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Exemption on Manufacturing Equipment

Regulation 1525.4 allows businesses in manufacturing to purchase manufacturing equipment at reduced sales and use tax rate for purchases occurring on or after 7/01/14. The partial exemption was 4.185% for the period of 7/01/14 to 12/31/16 and then adjusted to 3.9375% on 1/01/17 through the end of the program. The exemption will be taken at the time of purchase, with the exclusion recorded on your sales & use tax return.

Sellers who make qualifying sales or leases must obtain a timely exemption certificate from the purchaser or lessee. You will be able to claim the deduction for sales subject to the manufacturing exemption on your sales and use tax return.

Purchasers do not need to apply to the BOE for the exemption. When you make qualifying purchases outside California, you must provide the seller with a timely exemption certificate to obtain the reduced tax rate.

If you pay the full amount of sales tax at the time or purchase, and later discover that you have met all of the qualifications, you may issue a partial exemption certificate along with supporting documentation to your retailer. The retailer may then file a claim for refund for the overpaid portion of sales and use tax on your behalf. If the transaction was subject to use tax, the purchaser may file a claim directly with the Board of Equalization.

If you make a qualifying purchase and did not pay use tax to the seller, you must report the use tax at the partial rate on your sales and use tax return. You may claim a deduction for purchases subject to the manufacturing exemption. Use line 2 on your sales and use tax return to report use tax on these purchases. Then use Section D (Partial State Tax Exemption for Manufacturing and Research and Development Equipment) to reconcile the total tax and partial tax exemption.

Recommendation: If members plan on purchasing manufacturing equipment (press, bindery equipment, mailing equipment), they should take advantage of this credit. For more information or a copy of the exemption certificate, please contact Gerry Bonetto at gerry@roadrunner.com or 909.214.0944.

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