Personal income taxes: credit: manufacturing: sales and use taxes.

Senator Grayson's tax credit proposal offers California manufacturers and research firms a mechanism to recoup local sales and use taxes on qualifying equipment purchases between 2026 and 2031. The measure creates parallel credits under both personal income and corporate tax codes, allowing businesses to claim amounts equal to local tax payments on transactions that would otherwise qualify for the state's partial manufacturing exemption.

The credits apply specifically to sales tax reimbursements paid to retailers and use taxes paid directly by purchasers on qualifying manufacturing and research equipment. Taxpayers can carry forward unused credits for up to eight years, though they must file amended returns if equipment is moved out of state within one year of purchase. The California Department of Tax and Fee Administration and Franchise Tax Board will share relevant taxpayer information to administer the program.

To track outcomes, the Franchise Tax Board must report to the Legislature by April 2033 on the total credits claimed and number of participating taxpayers. The bill's findings indicate these credits aim to promote continued manufacturing and research investment in California. The provisions sunset in December 2031, with final repeal scheduled for January 2034.