FAQs - General Information - AB 426 & New Sales Tax Exemptions

Exemptions from the Sales and Use Taxes - General Information

  1. I understand specific industries are entitled to exemptions from the sales or use tax on the sale or use of specified tangible personal property? What property is eligible for these exemptions?
  2. I am not sure I understand when a sale occurs for purposes of the sales and use tax. Would you explain?
  3. Do the exemptions apply to leases in the same manner as they do to sales and purchases?
  4. I am a lessor of equipment. I currently pay tax on the purchase price of the equipment before I place it into rental inventory. Consequently, I do not remit or collect tax on the lease payments. Will these types of leases qualify for the partial exemption?

Exemption Certificates

  1. If my sales qualify for one of the exemptions, what documentation is necessary to support the exemption?
  2. I am a seller of equipment and machinery that qualifies for the partial exemption. When customers request the exemption, what description should they use for "Type of Tangible Personal Property Purchased?"
  3. What is meant by the statement that an exemption certificate must be taken timely and in good faith?
  4. How long does a retailer need to keep exemption certificates that support claimed exempt sales?
  5. I purchased property qualifying for an exemption from an out-of-state retailer who did not collect or report tax on my purchase. Do I still need to complete an exemption certificate?
  6. Does the Board have sample exemption certificates available for the exemptions? If so, how do I get copies?
  7. I purchased some equipment under a partial exemption certificate. At the time of purchase I intended to use the equipment in a qualifying manner. However, my plans changed and I used the equipment in a nonqualifying manner. What do I do now?
  8. I purchased equipment from a farm dealership that has several retail outlets. Should I complete a partial exemption certificate for each of the retail locations?
  9. I am a purchasing agent to a large corporation. The corporation owns several small corporations and partnerships. Am I required to complete and provide the retailers with a separate exemption certificate for each entity?

Exemptions from the Sales and Use Taxes - General Information

  1. I understand specific industries are entitled to exemptions from the sales or use tax on the sale or use of specified tangible personal property? What property is eligible for these exemptions?

    RTC section 6353(b), Liquefied Petroleum Gas (LPG), provides a full exemption from sales or use tax for qualifying sales and purchases of LPG. Qualified sales and purchases of LPG for household or agricultural use are fully exempt from California sales and use tax, as well as any applicable district taxes. To qualify for the exemption, the LPG must be delivered into a tank with a storage capacity equal to or greater than 30 gallons. Delivery into storage tanks with a capacity less than 30 gallons will not qualify even if the total LPG delivered exceeds 30 gallons. For more details, see Regulation 1533.

    RTC section 6356.5, Farm Equipment, Machinery and Parts, provides for a partial exemption from the state general fund portion of the sales and use tax for qualified sales and purchase including certain leases of new or used farm equipment, machinery, and parts. The farm equipment, machinery and parts must be purchased by qualified persons for use primarily in producing and harvesting agricultural products. "Primarily" means 50% or more of the time. Qualifying sales and purchases are still subject to a statewide tax rate, plus any applicable district taxes. A more detailed discussion concerning this partial exemption is available at Regulation 1533.1.

    RTC section 6357.1, Diesel Fuel, provides for a partial exemption from the state general fund portion of the sales and use tax for qualified sales and purchases of diesel fuel used in farming activities and food processing. Qualifying sales and purchases are still subject to the statewide local tax rate,plus any applicable district taxes. For a more detailed explanation of this partial exemption, see Regulation 1533.2.

    Special Information for Diesel Sellers, who are claiming excess prepaid sales tax on sales of diesel fuel to persons who are in farming activities or food processing and qualify for the partial exemption as explained in Regulation 1533.2. Information is available regarding these diesel fuel sales.

    RTC section 6356.6, Timber Harvesting Equipment, Machinery and Parts, provides for a partial exemption from the state general fund portion of the sales and use tax for qualified sales and purchases including certain leases by qualified persons of new or used equipment, machinery and parts designed primarily for off-road use that will be primarily used in timber harvesting operations.

    • To qualify for the partial exemption
      • the purchaser must be engaged in commercial timber harvesting,
      • the equipment or machinery must be designed primarily for off-road use in commercial timber harvesting operations, and
      • the equipment or machinery must be primarily used in timber harvesting.

