Friday, July 11th, 2014

California’s New Tax Exemption Could Save Plastics Manufacturers Money

By Jane Adams, SPI Senior Director, State Government Affairs

Plastics manufacturing companies operating in California could benefit from a tax break that became effective July 1.

The new law allows certain businesses in manufacturing to purchase or lease manufacturing or research and development equipment at a reduced sales and use tax rate if the purchase occurred on or after July 1, according to the California Board of Equalization (BOE).

In an effort to clarify some of the nuances associated with the new law, SPI featured Lynn Whitaker from the BOE in a recent webinar. Whitaker discussed what is exempt, what is categorized as “qualified tangible personal property” and other important terms that determine the eligibility of purchases.

Any new machinery and equipment, control devices, pollution control equipment or other property to be used in the manufacturing process may qualify for the 3.3125 percent rate, down from the current 7.50 percent statewide tax rate. However, the BOE cautions that the exemption applies to the state portion of the sales and use tax, not to any local, city, county or district taxes.

Eligibility requires that the firm purchase qualified tangible personal property like machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts and operating structures.

“Qualified tangible personal property” does not include:

  • Consumables with a useful life of less than one year
  • Furniture, inventory and equipment used in the extraction process or equipment used to store finished products
  • Items used primarily in administration, general management or marketing

The property must be purchased to be used primarily for the following uses:

  • Manufacturing, processing, refining, fabricating or recycling of tangible personal property
  • Research and development
  • Maintaining, repairing, measuring or testing property listed above.

To view an archived version of the webinar, “How to Benefit from the New Tax Exemptions for California Manufacturers,” click here.

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