Determine if your Purchase is Qualified for a Partial Sales & Use Tax Exemption

Effective July 1, 2014, through July 1, 2030, California Department of Tax and Fee Administration's Regulation 1525.4 - Manufacturing and Research & Development Equipment allows “partial sales and use tax exemption” on certain manufacturing and research and development equipment purchases.

To be eligible under the SDSURF policy the purchase must meet all three of these conditions:

1. Be engaged in certain types of business, also known as a “qualified person.”
2. Purchase “qualified property” valued at $50,000 and over.
3. Use that “qualified property” for the “qualified activity” allowed by this policy and the State of California guidelines.

The R&D activities must either be in:

1. Biological Sciences (NAICS code 541711), or
2. Physical Science and Engineering, excluding Biotechnology (NAICS code 541712).

To find out if your purchase is qualified, see the below links for information regarding California Regulations:

California Sales And Use Tax Regulations

Manufacturing and Research & Development Equipment Exemption for purchasers

Qualifications

• Qualified Person - A "qualified person" is an organization primarily engaged (50% or more) in a "qualified activity". A “qualified person” may be “primarily engaged” either as a legal entity or as an “establishment” within a legal entity.
• Qualified Property includes machinery and equipment valued at $50,000 or more with a useful life greater than one year that is used in a “qualified activity”.


• Qualified property includes:
  • Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures
  • Equipment and devices used or required to operate, control, regulate, or maintain the machinery (e.g. computers, data-processing equipment, computer software, etc.) in conjunction with all repair and replacement parts with a useful life of one or more years (even if the equipment and devices are purchased separately or in conjunction with the repair and replacement parts)
  • Special purpose buildings and foundations including but not limited to clean rooms, climate-controlled facilities, wind tunnels, linear accelerators
  • Non-depreciable property like leased computers used more than 50% for qualified activities, and catalysts
  
  
• Qualified property does not include:
  • Consumables with a useful life of less than one year
  • Tangible personal property used primarily for administration, general management, or marketing
  • Furniture, inventory, and equipment used in the extraction process
  • Equipment used to store finished products that have completed the manufacturing, processing, refining, fabricating, or recycling process

Qualified Activity means using “qualified property” primarily (more than 50%) in manufacturing, processing, fabricating, refining or recycling of tangible personal property, as well as research and development, anywhere in California. Qualified Activity also includes using “qualified property” primarily to maintain, repair, measure, or test any qualified tangible personal property described in the previous sentence. The qualified activity can be found in the business activities described in North American Industry Classification System (NAICS) codes 541711 and 541712.

If Your Purchase Qualifies

With the assistance of SDSURF procurement, the required Partial Exemption Certificate for Manufacturing, Research, and Development Equipment (CDTFA-230-M) form must be completed for all purchases from California and out-of-state vendors when placing your purchase order. Since some out-of-state vendors do not collect sales tax on invoicing, it is the Research Foundation’s responsibility to accrue use tax on the purchase of taxable tangible personal properties. Partial Exemption Certificate for Manufacturing, Research and Development Equipment

The reason for completing the required Partial Exemption Certificate for purchases from California and out-of-state vendors is to:

• Comply with California sales and use tax law by providing the seller with a timely partial exemption certificate.
• Apply the correct sales tax code when processing payment.
• Reduce audit risk, potential tax underpayment, interest, and penalties.
• Control risk at the front end.

Note: The Principal Investigator must certify and sign the Partial Exemption Certificate which will then be reviewed by our procurement department and the Director of Financial Services/Controller.

Partial Sales and Use Tax Exemption Rate

January 1, 2017, through June 30, 2030

The partial exemption rate is 3.9375%, making partial sales and use tax rate equal to 3.8125% for research equipment delivered to San Diego. The effective rate may change if equipment is delivered to a different city in California.

Assessment of the Sales and Use Tax on Purchases

The sales and use tax rate is determined by the point of delivery or the “ship to” address. The California vendors will charge sales tax on the purchase of tangible personal properties based on the “ship to” address. Since out-of-state vendors often do not collect sales tax on invoicing, it is the Foundation’s responsibility to accrue use tax on the purchase of taxable tangible personal properties based on the “ship to” address.

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