Sales and Use Tax: exemptions: manufacturing.

Assembly Member Chen proposes extending California's manufacturing equipment sales tax exemption through 2031 while modifying its oversight requirements and local government impacts. The measure would maintain the current partial exemption from state sales and use tax for qualified manufacturing, research and development, and power generation equipment purchases up to $200 million annually per qualified entity.

The legislation removes existing mandatory reporting by the California Department of Tax and Fee Administration (CDTFA) on exemption usage, replacing it with conditional reporting upon legislative request. These reports would detail uncollected taxes by jurisdiction, administrative costs, and the number of businesses utilizing the exemption. The bill also eliminates state reimbursement to local governments for associated revenue reductions.

The measure retains core eligibility criteria for "qualified persons" primarily engaged in manufacturing, processing, research and development, or power generation activities. Equipment must be used primarily (more than 50% of the time) for qualifying industrial processes, from raw material receipt through final production. Special purpose buildings and pollution control equipment remain eligible, while consumables, furniture, and administrative equipment continue to be excluded.

To maintain program integrity, purchasers must still provide retailers with exemption certificates, which retailers must retain for CDTFA review. The bill preserves existing penalties for exceeding purchase caps or converting exempt equipment to non-qualifying uses within one year. The provisions would take immediate effect as a tax levy, with the entire framework scheduled for repeal on January 1, 2036.