California Tax Incentive Alert
As many of you know, the pre-2014 enterprise zone (“EZ”) sales and use tax credit ended on December 31, 2013. California has enacted a new incentive that allows certain industries to claim an exemption (vs. an income tax credit) for the state portion of the sales and use tax on certain new or used assets purchased on or after July 1, 2014. Unlike the old sales tax credit, the new partial exemption will be available statewide and not limited to certain geographic locations. While the benefit amount is lower than the previous EZ program, businesses that are unprofitable or otherwise not in a taxpaying position will benefit from this new exemption structure.
Purchased or leased tangible personal property may qualify if used primarily for any of the following activities:
- Manufacturing, processing, refining, fabricating, or recycling;
- Research and development;
- To maintain, repair, measure, test any property being used for manufacturing;
- Processing, refining, fabricating, or recycling;
- For research and development; or
- As a special purpose building and/or foundation.
Here is what you need to know to take advantage of this benefit.
- The partial exemption applies to purchases of qualified tangible personal property made on or after July 1, 2014 through June 30, 2022.
- Businesses can get a partial exemption (as opposed to an income tax credit) at the rate of 4.1875% through Dec. 31, 2016 (3.9375% Jan. 1, 2017- June 30, 2022) from certain types of asset purchases if they are primarily (more than 50%) engaged in the following industries:
- 3111 to 3399 of the NAICS (manufacturing processing, refining, fabricating, or recycling).
- 541711 and 541712 of the NAICS (biotechnology, or physical, engineering, and life sciences research and development).
- An exemption certificate (see below) should be provided to the vendor of the qualifying equipment prior to purchase.
- The program includes a cap of $200 million annually in aggregate qualified purchases per business/ per year.
- A claw-back, equal to the value of the SUT exemption, will apply if qualifying purchases are removed from the state, or used for non-qualified activities within one year of the purchase.
- Not available to certain financial institutions, extractive and agricultural taxpayers.
The California Board of Equalization has issued a proposed regulation that would permit a broader application of the partial exemption to non-traditional manufacturers. Under the regulation, a non-traditional manufacturer with an establishment (i.e., economic unit) primarily engaged in manufacturing, processing, refining, fabricating, or recycling may claim the partial sales and use tax exemption. For example, a supermarket that engages in meat processing (i.e., cutting and packaging meats) would have a qualified establishment. Thus, purchases of meat cutting equipment qualify for the partial sales and use tax exemption.
In order to receive the exemption, companies will need to provide an exemption certificate, Form BOE-230-M, to the seller at the time of purchase. A copy of the certificate is available at http://www.boe.ca.gov/pdf/boe230m.pdf.
For additional information about Sales and Use Tax Partial Exemption, the California Enterprise Zone Program and other incentives, please log on to www.hcvt.com or you can contact us at 562.590.9535 or Gina Ballard, CPA, MBT, email@example.com; Blake Christian, CPA, MBT, firstname.lastname@example.org; Victor Gonzales, CPA at email@example.com.
HCVT is the largest CPA firm headquartered in Southern California and has seven Southern California offices to serve its diverse client base. We provide tax consulting, tax compliance, financial consulting and attest services primarily to middle-market businesses and high net-worth individuals.