HomeMy WebLinkAboutLegislative Review CMTE AB 2218 (Torrico)7T7- M
CITY OF PALM DESERT
Community Services Division
Staff Report
REQUEST: CONSIDERATION OF LEGISLATIVE REVIEW COMMITTEE
ACTION ON AB 2218 (TORRICO) AT ITS MEETING OF
APRIL 5, 2006
SUBMITTED BY: Patricia Scully, CFEE, Senior Management Analyst
DATE: April 27, 2006
CONTENTS: AB 2218 Language
RECOMMENDATION:
By Minute Motion, concur with the action taken by the Legislative Review Committee at its
meeting of April 5, 2006, and direct staff to prepare a letter of opposition for the Mayor's
signature with regard to AB 2218 (Torrico) relative to tax levies.
EXECUTIVE SUMMARY:
Passage of AB 2218 would exempt from sales and use tax manufacturing equipment.
BACKGROUND:
The Sales and Use Tax Law imposes a tax on the gross receipts from the sale, storage,
use, or other consumption in this State of tangible personal property and provides various
exemptions from these taxes. AB 2218 would exempt from sales tax, for calendar years
beginning January 1, 2007, the gross receipts from the sale, storage, use, and other
consumption of personal tangible property purchased for use in manufacturing, processing,
refining, fabricating, or recycling of manufacturing equipment used in the manufacturing
process.
CITY COUNCIL STAFF REPORT
RE: AB 2218 (TORRICO)
APRIL 27, 2006
The City of Palm Desert opposes exemption from the imposition of sales tax for any
special interests. Therefore, the Legislative Review Committee recommends that the City
Council oppose AB 2218 and direct staff to prepare a letter stating that position to
appropriate legislators for the Mayor's signature.
PATRICIA SCULLY, CF
MAN E ANALYST
SHEILA R. AN
ACM/COMM ITY SE VI ES
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CARLOS OCORT tA
CITY MANAGER
CALIFORNIA LEGISLATURE-2005—o6 REGULAR SESSION
ASSEMBLY BILL No. 2218
Introduced by Assembly Member Torrico
February 22, 2006
An act to add and repeal Section 6377 of the Revenue and Taxation
Code, relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2218, as introduced, Torrico. Sales and use taxes: exemption:
manufacturing equipment.
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 declare the intent of the Legislature to exempt from
those taxes the sale of, and the storage, use, or other consumption of,
manufacturing equipment used in the manufacturing process.
The bill would further exempt from those taxes, for calendar years
beginning on or after January 1, 2007, the gross receipts from the sale
of, and the storage, use, or other consumption of, tangible personal
property, as defined, purchased for use by a qualified person, as
defined, in manufacturing, processing, refining, fabricating, or
recycling of property, and introduced into the process, as specified,
and tangible personal property purchased for use by a contractor for
specified purposes.
This bill would specify that this exemption does not apply to local
sales or transactions and use taxes.
This bill would also specify that the exemption would remain in
effect only for 10 calendar years after it first becomes operative, and
would be repealed on January 1 of the first calendar year thereafter.
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AB 2218 —2—
This bill would take effect immediately as a tax levy.
"Vote: majority. Appropriation: no. Fiscal committee: yes.
State -mandated local program: no.
The people of the State of California do enact as follows:
1 SECTION 1. It is the intent of the Legislature to enact a Job
2 Retention and Economic Recovery Act that would provide for an
3 exemption of purchases of manufacturing equipment used in the
4 manufacturing process from the state sales and use taxes.
5 SEC. 2. Section 6377 is added to the Revenue and Taxation
6 Code, to read:
7 6377. (a) (1) For calendar years beginning on or after
8 January 1, 2007, there are exempted from the taxes imposed by
9 this part the gross receipts from the sale of, and the storage, use,
10 or other consumption in this state of, any of the following:
11 (A) Tangible personal property purchased for use by a
12 qualified person to be used primarily in any stage of the
13 manufacturing, processing, refining, fabricating, or recycling of
14 property, beginning at the point any raw materials are received
15 by the qualified person and introduced into the process and
16 ending at the point at which the manufacturing, processing,
17 refining, fabricating, or recycling has altered property to its
18 completed form, including packaging, if required.
19 (B) Tangible personal property purchased for use by a
20 contractor purchasing that property either as an agent of a
21 qualified person or for the contractor's own account and
22 subsequent resale to a qualified person for use in the performance
23 of a construction contract for the qualified person who will use
24 the tangible personal property as an integral part of the
25 manufacturing, processing, refining, fabricating, or recycling
26 process, or as a storage facility for use in connection with the
27 manufacturing process.
28 (2) This exemption shall not apply to any tangible personal
29 property that is used primarily in administration, general
30 management, or marketing.
31 (b) For purposes of this section:
32 (1) "Fabricating" means to make, build, create, produce, or
33 assemble components or property to work in a new or different
34 manner.
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1 (2) "Manufacturing" means the activity of converting or
2 conditioning property by changing the forin, composition,
3 quality, or character of the property for ultimate sale at retail or
4 use in the manufacturing of a product to be ultimately sold at
5 retail. Manufacturing includes any improvements to tangible
6 personal property that result in a greater service life or greater
7 functionality than that of the original property.
8 (3) "Primarily" means tangible personal property used 50
9 percent or more of the time in an activity described in
10 subdivision (a).
