Client in San Diego does custom metal fabrication. About 60% manufacturing, 40% repair work. SDG&E is charging sales tax on entire bill. California allows partial exemption under Rev & Tax Code 6051.2. How do I calculate the exempt portion?
California manufacturing exemption - SDG&E partial manufacturing operation
You need to track electricity usage by activity. Manufacturing hours vs repair hours works if you can document it. Alternatively, floor space allocation if manufacturing area is separate.
Manufacturing area is about 65% of the floor space and they track machine hours. Should I use the higher percentage?
Use the more defensible method. Machine hours is probably stronger if you have good records. Floor space can work too but utilities sometimes challenge it.
Client has 18 months of detailed machine hour logs showing 62% manufacturing usage. Filed Form BOTAX-401-SZ with SDG&E using that allocation.
That should work. 62% is a solid majority and the documentation sounds thorough.
SDG&E approved the partial exemption! Refund is $14,800 and go-forward savings about $650/month on the manufacturing portion.
Partial exemptions require careful documentation but can yield significant savings. The key is maintaining detailed records that clearly separate exempt from taxable activities.