    Primarily means 50% or more of the time. Qualifying sales and purchases are still subject to the statewide local tax rate, plus any applicable district tax. For more details, see Regulation 1534.

    RTC section 6358.5, Racehorse Breeding Stock, provides for a partial exemption from the state general fund portion of the sales and use tax for qualified sales and purchases of racehorse breeding stock. Qualifying sales and purchases are still subject to the statewide local tax rate, plus any applicable district taxes. For more details, see Regulation 1535.

    RTC section 6378, Teleproduction and Postproduction Services, provides for a partial exemption from the state general fund portion of the sales and use tax for qualified sales and purchases for teleproduction and postproduction service equipment. Qualifying sales and purchases are still subject to the statewide local tax rate, plus any applicable district taxes. For more details, see Regulation 1532.

  2. I am not sure I understand when a sale occurs for purposes of the sales and use tax. Would you explain?

    Under the California Sales and Use Tax Law, a sale occurs when title to, or possession of, tangible personal property is transferred to the purchaser or the purchaser's representative, for consideration. If a contract of sale does not pass title prior to shipment, the sale occurs no later than the time when the retailer completes his or her performance with reference to physical delivery of the property, such as when the retailer provides the property to a common carrier for delivery. For example, your customer ordered a large piece of equipment on August 20, 2001. The equipment is shipped on September 5, 2001. Unless the contract provides otherwise (i.e., a title transfer clause exists), the sale occurs when the equipment is provided to the common carrier for shipment to the customer. Until that time, you have not completed the sale.

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  3. Do the exemptions apply to leases in the same manner as they do to sales and purchases?

    Leases of qualifying tangible personal property that are classified as "continuing sales" and "continuing purchases" of tangible personal property in accordance with Regulation 1660, Leases of Tangible Personal Property - In General, may qualify for the exemptions (partial or otherwise) provided if the requirements of the applicable exemption (partial or otherwise) are met. If the lease is a continuing sale and purchase, as described in Regulation 1660, and the person and property meet the specified requirements, rentals payable made on or after the effective date of the type of exemption, should qualify for the applicable exemption.

  4. I am a lessor of equipment. I currently pay tax on the purchase price of the equipment before I place it into rental inventory. Consequently, I do not remit or collect tax on the lease payments. Will these types of leases qualify for the partial exemption?

    No. The exemptions (partial or otherwise) are not available to lessors who elect to pay California sales tax reimbursement or use tax at the time of acquisition of the property where the property is thereafter leased in substantially the same form as acquired.

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Exemption Certificates

  1. If my sales qualify for one of the exemptions what documentation is necessary to support the exemption?

    In good faith, you should obtain from the purchaser a timely and valid exemption certificate (partial or otherwise). Sample exemption certificates for each of the exemptions are available on the Board's website or through our Information Center at (800) 400-7115. To ensure that you are providing or receiving all the required information to support an exemption, we recommend that you use the applicable sample exemption certificates.

    You should also note that you may accept a properly completed and valid blanket exemption certificate covering all qualified purchases made by a qualified person in lieu of a specific exemption certificate for each purchase. A qualified person need not fill out an exemption certificate for each individual purchase.

  2. I am a seller of equipment and machinery that qualifies for an exemption. When customers request the exemption, what description should they use for "Type of Tangible Personal Property Purchased?"

    The description of property purchased on a partial exemption certificate should be as clear as possible. If you are a retailer of packing equipment, the description on the partial exemption certificate should say "packing equipment." If you are a retailer who sells many types of items, a description of the type of property sold should be acceptable. For example, if you operate a hardware store selling hand tools, nuts, bolts, and motor oil, all of which are purchased by a qualified person for a qualified use, the description on the partial exemption certificate could read "agricultural tools and parts for farm machinery and equipment."

    You should consider taking a specific partial exemption certificate for large or unusual purchases. For example, a tractor dealer may want to obtain a specific partial exemption certificate on the sale of a farm tractor and rely on a blanket certificate for sales of tractor parts and tools. Similarly, if a customer insists on an exemption for property that normally does not appear to qualify as farm equipment and machinery, you should obtain a specific certificate on the sale.

    Please note that an unclear description can leave a retailer open to questions of "good faith." For example, a partial exemption certificate issued to a hardware store with the description "all purchases" may raise questions as to whether the certificate was accepted in good faith, since both the vendor and purchaser know that some purchases made pursuant to that certificate may not qualify for the exemption.

