Sales & Use Tax Exemptions

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Partial Exemptions

A partial exemption from sales and use tax became available under section 6357.1 for the sale, storage, use, or other consumption of diesel fuel used in farming activities or food processing.

The partial exemption applies only to the state sales and use tax rate portion. The exemption does not apply to any local, city, county, or district taxes. Sales and purchases of diesel fuel used in farming activities or food processing will continue to be subject to the remaining portion of the sales and use tax rate consisting of the local, city, county and any applicable district taxes.

Partially exempt from the sales and use tax is diesel fuel consumed during the activities of a farming business or in food processing. Farming activities means a trade or business involving the cultivation of land or the raising or harvesting of an agricultural or horticultural commodity for commercial purposes. Farming activities also include the transportation and delivery of the commodity to the marketplace.

A retailer will be relieved from the liability for the sales or use tax subject to the partial exemption if they take a partial exemption certificate timely and in good faith, from purchasers stating the property will be used in a qualifying manner as provided under section 6357.1. The partial exemption certificate should be retained for a period of not less than four (4) years.

A purchaser who provides a partial exemption certificate to a retailer and who makes any use of the diesel fuel other than for farming activities or in food processing, will be liable for the 5.00% tax, plus interest and applicable penalties. Purchasers must maintain records supporting the use of the diesel fuel purchased under a partial exemption certificate.

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A partial exemption from the sales and use tax became available under section 6356.5 for the sale, storage, use, or other consumption of farm equipment, machinery and their parts to qualified persons for use in qualifying activities. The partial exemption also applies to leases of certain farm equipment and machinery.

The partial exemption applies only to the state sales and use tax rate portion. The exemption does not apply to any local, city, county, or district taxes. Sales and purchases of farm equipment, machinery and parts will continue to be subject to the remaining portion of the sales and use tax rate consisting of the local, city, county and any applicable district taxes.

Qualified person means:

  • Someone engaged in a line of business described in Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual (1987 edition), or
  • A person or employee who assists a person engaged in those codes by performing the activities in SIC Codes 0711 to 0783.

The farm equipment, machinery and parts must be used primarily in producing and harvesting agricultural products. "Primarily" means 50% or more of the time.

Farm equipment and machinery means "implements of husbandry" as defined in Revenue and Taxation Code section 411. Qualifying property includes, but is not limited to:

  • Agricultural heating and cooling equipment
  • Dairy production equipment
  • Egg and poultry production equipment
  • Feeding, watering and waste disposal systems for livestock
  • Fencing and trellis support systems
  • Ginning equipment
  • Hand farm tools
  • Handling and packing equipment
  • Harvesting equipment
  • Irrigation systems
  • Livestock handling and care equipment
  • Tractor implements
  • Wind machines
  •  

Farm equipment and machinery may also include materials and fixtures used to construct certain qualifying property such as agricultural operating structures, when sold to a qualified person prior to installation on real property.

Agricultural operating structures are single purpose agricultural or horticultural buildings specifically designed and constructed for and exclusively used in the housing, raising and feeding of livestock, or for the commercial production of plants. These structures are more specifically defined by Treasury Regulation 1.48-10 (26 CFR 1.48-10).

Farm equipment and machinery also includes property designated as implements of husbandry in Chapter 1 of Division 16 of the Vehicle Code that is used exclusively for agricultural operations.

Such property includes cotton module movers and automatic bale wagons. Also included are lift carriers, tip-bed type trailers, trailers/semi-trailers having no bed, spray or fertilizer applicator rigs, nurse rigs or equipment auxiliaries, row dusters, trap wagons, fertilizer nurse tanks or trailers, cotton trailers, and truck tractors and truck tractor/semi-trailer combinations when used in the manner specifically described in section 36005 of the Vehicle Code.

Vehicles primarily designed for the transportation of persons or property on a highway are generally not considered implements of husbandry and, therefore, not exempt under this bill.

Parts of farm equipment and machinery generally include repair and replacement parts that are used to maintain, repair, or modify qualified farm equipment and machinery. Qualified parts include lubricants, coolants, and fluids that are not consumed as part of the operation of the equipment, for example, grease or transmission fluid. A product that is consumed as part of the operation of the equipment, for example, gasoline, is not a qualified part.

Leases - Taxable rentals payable from the lease of farm equipment and machinery to a qualified person may qualify for the partial exemption. If a lease qualifies for the partial exemption, rentals payable should be taxed at the lower rate.

The following criteria will qualify a lease for the partial exemption:

  • The lessee must be a qualified person who will use the property primarily in agricultural production and harvesting.
  • If the property qualifies as an "implement of husbandry" under the Vehicle Code (see above), it must be used exclusively in agricultural operations.

