Launched in July 2014, the Manufacturing and Research and Development Tax Exemption offers a partial reduction in state sales and use taxes for certain equipment purchases and leases.
Currently, the State of California imposes a statewide sales and use tax rate of 7.5% (plus applicable district tax) on sales and leases of property. With the Manufacturing and Research and Development Tax Exemption, eligible businesses would only pay 3.3125% of the statewide sales and use tax, saving $41.88 for every $1,000 in purchases of qualifying property.
The partial tax exemption is available to businesses in the following the North American Industry Classification System (NAICS) business categories:
- Manufacturing: NAICS codes 3111–3399
- BioTech Research and Development: NAICS 541711
- Physical, Engineering, and life sciences R&D: NAICS 54171
Certain equipment purchases and leases qualify for the partial sales tax exemption. They can include machinery and equipment; equipment and devices used or required to operate, control, regulate, or maintain the machinery; pollution control items; and certain special purpose buildings and foundations.
Use of Property
To qualify for the exemption, the property must be used 50 percent or more in one of the following activities:
- Manufacturing, processing, refining, fabricating, or recycling tangible personal property
- Researching and developing
- Maintaining, repairing, measuring, or testing any qualified property