11 (4) "Process" means the period beginning at the point at which
12 any raw materials are received by the qualified taxpayer and
13 introduced into the manufacturing, processing, refining,
14 fabricating, or recycling activity of the qualified taxpayer and
15 ending at the point at which the manufacturing, processing,
16 refining, fabricating, or recycling activity of the qualified
17 taxpayer has altered tangible personal property to its completed
18 form, including packaging, if required. Raw materials shall be
19 considered to have been introduced into the process when the
20 raw materials are stored on the same premises where the
21 qualified taxpayer's manufacturing, processing, refining, or
22 recycling activity is conducted. Raw materials that are stored on
23 premises other than where the qualified taxpayer's
24 manufacturing, processing, refining, fabricating, or recycling
25 activity is conducted, shall not be considered to have been
26 introduced into the manufacturing, processing, refining,
27 fabricating, or recycling process.
28 (5) "Processing" means the physical application of the
29 materials and labor necessary to modify or change the
30 characteristics of property.
31 (6) "Qualified person" means any of the following:
32 (A) A person who is engaged in those lines of business
33 described in Codes of the North American Industrial
34 Classification System (NAICS) published by the United States
35 Office of Management and Budget (OMB), 2002 edition.
36 (B) An affiliate of a person qualified pursuant to subparagraph
37 (A) shall also be considered a qualified person as long as the
38 affiliate is included as a member of that person's unitary group
39 for which a combined report is required to be filed under Article
40 I (commencing with Section 25101) of Chapter 17.
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AB 2218 — 4 —
1 (7) "Refining" means the process of converting a natural
2 resource to an intermediate or finished product.
3 (8) "Tangible personal property" does not include any of the
4 following:
5 (A) Consumables with a normal useful life of less than one
6 year, except as provided in subparagraph (E) of paragraph (10).
7 (B) Furniture, inventory, equipment used in the extraction
8 process, or equipment used to store finished products that have
9 completed the manufacturing process.
10 (9) "Tangible personal property" includes, but is not limited
11 to, all of the following:
12 (A) Machinery and equipment, including component parts and
13 contrivances such as belts, shafts, moving parts, and operating
14 structures.
15 (B) All equipment or devices used or required to operate,
16 control, regulate, or maintain the machinery, including, without
17 limitation, computers, data processing equipment, and computer
18 software, together with all repair and replacement parts with a
19 useful life of one or more years therefor, whether purchased
20 separately or in conjunction with a complete machine and
21 regardless of whether the machine or component parts are
22 assembled by the taxpayer or another party.
23 (C) Property used in pollution control that meets or exceed
24 standards established by this state or any local or regional
25 governmental agency within this state.
26 (D) Special purpose buildings and foundations used as an
27 integral part of the manufacturing, processing, refining, or
28 fabricating process, or that constitute a research or storage
29 facility used during the manufacturing process. Buildings used
30 solely for warehousing purposes after completion of the
31 manufacturing process are not included.
32 (E) Fuels used or consumed in the manufacturing process.
33 (c) No exemption shall be allowed under this section unless
34 the purchaser furnishes the retailer with an exemption certificate,
35 completed in accordance with any instructions or regulations as
36 the board may prescribe, and the retailer subsequently furnishes
37 the board with a copy of the exemption certificate. The
38 exemption certificate shall contain the sales price of the
39 machinery or equipment that is exempt pursuant to subdivision
40 (a).
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— 5 — AB 2218
1 (d) Notwithstanding any provision of the Bradley -Burns
2 Uniform Local Sales and Use Tax Law (Part 1.5 (commencing
3 with Section 7200)) or the Transactions and Use Tax Law (Part
4 1.6 (commencing with Section 7251)), the exemption established
5 by this section shall not apply with respect to any tax levied by a
6 county, city, or district pursuant to, or in accordance with, either
7 of those laws.
8 (e) (1) Notwithstanding subdivision (a), the exemption
9 provided by this section shall not apply to any sale or use of
10 property which, within one year from the date of purchase, is
11 either removed from California or converted from an exempt use
12 under subdivision (a) to some other use not qualifying for the
13 exemption.
14 (2) Notwithstanding subdivision (a), the exemption established
15 by this section shall not apply with respect to any tax levied
16 pursuant to Sections 6051.2 and 6201.2, or pursuant to Section
17 35 of Article XIII of the California Constitution.
18 (f) If a purchaser certifies in writing to the seller that the
19 property purchased without payment of the tax will be used in a
20 manner entitling the seller to regard the gross receipts from the
21 sale as exempt from the sales tax, and within one year from the
22 date of purchase, the purchaser (1) removes that property outside
23 California, (2) converts that property for use in a manner not
24 qualifying for the exemption, or (3) uses that property in a
25 manner not qualifying for the exemption, the purchaser shall be
26 liable for payment of sales tax, with applicable interest, as if the
27 purchaser were a retailer making a retail sale of the property at
28 the time the property is so removed, converted, or used, and the
29 sales price of the property to the purchaser shall be deemed the
30 gross receipts from that retail sale.
31 (g) This section applies to leases of tangible personal property
32 classified as "continuing sales" and "continuing purchases" in
33 accordance with Sections 6006.1 and 6010.1. The exemption
34 established by this section shall apply to the rentals payable
35 pursuant to such a lease, provided the lessee is a qualified person
36 and the property is used in an activity described in subdivision
37 (a). Rentals that meet the foregoing requirements are eligible for
38 the exemption for a period of six years from the date of
39 commencement of the lease. At the close of the six -year period
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AB 2218
1 from the date of commencement of the lease, lease receipts are
2 subject to tax without exemption.
3 (h) This section shall remain in effect only for 10 calendar
4 years after this section first becomes operative, and shall be
5 repealed on January 1 of the first calendar year thereafter.
6 SEC. 3. This act provides for a tax levy within the meaning of
7 Article IV of the Constitution and shall go into immediate effect.
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