HomeMy WebLinkAboutAB1152 - Sales Tax ExemptionREQUEST:
CITY OF PALM DESERT
COMMUNITY SERVICES DEPARTMENT
STAFF REPORT
CONSIDERATION OF LEGISLATIVE REVIEW COMMITTEE
ACTION ON AB11 pi.E I 'il@tT D EG'I OFED MARCH 27,
2007 RECEIVED OTHER
DATE: April 12, 2007 MEETING DATE
AYES :_het15or , Fer�U 5or, liner-fy.Sflirjel, t5'e7ij
CONTENTS: AB1152 Language NOES: /Voit/6 '
ABSENT: NOAIL
RECOMMENDATION: J�N' "`""`'"-
VERIFIED BY: )K-IT
Qrigi,na on 'i10 withel C ty�CLerk' Office
By Minute Motion, concur with the action take y the Legislative Keview oommmittee at its
meeting of March 27, 2007, and direct staff to prepare a letter of opposition for the Mayor's
signature with regard to AB1152 (Niello) relative to Sales Tax Exemption.
EXECUTIVE SUMMARY:
Passage of AB1152 would exempt for a specified period of time sales tax from
manufacturing equipment.
BACKGROUND:
The Sales and Use Tax Law imposes a tax on the gross receipts from the sale of, or the
storage, use, or other consumption in this state of tangible 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 manufacturing equipment used in the
manufacturing process. It would further exempt from those taxes for the calendar years
beginning on January 1, 2008, as defined purchases for use by a qualified purpose in
manufacturing processing, refining, fabricating, or recycling of property.
Because the City of Palm Desert opposes any legislation enacted by the State, which
would remove local revenues, the Legislative Review Committee recommends that the City
Council oppose AB1152 and direct staff to prepare a letter stating that position to
appropriate Legislators for the Mayor's signature.
PATRICIA SCULLY, CFEE PAUL GIB
SENIOR MANAGEMENT A ALYST DIRECT •- •F FINANCE/
CITY TR ASURER
ijt.0
HEILA R. GELL AN
ACM/COMMUNITY S CES
CARLOS L. ORTEGA
CITY MANAGER
State Net Bill Text � ^ � Page 1 of 4
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2007 CA A 1152
AUTHOR: Niello
VERSION: Introduced
VERSION DATE: 02J23/2007
ASSEMBLY BILL No. 1152
INTRODUCED BY Assembly Member Niello
FEBRUARY 23, 2007
An act to add Section 6377 to the Revenue and Taxation Code, relating to taxation, to take effect
immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1152, as introduced, Niello. 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,
2008, 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 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:
SECTION 1. It is the intent of the Legislature to enact competitive tax policy for manufacturers by
providing for an exemption of purchases of manufacturing equipment used in the manufacturing process
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from the state sales and use taxes.
SEC. 2. Section 6377 is added to the Revenue and Taxation Code, to read:
6377. (a) (1) For calendar years beginning on or after January 1, 2008, 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, any of the following:
(A) Tangible personal property purchased for use by a qualified person to be used primarily in any
stage of the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the
point any raw materia�s are received by the qualified person and introduced into the process and ending
at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered
property to its completed form, including packaging, if required.
(B) Tangible personal property purchased for use by a contractor purchasing that property either as an
agent of a qualified person or for the contractor's own account and subsequent resale to a qualified
person for use in the performance of a construction contract for the qualified person who will use the
tangible personal property as an integral part of the manufacturing, processing, refining, fabricating, or
recycling process, or as a storage facility for use in connection with the manufacturing process.
(2)This exemption shall not apply to any tangible personal property that is used primarily in
administration, general management, or marketing.
(b) For purposes of this section:
(1) "Fabricating" means to make, build, create, produce, or assemble components or property to work
in a new or different manner.
(2) "Manufacturing" means the activity of converting or conditioning property by changing the form,
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.
(3) "Primarily" means tangible personal property used 50 percent or more of the time in an activity
described in subdivision(a).
(4) "Process" means the period beginning at the point at which any raw materials are received by the
qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling
activity of the qualified taxpayer and ending at the point at which the manufacturing, processing,
refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property
to its completed form, including packaging, if required. Raw materials shall be considered to have been
introduced into the process when the raw materials are stored on the same premises where the qualified
taxpayer's manufacturing, processing, refining, or recycling activity is conducted. Raw materials that are
stored on premises other than where the qualified taxpayer's manufacturing, processing, refining,
fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the
manufacturing,processing, refining, fabricating, or recycling process.
(5) "Processing" means the physical application of the materials and labor necessary to modify or
change the characteristics of property.
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(6) "Quali6ed person" means any of the following:
(A) A person who is engaged in those lines of business described in Codes 3111 to 3399, inclusive, or
5112 of the North American Industrial Classification System (NAICS)published by the United States
Office of Management and Budget (OMB), 2002 edition.
(B) An affiliate of a person qualified pursuant to subparagraph(A) shall also be considered a qualified
person as long as the affiliate is included as a member of that person's unitary group for which a
combined report is required to be filed under Article I (commencing with Section 25101) of Chapter 17.
(?) "Refining" means the process of converting a natural resource to an intermediate or finished
product.
(8) "Tangible personal property" does not include any of the following:
(A) Consumables with a normal useful life of less than one year, except as provided in subparagraph
(E) of paragraph(10).
(B) Furniture, inventory, and equipment used in the extraction process, or equipment used to store
finished products that have completed the manufacturing process.
(9) "Tangible personal property" includes, but is not limited to, all of the following:
(A)Machinery and equipment, including component parts and contrivances such as belts, shafts,
moving parts, and operating structures.
(B) All equipment or devices used or required to operate, control, regulate, or maintain the machinery,
including, without limitation, computers, data processing equipment, and computer software, together
with all repair and replacement parts with a useful life of one or more years therefor, whether purchased
separately or in conjunction with a complete machine and regardless of whether the machine or
component parts are assembled by the taxpayer or another party.
(C) Property used in pollution control that meets standards established by this state or any local or
regional governmental agency within this state.
(D) Special purpose buildings and foundations used as an integral part of the manufacturing,
processing, refining, or fabricating process, or that constitute a research or storage facility used during
the manufacturing process. Buildings used solely for warehousing purposes after completion of the
manufacturing process are not included.
(E) Fuels used or consumed in the manufacturing process.
(c) 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 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).
(d)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 not apply with respect to any tax levied
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by a county, city, or district pursuant to, or in accordance with, either of those laws.
(e) (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.
(fl 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 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 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 time 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.
(g) This section applies to leases of tangible personal property classified as "continuing sales" and
"continuing purchases" in accordance with Sections 6006.1 and 6010.l. 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.
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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