HomeMy WebLinkAboutLegislative Review CMTE SB 1291� � _�.
�
CITY OF PALM DESERT
Community Services Division
Staff Report
REQUEST:
SUBMITTED BY:
DATE:
CONTENTS:
CONSIDERATION
ACTION ON SB
APRIL 5, 2006
Patricia Scully, CFEE, Senior Management Analyst
April 27, 2006
SB 1291 Language
OF LEGISLATIVE REVIEW COMMITTEE
1291 (ALQUIS� AT ITS MEETING OF
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 SB 1291 (Alquist) relative to tax levies.
EXECUTIVE SUMMARY:
Passage of SB 1291 would exempt businesses involved in research and developmeni
activities from sales and use tax.
BACKGROUND:
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 this law. Passage of SB 1291
would exempt from these taxes the gross receipts from the sale, storage, use, or other
consumption of #angible personal property purchased by a qualified person, as defined, in
the manufacturing, processing, or fabricating of property for the use in research and
development activities.
CITY COUNCIL STAFF REPORT
RE: SB 1291 (ALQUIST)
APRIL 27, 2�06
The City of Palm Desert opposes any bill which exempts the imposition of sales tax from
any s�c�c group; therefore, the Legislative Review Committee recommends that the City
Council oppose SB 1291 and direct staff to prepare a letter stating that position to
appropriate fegislators for the Mayor's signature.
� �
PATRICtA SCULLY, CF�
I R MAN M NALYST
�--
/SHEILA R. IGAN
� ACM/COMM ITY R ICES
PS:mpg
/��/I,.
�- . .�r� .
. -
2
SENATE BILL
Introduced by Senator Alquist
February 15, 2006
No. 1291
An act to add Section 637"1 to the Revenue and Taxation Code,
relating to taxation, to take effect iininediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 1291, as introduced, Alquist. Sates and use taxes: exemption:
manufacturing and research activities.
The Sales and Use Tax Law imposes a tax on the gross receipts
fro�n the sale in this state of, or the storage, use, or other consumption
in this state of, tangible personal property, and provides various
exeinptions from the taxes imposed by that law.
This bill would exeinpt froin those taxes 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, or fabricating of property, or
for use in research and development activities and introduced into the
process, as specified.
This bill would take effect iinmediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal coinmittee: yes.
State-inandated local program: no.
The people of the State of California do enact as follows:
1 SECTION 1. Section 6377 is added to the Revenue and
2 Taxation Code, to read:
3 6377. (a) For calendar years beginning on or after January 1,
4 2006, there are exempted from the taxes imposed by this part the
5 gross receipts froin the sale of, and the storage, use, or other
99
e
SB 1291
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
—2—
consumption in this state of, by a qualified person any of the
following:
(1) Tangible personal property that will become an ingredient
or component part of tangible personal property inanufactured,
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 developinent 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 cheinical 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 intennediate or preliininary product that will become
an ingredient or coinponent part of the product being
inanufactured, processed, fabricated, or used in a research and
development activity.
(3) Aotuators, steam production equipment and its fuel,
in-process flow through tanks, cooling towers, generators, heat
exchangers, transfonners and the switches, breakers, capacitor
banks, regulators, relays, reclosers, fuses, interruptors, reactors,
arrestors, resistors, insulators, instruinent transformers, and
teleinetry units that are related to the transformers, electronic
control room equipinent, computerized control units, pumps,
compressors, and hydraulic units that are used to power, supply
support, or control equipinent that qualifies for exemption under
paragraph (2) or paragraph (6) of this subdivision, or to generate
electricity, chilled water, or steam for ultiinate 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 transforxners, and the
switches, breakers, capacitor banks, regulators, relays, reclosers,
fuses, interruptors, reactors, arrestors, resistors, insulators,
instruinent transformers, and telemetry units that are related to
the step-up transformers.
(5) Transformers that decrease the voltage of electricity
generated for ultimate sale and the switches, breakers, capacitor
99
— 3 — SB 1291
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
banlcs, regulators, relays, reclosers, fuses, interruptors, reactors,
arrestors, resistors,' insulators, instruinent transfonners, and
telemetry units that are related to the step-down transformers.
