Partial Sales & Use Tax Exemption for R&D Property

Partial Sales & Use Tax Exemption for R&D Property

The California partial sales and use tax exemption for R&D equipment is effective  July 1, 2014 to July 1, 2030. In general, to be eligible for the exemption, three conditions must be met: the purchaser must be a “qualified person,” the equipment purchased must be “qualified property,” and the equipment must be used for R&D in a specified research area.

Qualified Person Requirement

A "qualified person" means a person who is primarily engaged in those lines of business described in the North American Industry Classification System (NAICS) Codes 3111 to 3399, inclusive, 541711, or 541712, or beginning January 1, 2018, 22111 to 221118, inclusive, and 221122, published by the United States Office of Management and Budget (OMB), 2012 edition.  NAICS 2012 Codes here:  https://www.census.gov/naics/

For UCSB, an establishment is typically a department or institute that allocates, assigns or derives 50 percent or more, of any one of the following, to a qualifying line of business: (1) employee salaries and wages, (2) value of production, or (3) number of employees based on a full-time equivalency.

In addition, a financial “account” can be considered an establishment, if the department or institute does not qualify. The account to which the equipment cost is charged must be a “qualified account”:

• Research accounts beginning with the digits “44” are qualified accounts.

Qualified Property and Use Requirements

• The equipment must have a life of over one year, and must be used more than 50% of the time to conduct  research in a qualified area per NAICS codes.. i.e. Equipment used 60% for teaching or general administrative purposes does not qualify.
  • Qualified research areas are generally the hard sciences and include Biotechnology, Agriculture, Electronics, Environmental, Biology, Botany, Computers, Chemistry, Engineering, Food, Fisheries, Forests, Geology, Health, Mathematics, Materials, Medicine, Oceanography, Pharmacy, Physics, Veterinary and allied subjects.
• The equipment must be used for research in California.

Partial Exemption Tax Rate

• For qualifying equipment, 3.9375% of the regular sales and use tax rate is exempt. Effective 04/01/2018, the regular rate in Santa Barbara County is 7.75%. Therefore the applicable rate for partially exempt equipment  delivered to the UCSB campus is  3.8125% (which is the 7.75% SB County rate minus 3.9375%).

Additional details and required forms can be found at the CDTFA website here:

https://www.cdtfa.ca.gov/industry/manufacturing-exemptions.htm

or, in Gateway as part of a Purchase Requisition, in the Special Handling section. When using a PTE form in Gateway please adjust the Requisition tax rate to 3.813%.