California Enacts Sales Tax Exemptions for Manufacturing and R&D

California Governor Jerry Brown, as part of his Economic Development Initiative, signed legislation enacting a sales and use tax exemption for manufacturing and research and development (R&D) activities in California. The legislation is effective July 1, 2014. The exemption applies to “qualified tangible personal property” purchased by a “qualified person” as defined by the law.

Qualified persons may utilize the exemption and are defined to include businesses with a primary business activity listed in the North American Industry Classification System (NAICS) under codes 3111 to 3399 and R&D NAICS codes 541711 and 541712. The qualified property must be used primarily in manufacturing or R&D. The exemption also applies to contractors that purchase qualified property for a construction contract with a manufacturer or R&D business.

Items qualifying for the exemption include: machinery, equipment and component parts, repair and replacement parts with a useful life of one or more years, pollution control equipment and special purpose buildings and foundations used in manufacturing. The exemption excludes: consumables with a useful life of less than one year or any property used to store finished product or property used in administration, management or marketing activities. The exemption is also limited to the first $200 million of purchases made during a calendar year.

Taxpayers with manufacturing or R&D operations should prepare to take advantage of the opportunity offered by the exemption. The exemption requires that the entity claiming the exemption supply the vendor with an exemption certificate. The exemption does not apply to local sales and use tax. Please review future Insight articles for containing more information on the exemption and the expected guidance/regulation from the California Board of Equalization.

© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

Ohio’s Budget Bill and Sales Tax Changes
Freight Exception from Business Privilege Tax
New Wayfair Economic Nexus Provisions Go Into Effect July 1, 2019
2019-2020 Pennsylvania Budget
Which States Can Tax Your Trust?
Illinois Tax Amnesty Program

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office

One PPG Place, Suite 1700
Pittsburgh, PA 15222
p:412.261.3644     f:412.261.4876

Map of Columbus Office

65 East State Street, Suite 2000
Columbus, OH 43215
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102