(6) Tangible personal property used or consumed in
manufacturing, processing, fabrication, or research and
developinent of tangible personal property if the use or
consumption of the property is necessary and essential to a
pollution control process.
(7) Lubricants, chemicals, chemical coinpounds, 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
equipinent 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 containination of raw material or product, or to prevent a
fire, explosion, or other hazardous or environmentally damaging
situation at any stage in the manufacturing or research and
development process, or in loading or storage of the product or
raw material on the premises.
(9) Tangible personal property used or consumed during
manufacturing, processing, fabrication, or research and
development of tangible personal properiy if the use or
consumption of the property is necessary and essential to a
quality control process that tests tangible personal property that is
being manufactured, processed, fabricated, or used in performing
research and developinent activities.
(10) Tangible personal property used or consumed in
inanufacturing, processing, fabrication, or research and
developinent 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.
99
SB 1291 — 4 —
1 (B) Reuse and recycle wastewater streains generated within
2 the manufacturing, processing, fabrication, research and
3 development or repair operation.
4 (C) Treat wastewater from another industrial or municipal
5 source for the purpose of replacing existing freshwater sources in
6 the manufacturing, processing, fabrication, research and
7 development or repair operation.
8 (12) Chemicals, catalysts, and other materials that are used
9 during a manufacturing, processing, fabrication, or research and
10 development operation to produce or induce a chemical or
11 physical change, to remove impurities, or to make the product
12 more marketable.
13 (13) Semiconductor, pharmaceutical or biotechnology
14 fabrication, or research and developinent clean rooms and
15 equipment.
16 (b) For purposes of this section, all of the following apply:
17 (1) "Qualified person" means a manufacturer or an entity
18 performing research and development.
19 (2) "Fabricating" means to make, build, create, produce, or
20 assemble components or property to work in a new or different
21 manner.
22 (3) "Manufacturing" means the activity of converting or
23 conditioning property by changing the form, composition,
24 quality, or character of the property for ultiinate sale at retail or
25 use in the manufacturing of a product to be ultiinately sold at
26 retail. Manufacturing includes any improvements to tangible
27 personal property that result in a greater service life or greater
28 functionality than that of the original property.
29 (4) "Process" means the period beginning at the point at which
30 any raw materials are received by the qualified taxpayer and
31 introduced into the manufacturing, processing, refining,
32 fabricating, or recycling activity of the qualified taxpayer and
33 ending at the point at which the inanufacturing, processing,
34 refining, fabricating, or recycling activity of the qualified
35 taxpayer has altered tangible personal property to its completed
36 form if required.
37 (5) "Processing" means the physical application of the
38 materials and labor necessary to modify or change the
39 characteristics of property.
99
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
I7
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
— 5 — SB 1291
(6) "Research and development" ineans those activities that
are described in Section 174 of the Internal Revenue Code or in
any 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
coinputer software begins with the design and writing of the code
or prograin for the software and includes the testing or
deinonstration of the software.
(3) "Seiniconductor, pharmaceutical or biotechnology
fabrication clean rooms and equipinent" 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 clean room environment of a semiconductor,
pharmaceutical, or biotechnology product, without regard to
whether the property is actually contained in the clean room
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 tenn does not include the building or a
permanent, nonreznovable component of the building, that houses
the clean room environment. The term includes moveable clean
room partitions and clean room 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 or regulations as
the board may prescribe, and the retailer subsequentiy 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
99
SB 1291
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
—6—
with Section 7200)) or the Transactions and Use Tax Law (Part
1.6 (commencing with Section 7251)), the exemption established
by this section shall not apply with respect to any tax levied by a
county, city, or district pursuant to, or in accordance with, either
of those laws.
(� (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 soine 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 ofArticle XIII of the California Constitution.
(g) If a purchaser certifies in writing 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 froin the
sale as exempt froin the sales tax, and within one year from the
date of purchase, the purchaser (1) reinoves 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 qualifying 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 tiine the 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
commenceinent 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.
99
7 — SB 1291
1 SEC. 2. This act provides for a tax levy within the meaning of
2 Article IV of the Constitution and shall go into immediate effect.
❑�
99