New Sales Tax Break for California Food Processors and Other Manufacturers

Effective July 1, 2014, California manufacturers are eligible for a new equipment purchase partial sales tax exemption. To be eligible for the exemption, firms must be engaged in qualified businesses, purchase designated types of tangible property, and use the equipment according to uses allowed by the law. Food processors are included as a qualified sector, but some businesses that derive more than 50 percent of their gross receipts from farming may not be eligible. For the purposes of this regulation, tangible personal property includes machinery, equipment, computers and pollution control equipment. Items that are not eligible include furniture or consumables with a useful life of less than one year.

The exemption only applies to the California state sales tax portion, currently set at 4.1875 percent of the sales price. The tax credit applies to qualified purchases of up to $200 million per year, per qualified applicant. Purchasers must present an exemption certificate to the seller in a timely manner to receive the exemption.

The rules are somewhat complicated and many sellers may not be aware of all the specific requirements. If you have questions about how the exemption might apply to a specific transaction or to obtain more information about this program, contact David Rivera, Business Tax Specialist with the California Board of Equalization (BOE) at 559-301-4259, or consult the BOE website: www.boe.ca.gov/sutax/manufacturing_exemptions.htm