Services/ Manufacturing and R&D Exemptions

It is time to take advantage of a new sales tax exemption for purchases and leases of manufacturing and research and development equipment.  Pursuant to 2014 sales tax legislation to encourage business and economic growth, businesses may save $42,000 for every $1,000,000 spent on qualifying property – up to an annual savings of approximately $8.4 million (based on the maximum of $200 Million in qualified purchases per year).

Qualified Establishments may be included within a larger entity not included in the details below.  Let our professionals provide a full analysis of your operations!

In order to qualify for the exemption, businesses must, in general, meet all of the following conditions:

  • Be engaged in business working in any type of manufacturing business or those in research and development in biotechnology, engineering, physical sciences or life sciences.
  • Purchase or lease machinery, equipment, including component parts, that are used in any and all facets of the manufacturing process, including maintenance and repair, from receipt of the raw materials to the ultimate creation of the final product.
  • Use the machinery and equipment in any and all stages of the manufacturing process from beginning to end.

Allow ERS’ experienced professionals, who have studied and analyzed the complexities of the recent legislation, to identify all qualifying exemptions and maximize your unclaimed refund.

Overview of Exemption

Manufacturing and Research & Development Equipment Allows a partial exemption of:

  • 4.1875% July 1, 2014 – December 31, 2016
  • 3.9375% January 1, 2017 – June 30, 2022

Qualifications to be eligible for this exemption, a buyer must meet all three of these conditions:

  • Be a qualified person
  • Purchase “qualified tangible personal property”
  • Use that property for the uses allowed by this law

Qualified Person – Defined

  • Engaged in manufacturing - NAICS codes 3111 to 3399
  • Researchers and developers in biotechnologies - NAICS code 541711
  • Engaged in research and development in physical, engineering, and life sciences - NAICS code 541712

Qualified Property – Defined

  • Machinery and equipment (Purchased or Leased)
  • Equipment and devices used to operate, control, regulate or maintain the machinery
  • Property used in pollution control or Solar Power Equipment
  • Material Handling Equipment Purchase
  • Out of State Qualifying Purchases
  • Special purpose buildings

Special Purpose Buildings

  • Must be used for manufacturing, processing, refining, fabricating, or recycling processes, or it may be used as a research or storage facility for these processes
  • For the entire building to qualify, no more than onethird of the usable volume of the building can be used for non-manufacturing or other non-qualifying uses
  • A portion of the building may qualify Qualified Use - defined — Any stage of manufacturing, processing, fabricating, refining, or recycling process
  • Research and development
  • Maintain, repair, measure, or test any qualified property
  • Materials or fixtures furnished and installed by a construction contractor Useful Life
  • Property must have a useful life of one year or more
  • Capitalized for state income or franchise tax purposes

Useful life

  • Items that do not qualify:
  • Items that are expensed in a single tax year
  • Property placed in service and disposed of in the same year
  • Items that are replaced on a regular basis of less than one year

Annual Purchase Limitation

  • $200 million in qualified purchases per calendar year

Resources

  • Regulation 1525.4
  • BOE website
  • Contact Jacob Bholat with specific tax questions - This e-mail address is being protected from spambots. You need JavaScript enabled to view it
  • Exemption Certificates

Exemption Certificates