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  3. What is meant by the statement that an exemption certificate must be taken timely and in good faith?

    For exemption purposes, the exemption certificate (partial or otherwise) will be considered timely if it is taken any time:

    • Before the retailer bills the purchaser for the qualified property,
    • Within the retailer's normal billing or payment cycle,
    • At or prior to delivery of the qualified property to the purchaser or his or her representative, or
    • No later than 15 days after the date of purchase.

    A seller cannot accept an exemption certificate (partial or otherwise) in good faith when the seller knows or should have reasonably known that the property is not subject to an exemption or will not be used in an exempt manner.

  4. How long does a retailer need to keep exemption certificates that support claimed exempt sales?

    A retailer must retain each exemption certificate (partial or otherwise) and any other documentation received from a purchaser for a period of not less than four years from the date on which the retailer claims an exemption (partial or otherwise) based on the exemption certificate. More information regarding the retention of sales records and other such documents is provided in Regulation 1698, Records or by calling our Information Center at 800-400-7115.

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  5. I purchased property qualifying for an exemption from an out-of-state retailer who did not collect or report tax on my purchase. Do I still need to complete an exemption certificate?

    You are required to report use tax on purchases of tangible personal property on which an out-of-state retailer does not collect or report tax. If you file a sales and use tax or consumer use tax return, you must report the purchase and claim the exemption (partial or otherwise) on the return filed for the period during which you purchased the property. You are not required to attach an exemption certificate (partial or otherwise) to that return, but you must provide documentation for the claimed exemption if requested by the Board.

    If you do not file a sales and use tax return or consumer use tax return because you are not registered with the Board, you must report the purchase on an individual use tax return. The return must be filed as soon as possible after the date of purchase. You must enclose a completed exemption certificate (partial or otherwise) with the return.

    If you reported and paid the full amount of tax on a purchase qualifying for an exemption (partial or otherwise) and you did not claim the exemption (partial or otherwise) when you reported the purchase, you may file a claim for refund for the overpaid tax. With the refund claim, you must provide documentation supporting your claimed exemption. You should contact the Board to determine what documentation you should provide. The Board's Allocation and Refund Section can be contacted at 916- 445-1315.

  6. Does the Board have sample exemption certificates available for the exemptions? If so, how do I get copies?

    Yes. Sample exemption certificates are included within each regulation and are available on the Board's website. Links to the sample exemption certificates are provided in the response to question 13. Copies of the regulations are also available through our Information Center. The Information Center is open from 8:00 a.m. to 5:00 p.m., Monday through Friday, excluding State holidays and may be reached at 800-400-7115.

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  7. I purchased some equipment under a partial exemption certificate. At the time of purchase I intended to use the equipment in a qualifying manner. However, my plans changed and I used the equipment in a nonqualifying manner. What do I do now?

    The full rate of sales or use tax applies to your purchase of equipment used in a manner not qualifying for a partial exemption. You are liable for and must pay the state portion of the sales or use tax (plus interest) that was exempted on your purchase. You must report and pay this amount on your sales and use tax return or consumer use tax return. If you are not required to be registered with the Board, you should report the additional tax on an individual use tax return.

  8. I purchased some equipment from a farm dealership that has several retail outlets. Should I complete a partial exemption certificate for each of the retail outlets?

    If the retail outlets are separate legal entities, you are required to provide each entity from which you make qualifying purchases with a fully completed partial exemption certificate. If the retail outlets are the same legal entity, you may not need to provide a partial exemption certificate to each outlet. You should check with your retailer.

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  9. I am a purchasing agent to a large corporation. The corporation owns several small corporations and partnerships. Am I required to complete and provide the retailers with a separate exemption certificate for each entity?

    Each separate legal entity should provide a properly completed exemption certificate (partial or otherwise) to the retailer in order to support a claim for exemption. If you purchase on behalf of the large corporation, you should provide the retailer with an appropriate exemption certificate (partial or otherwise) for the corporation. If you purchase on behalf of one of the wholly owned subsidiaries, you should provide the retailer with an appropriate exemption certificate (partial or otherwise) for the subsidiary.

Exemption Certificates Links:

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