and the state shall not
reimburse any local agency for any sales and use tax revenues lost by
it under this act.
SEC. 3.
This act provides for a tax levy within the meaning of Article IV
of the Constitution and shall go into immediate effect.
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