Leases of mobile transportation equipment - Leases of equipment that qualify as "mobile transportation equipment" (MTE) generally will not qualify for the partial exemption. Regulation 1661, Leases of Mobile Transportation Equipment, provides that the lessor of MTE is the consumer of the equipment and is required to pay tax or tax reimbursement on its purchase. Even when a lessor timely elects to pay tax on the fair rental value of the MTE, liability for the tax falls on the lessor. Consequently, the full amount of tax or tax reimbursement is due from the purchaser of the MTE unless the purchaser is a qualified person using the property primarily in agricultural production and harvesting. Under the Sales and Use Tax Law, MTE is generally defined as equipment used to transport persons or property for substantial distances. Included in this category of equipment are trucks (including pick-up trucks), truck-tractor units, trailers, reusable shipping containers, and railroad cars. For more details on leases of MTE see Regulation 1661, Leases of Mobile Transportation Equipment.

Specifically excluded from the category of farm equipment and machinery is:

  • Property used for administration, management, or marketing of an agricultural operation,
  • Supply items such as shop towels, cleaning agents such as hand cleaners and solvents, and agricultural chemicals,
  • Articles of clothing, except for clothing designed to protect an agricultural product or that is required by law when applying chemicals.

If you have a question about whether a specific piece or category of equipment is eligible for the partial exemption, please review the FAQs or contact the Department directly at 800-400-7115.

Partial Exemption Certificates

A retailer is relieved from the liability for the sales or use tax subject to the partial exemption if they take a partial exemption certificate timely and in good faith, from a purchaser stating that the property will be used in a qualifying manner as provided under section 6356.5. The partial exemption certificate should be retained for a period of not less than four (4) years.

A purchaser who provides a partial exemption certificate to a retailer and who does not use the equipment and machinery primarily in producing and harvesting agricultural products and, in the case of property qualifying as an implement of husbandry under the Vehicle Code, exclusively in agricultural operations, will be liable for the tax, plus interest and applicable penalties. Purchasers must maintain records supporting the use of the equipment, machinery and parts purchased under a partial exemption certificate.

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A partial exemption from sales and use tax became available under section 6358.5 for the sales and purchases of racehorse breeding stock.

The partial exemption applies to only to the state portion of the sales and use tax rate. The exemption does not apply to any local, city, county, or district taxes. Sales and purchases of racehorse breeding stock will continue to be subject to the remaining portion of the sales and use tax rate consisting of the local, city, county and applicable district taxes.

"Racehorse breeding stock" means racehorses capable of and purchased solely for the purpose of breeding.

A retailer will be relieved from the liability for the sales or use tax subject to the partial exemption if they take a partial exemption certificate timely and in good faith, from purchasers stating the property will be used in a qualifying manner as provided under section 6358.5. The partial exemption certificate should be retained for a period of not less than four (4) years.

A purchaser who provides a partial exemption certificate to a retailer and who uses the racehorse breeding stock for anything other than breeding purposes, will be liable for the state tax rate, plus interest and applicable penalties. Purchasers must maintain records supporting the use of any racehorse breeding stock purchased under a partial exemption certificate.

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A partial exemption from the sales and use tax became available under section 6378 for the sale, storage, use or other consumption of machinery, equipment including component parts to a qualified person used primarily in teleproduction or other postproduction services. The exemption also includes property sold or purchased by a qualified person primarily to maintain, repair, measure, or test any property used in teleproduction or postproduction services. The partial exemption may also apply to rental receipts paid by a qualified person for teleproduction or postproduction equipment and machinery.

The partial exemption applies only to the state sales and use tax portion. The exemption does not apply to any local, city, county or district taxes. Sales and purchases of teleproduction or other postproduction services including property used to maintain, repair, measure or test any such property will continue to be subject to the remaining portion of the sales and use tax rate consisting of the local, city, county and any applicable district taxes.

"Primarily" means property used 50 percent or more of the time in one or more teleproduction or postproduction service activities for the one-year period following the date property purchased. Property will not be considered used in such activities for any period of time the property is located outside the state. The partial exemption does not apply to property used primarily in administration, general management, or marketing when it is used 50 percent or more of the time in one or more of those activities for the one-year period following the date of purchase.

A "qualified person" means any person whose line of business is primarily engaged in teleproduction or other postproduction activities, including postproduction audio services for film, television and video productions described in Code 512191 of the North American Industry Classification System (NAICS) Manual. A "qualified person" does not include persons who are primarily engaged in portrait studios, providing still, video, or digital portrait photography services.

A retailer will be relieved from the liability for the sales and use tax subject to the partial exemption if they take a partial exemption certificate timely and in good faith, from purchasers stating the property will be used in a qualified manner as provided under section 6378. The partial exemption certificate should be retained for a period of not less than four (4) years.

