HomeMy WebLinkAbout1993-04-27 - AGENDA REPORTS - AB 1313 SALES TAX EXEMPTION (2)AGENDA REPORT
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DATE: April 27, 1993
SUBJECT: AB 1313 - Sales Tax Exemption
DEPARTMENT: Management Services
BACKGROUND -
City Manager
Item to be pr
Ken PulakamD
On March 3,'1993, Assembly Member Willie Brown introduced AS 1313, a sales tax,
exemption measure.
The bill would provide a tax exemption for the gross receipts from the sale of,
and storage, use or other consumption of tangible personal,property primarily
used in any stage of manufacturing, processing, refining, extracting,
fabricating and research and development, and any property used to maintain or
repair any such property.'
LOCAL IMPACT•
The Municipal Resource Consultants (MRC), the City's sales tax.consultant,
claim that passage of this bill would result in a statewide revenue.loss of $6
billion per year, or a 20Z to 40Z loss to a local government's tax base. For
Santa Clarita, that would mean a loss of approximately $2.4 million to $4.7
million dollars per year. The MRC asserts that under AB 1313, local governments
would have no incentive for retaining or attracting high paying manufacturing
businesses. Further, cities could be forced to raise taxes on local businesses
in order to compensate for the loss of revenue resulting from AS 1313.
Council oppose AS 1313. Direct staff to transmit letters in opposition of the
bill.
APPROVED
Agenda Item: 1 L _
CALIFO&rZi LECISLLTURE-1993-44 RECULAR SESSION
ASSEMBLY BILL
No. 1313
Introduced by Assembly Member Willie Brown
March 3, 1993
An act to add Section 6377 to the Revenue, and Taxation
Code; relating to taxation, to take effect immediately, tax .
levy.
LEGISLATIVE COUNSEL'S DICESI'
AB 1313, as introduced, W., Brown. Sales and use taxes:
exemptions: manufacturers.
The existing Sales and Use Tax Law imposes a tax on the
gross receipts from the sale of, or the storage, use, or other
consumption in this state of, tangible personal property and
provides various exemptions from the taxes imposed by that
law. -
This bill would provide an exemption from those taxes for
the gross receipts from the sale of, and the storage, use,or
other consumption of,. tangible personal property primarily
used in any stage of manufacturing, processing, refining,
extracting, or fabricating of property, or producing
electricity, steam, or fuel, as specified. The bill would also
exempt the gross receipts .from the sale of, and the storage,
use, or other consumption of, tangible, personal property
primarily used or consumed in research and development or
used to maintain or repair any property exempted by this bill.
The exemption . would not apply to any tangible personal
property that is used primarily -in administration, general
management, or marketing. The bill would require that the
purchaser furnish the retailer with an exemption certificate,
as specified.
Counties and cities are authorized to impose local'sales and
use taxes in conformity with state. sales and use taxes.
AB 1313 —2—
Exemptions
2_
Exemptions from state sales and use taxes enacted by the
Legislature are incorporated into the local taxes.
Section 2230 of the Revenue and Taxation Code provides
that the state will reimburse counties. and cities for revenue
losses caused by the enactment of sales and use tax
exemptions.
This bill would provide that no appropriation is made and
the state shall not reimburse local agencies for sales and use
tax revenues lost by them pursuant to this bill.
This bill would take effect immediately as a tax levy, but its
operative date would depend on its effective date.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State -mandated local program: yes.
The people of the State of California do enact as follows:
1 SECTION 1. - Section 6377 is added to the Revenue
2 and Taxation Code, to read: `
3 6377. (a) There are exempted from the taxes
4 imposed by this part the gross receipts from the sale of,
5. or the storage, use, or other consumption in this state of,
6 all of the following:
7.. (1) Tangible personal property primarily used in any
8. stage . of the manufacturing, processing, refining,
9 extracting, or fabricating of property, or producing
10 electricity, steam, or fuel, beginning at the point any raw
11 materials are received and ending at the point at which
12 the manufacturing, processing, refining, extracting,
13 fabricating, or producing has altered property to its
14 completed form, -including packaging, if required. Any
15 sales made to a contractor or subcontractor for use in the
16 performance of a construction contract for a
17 -manufacturer shall be deemed to be made to the
18 manufacturer for purposes of this exemption.
19 (2) Tangible personal property - primarily used or
20 consumed in research and development.
21 (3) Tangible personal property primarily used to
22 maintain or repair any property described in paragraph
23 (1) or (2).
24 This exemption shall not apply to any tangible personal
-3—
AB 1313
1 property that is used primarily in administration, general
2 management, or marketing.
3 (b) For purposes of this section:
4 (1) "Extracting" means exploration for, or removal of,
5 a natural resource from its native environment.
6 (2) "Fabricating" means . to make, build, create,
7 produce, or assemble components or property to work in
8 a new or different manner.
9 (3) "Manufacturing" means the activity of converting
10 or conditioning property by changing the form,
11 composition, quality, or character of the property . for
12 ultimate sale at retail or use in the manufacturing of a
13 product to be ultimately sold at retail. Manufacturing
14 includes any improvements to tangible personal property
15 that result in a greater service life or greater functionality
16 than that of the original property.
17 (4) "Measuring or testing" includes both
18 nondestructive and destructive measuring or testing; and
19 the alignment and calibration of machinery, equipment,
20 and tools, in the furtherance of manufacturing,
21 processing, refining, extracting, or fabricating of
22 property or producing electricity, steam, or fuel.
23 (5) "Processing" means the physical application of the
24' materials and labor necessary to modify or change the
25 -characteristics of property. .
26 (6) "Refining" means the process of converting a
27. natural resource to an intermediate or finished product.
28 (7) "Research. and development" means basic and
29 applied research. and experimental activities in the
30 sciences and engineering, and designing, developing, or
31 testing prototypes, processes, or new products, including
32 research and development of computer software that is
33 embedded in, or an integral part of, the prototype or new
34 product or . that is required for, property otherwise
:35 exempt under this section to function effectively.
36 (8) "Tangible personal property" includes, but is not
37 limited to, all of the following:
38 (A) Machinery and equipment, including component
39 parts and contrivances such as belts, shafts, moving parts,
40 and operating structures.
AB 1313
—4-
1 (B) All equipment or devices used or required to
2 operate, control, regulate, or maintain the machinery,
3 including, without limitation, computers, data processing
4 equipment, and computer software, together with all
5 repair and replacement parts therefor, whether
6 purchased separately or in conjunction with a complete
7 machine and regardless of whether the machine or
8 component parts are assembled by the taxpayer or
9 another party.
10 (C) Property used in pollution control
11 (D) Other safety equipment related to any activity
12 exempt under this section.
13 (E) Special purpose buildings and foundations used to
14 house or support the exempt equipment.
15 (F) Lubricants, hydraulic oil, coolants, chemicals,
16 catalysts, fuels, and other property used or consumed in
17 the manufacturing process.
18 (c) No exemption shall be allowed under this section.
19 unless the purchaser furnishes the retailer with an
20 exemption certificate, completed in accordance with any
21 instructions or regulations as the board may prescribe.
22 SEC. 2. Notwithstanding Section 2230 of the. Revenue
23 and Taxation Code, no appropriation is made by this act
24 and the state shall not reimburse any local agency for any
25 sales and use tax revenues lost by it under this act.
26 SEC. 3. This act provides for a tax levy within the
27 meaning of Article N of the Constitution and shall go into
28 immediate effect. However, the provisions of this act
29 shall become operative on the first .day of the first
30 calendar quarter commencing more than 90 days after
31 the effective date of this act.
J