On October 4, 2013, California Governor Jerry Brown approved Assembly Bill 1422 (Chapter 540, Laws 2013). The legislation clarifies that the sales and use tax exclusion for certain projects approved by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) is available to entities located outside the state of California or overseas. The amendment is effective January 1, 2014, though a portion of the legislation explains that it is meant to clarify existing law. Therefore, that portion is functionally effective immediately.
An exemption for green energy projects. CAEATFA was established to provide financial assistance to the developers of certain projects related to sustainable and renewable energy sources, energy efficiency, and advanced transportation alternatives. The enabling legislation, Section 26000 et seq. of the Public Resources Code, provided a sales and use tax exclusion for certain participating parties and projects. Under Section 6010.8 of the Revenue and Taxation Code, the terms “sale” and “purchase” as used in the California sales and use tax statutes do not include a lease or transfer of title to tangible personal property constituting a “project.”
Starting next year, “projects” limited to property used in-state. Before the passage of Assembly Bill 1422, the definition of “project” included all tangible personal property utilized for the design, manufacture, production or assembly of sundry advanced products, components, and systems, including microelectronics and nanoelectronics, semiconductors, advanced materials, nanotechnology, industrial biotechnology, intelligent manufacturing systems, and a host of other technologies. This language, however, did not qualify the usage, so qualifying entities could purchase property tax-free in California for use anywhere else. The new legislation restricts the definition of “product” to property utilized in California. This language, however, is effective January 1, 2014, and is not a clarification of existing law, so tax planning opportunities may be available for the next three months.
Effective now, non-California entities may qualify. Perhaps more significantly, the new legislation clarifies that a participating entity need not be located in California to qualify for the exclusion. A participating party can be any person (including corporations and other entities), federal or state agency, college or university, or political entity, whether for-profit or not-for-profit. The enabling legislation, however, did not specifically include out-of-state or overseas entities, which led some to believe that CAEATFA could not authorize exemptions for non-California entities. Assembly Bill 1422 specifically states that entities located outside the state, including overseas entities, are eligible to apply for the exemption if the entity commits to opening a manufacturing facility in California. The legislature further explained that this clause clarifies existing law, rather than expands existing law to new circumstances. As a result, out-of-state and overseas entities may be eligible to apply for the sales tax exclusion immediately.