A purchaser who provides a partial exemption certificate to a retailer and who makes use of the property for anything other than teleproduction or postproduction services, will be liable for the state tax rate, plus interest and applicable penalties. Purchasers must maintain records supporting the use of any property purchased under a partial exemption certificate.

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A partial exemption from sales and use tax became available under 6356.6 for sales and purchases of equipment, machinery and their parts designed primarily for off-road use in commercial timber harvesting operations by a "qualified person." The partial exemption also applies to leases of off-road commercial timber harvesting equipment and machinery subject to tax measured by rentals payable.

The partial exemption applies only to the sales and use tax rate portion. The exemption does not apply to any local, city, county, or district taxes. Sales and purchases of off-road commercial timber harvesting equipment and machinery will continue to be subject to the remaining portion of the sales and use tax rate consisting of the local, city, and any applicable district taxes.

The qualified property must be designed for use primarily off-road in commercial timber harvesting operations and be used primarily in timber harvesting. "Primarily" means 50% or more off-road use.

A "qualified person" means any person who is engaged in commercial timber harvesting operations.

Commercial timber harvesting operations involve the cutting or removal, or both, of timber from timberlands for commercial purposes.

Timber is considered to be trees of any species, excluding nursery stock, harvested for forest products, or other forest purposes. Qualified timber includes firewood, Christmas trees, poles and pilings, biomass, etc.

Typical equipment and their general use, that may be eligible for this partial exemption are:

  • Cable Yarders – used to harvest trees on very steep slopes by suspending the logs on a cable
  • Chainsaws – used to cut down trees
  • Chippers – used to chip small logs and brush into very small pieces
  • Feller-bunchers – used to cut very small trees
  • Front end loaders – used to load logs onto trucks
  • Tractors (with tracks) or rubber tired skidders – used to move logs from the woods to the roadside

A retailer will be relieved from the liability for the sales and use tax subject to the partial exemption if they take a partial exemption certificate timely and in good faith from purchasers stating that the property will be used in a qualifying manner as provided under section 6356.6, Timber Harvesting Equipment. The partial exemption certificate should be retained for a period of not less than four (4) years.

A purchaser who provides a partial exemption certificate to a retailer for equipment and machinery that does not qualify for the partial exemption or who does not use the equipment or machinery in a qualifying manner, will be liable for the tax, plus interest and applicable penalties. Purchasers must maintain records supporting the use of any equipment, machinery and parts purchased under a partial exemption certificate.

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Full Exemptions

A full exemption from sales and tax use became available under section 6353(b) for certain sales, storage, use, or other consumption of LPG when delivered into a tank of 30 gallons or more. The exemption applies to LPG purchased for use in:

  • Household activities in a qualified residence.
    • Household activities mean those activities normally undertaken, such as cooking, heating and lighting.
    • Qualified residence means a primary residence not serviced by gas mains or pipes.

LPG delivered for use at a residence or other structure not qualifying as a primary residence, such as a vacation home or office, does not qualify for the exemption and is subject to tax.

Purchasers of LPG for use in household activity who may provide an exemption certificate to obtain the exemption include:

  • Homeowners
  • Renters or tenants
  • Landlords or management companies purchasing LPG for the primary residences of renters or tenants.
  • Qualified farmers or ranchers (see below) purchasing LPG for the primary residences of their tenants or employees who assist in producing and harvesting agricultural products.
  • Producing and harvesting agricultural products by qualified persons.

Qualified person means:

  • Someone engaged in a line of business described in Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual (1987 edition). Codes 0111 to 0291 include agricultural or horticultural businesses producing items such as cash crops, field crops, vegetables and melons, fruit and nut production, horticultural specialties, livestock, dairy, poultry and eggs, and other animal specialties, or
  • A person or employee who assists a person engaged in those codes by performing the activities in SIC Codes 0711 to 0783. Codes 0711 to 0783 include agricultural services such as soil preparation, crop planting, cultivating, protecting or harvesting, cotton ginning, veterinary and other animal services, landscape and horticultural services, and farm labor and management services.

A retailer will be relieved from the liability for the sales and use tax on its sales of LPG to qualified persons if they take an exemption certificate timely and in good faith, from purchasers stating the property will be used in a qualifying manner as provided under section 6353(b). The exemption certificate should be retained for a period of not less than four (4) years.

A purchaser who provides an exemption certificate to a retailer and who makes any use of the LPG, not qualifying under section 6353(b) will be liable for the tax, plus interest and applicable penalties. Purchasers must maintain records supporting the use of any LPG under an exemption certificate.

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