Claiming California Partial Sales and Use Tax Exemption

Claiming California Partial Sales and Use Tax Exemption

The University of California system has reached the annual $200 million limit for partial sales and use tax exemption for R&D purchases for the remainder of the 2024 calendar year. To learn more, visit Suspension of Partial Sales and Use Tax Exemption on R&D (opens in new window).

This guide describes how to determine if your purchase qualifies for a partial sales and use tax exemption.

Instructions

Determine if your Purchase is Qualified for a Partial Sales and Use Tax Exemption

Effective July 1, 2014 through 2030, California Department of Tax and Fee Administration's Regulation 1525.4 - Manufacturing and Research & Development Equipment allows “partial sales and use tax exemption” on certain manufacturing and research and development equipment purchases and leases.

  • To be eligible under this law, UCSF must meet all three of these conditions:
    1. Be engaged in certain types of business, also known as a “qualified person.”
    2. Purchase “qualified property” valued at $5,000 and over.
    3. Use that “qualified property” for the “qualified activity” allowed by this law.
  • The R&D activities must either be in:
    1. biological sciences (NAICS code 541711), or
    2. physical science (NAICS code 541712).

To find out if your purchase is qualified, see the below links for information regarding California Regulations and UC Guidelines:

Qualifications

  • Qualified Person - A "qualified person" is an organization primarily engaged (50% or more) in a "qualified activity". A “qualified person” may be “primarily engaged” either as a legal entity or as an “establishment” within a legal entity.
  • Qualified Property includes machinery and equipment valued at $5,000 or more with a useful life greater than one year that is used in a “qualified activity”.
  • Qualified property includes:
    • Qualified property that is being leased
    • Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures
    • Equipment and devices used or required to operate, control, regulate, or maintain the machinery (e.g. computers, data-processing equipment, computer software, etc.) in conjunction with all repair and replacement parts with a useful life of one or more years (even if the equipment and devices are purchased separately or in conjunction with the repair and replacement parts)
    • Special purpose buildings and foundations including but not limited to clean rooms, climate controlled facilities, wind tunnels, linear accelerators
    • Non-depreciable property like leased computers used more than 50% for qualified activities, and catalysts
  • Qualified property does not include:
    • Consumables with a useful life of less than one year
    • Tangible personal property used primarily for administration, general management, or marketing
    • Furniture, inventory, and equipment used in the extraction process
    • Equipment used to store finished products that have completed the manufacturing, processing, refining, fabricating, or recycling process
  • Qualified Activity means using “qualified property” primarily (more than 50%) in manufacturing, processing, fabricating, refining or recycling of tangible personal property, as well as research and development, anywhere in California. Qualified Activity also includes using “qualified property” primarily to maintain, repair, measure, or test any qualified tangible personal property described in the previous sentence. The qualified activity can be found in the business activities described in North American Industry Classification System (NAICS) codes 541711 and 541712.

    If Your Purchase or Lease Qualifies

    Complete a Partial Exemption Certificate for Manufacturing, Research and Development Equipment (CDTFA-230-M)

    Complete the required Partial Exemption Certificate for Manufacturing, Research, and Development Equipment (CDTFA-230-M), available on the UCSF Supply Chain Management(opens in new window) website, for all purchases from California and out-of-state vendors when placing your purchase order. Since out-of-state vendors do not collect sales tax on invoicing, it is the University’s responsibility to accrue use tax on the purchase of taxable tangible personal properties.

    • The reason for completing the required Partial Exemption Certificate for purchases from California and out-of-state vendors is to:
      • Comply with California sales and use tax law by providing the seller with a timely partial exemption certificate.
      • Apply the correct sales tax code when processing payment.
      • Reduce audit risk, potential tax underpayment, interest, and penalties.
      • Control risk at the front end.

    Note: Capital Accounting will apply the full use tax rate on your voucher if the partial exemption certificate is not completed and submitted in BearBuy.

    Have the Principal Investigator or department financial manager certify and sign the Partial Exemption Certificate.

    Make Your Purchase in BearBuy

    Follow the California Partial Sales Tax Exemption job aid(opens in new window) available on Supply Chain Management's website to complete your purchase in BearBuy. You must attach the completed and approved Partial Exemption Certificate for every applicable product to your BearBuy cart.

    Please ensure the chartstring for your purchase utilizes research function code 44 or 45.

    Partial Sales and Use Tax Exemption Rate

    July 1, 2014 through December 31, 2016

    The partial exemption rate is 4.1875%, making partial sales and use tax rate equal to 4.5625% for San Francisco County and 4.8125% for San Mateo County.

    January 1,2017 through June 30, 2030

    The partial exemption rate is 3.9375%, making partial sales and use tax rate equal to 4.5625% for San Francisco County and 5.3125% for South San Francisco, San Mateo County.

    Assessment of the Sales and Use Tax on Purchases

    The sales and use tax rate is determined by the point of delivery or the “ship to” address. The California vendors will charge sales tax on the purchase of tangible personal properties based on the “ship to” address. Since out-of-state vendors often do not collect sales tax on invoicing, it is the University’s responsibility to accrue use tax on the purchase of taxable tangible personal properties based on the “ship to” address.