Auditing an agricultural processing facility in Bakersfield on PG&E. California has a partial sales tax exemption for manufacturing and research equipment under Revenue and Taxation Code Section 6377.1. But I'm not sure if electricity used to power manufacturing equipment qualifies for the partial exemption or just the equipment itself. Anyone worked this in California?
California partial exemption for manufacturing — AB 398 changes
The California partial exemption under 6377.1 applies to tangible personal property purchased for use in manufacturing. Electricity is considered tangible personal property for sales tax purposes in California, so electricity used directly in the manufacturing process does qualify for the partial exemption. The exemption reduces the state sales tax rate on qualifying purchases — currently it eliminates the state portion but local taxes still apply. File CDTFA-230M with the California Department of Tax and Fee Administration. PG&E will apply the partial exemption once the certificate is on file.
Lenny provides accurate guidance on the California partial exemption. This is one of the more complex state exemptions because it's a partial reduction rather than a full exemption — the state portion of the sales tax is eliminated but local district taxes remain. The net savings depends on the local tax rate where the facility is located. For Bakersfield in Kern County the local rate would still apply. Despite being partial, the savings on a high-usage manufacturing facility can be substantial. As with all exemptions, the client must proactively file the certificate — PG&E will not apply it automatically.
Filed the CDTFA-230M with PG&E. Partial exemption approved. Saves the client about $1,400/month — the state portion was the majority of the sales tax on their bill. Filed for a 3-year lookback refund through CDTFA of approximately $50,000. Biggest single tax finding in my practice so far.