California's Cap-and-trade Bill Enhances Existing Tax Incentive

• Publication year: 2017
• Author: By Chris Micheli

California's Cap-and-Trade Bill Enhances Existing Tax Incentive

By Chris Micheli¹

As part of the cap-and-trade deal that was ironed out shortly before the Legislature went on its summer recess, two bills were enacted. Assembly Bill ("AB") 617 (Cristina Garcia) dealt with air emissions, while AB 398 (Eduardo Garcia) dealt with the program itself. Contained in AB 398 was an elimination of an existing fee, as well as enhancements to an existing tax incentive for businesses. AB 398 was signed on July 25 and became Chapter 135. As an urgency clause statute, the bill took effect immediately on that same date.

Among other provisions, AB 398, until January 1, 2031, extends the applicability of a regulation that establishes a system of market-based declining annual aggregate emissions limits for sources or categories of sources that emit greenhouse gases to December 31, 2030. In addition, AB 398 eliminated the fire prevention fee and extended and expanded the partial sales tax exemption for the purchase of specified manufacturing equipment.

Under current state law (Revenue & Taxation Code ("R&TC") Section 6377.1), commencing July 1, 2017, the California Department of Tax and Fee Administration ("CDTFA") (formerly the State Board of Equalization) is responsible for the administration of the Sales and Use Tax Law and existing sales and use tax laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. It also provides various exemptions from those taxes.

Among those exemptions is the partial exemption for manufacturing and research and development equipment. Pursuant to this partial exemption, existing state law exempts from those taxes, on and after July 1, 2014, and before July 1, 2022, the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased by a qualified person for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property; qualified tangible personal property purchased for use by a qualified person to be used primarily in research and development; qualified tangible personal property purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any qualified...