AB 52: Tax Credit for Manufacturing Equipment

Assembly Bill 52 Assembly legislator Tim Grayson (D-Concord) amended to provide a tax credit for the purchase of manufacturing equipment. The bill would add and remove sections 17053.90 and 23623 of the Internal Revenue Code.

Section 1 of the bill contains three legislative findings and declarations, including that California has the highest state sales tax rate and that 38 states completely exempt manufacturing equipment from sales and use taxes.

Section 2 of the bill will add Section 17053.90 of the Revenue and Taxation Code, which will allow a taxpayer under the Personal Income Tax Act to qualify for credit from January 1, 2024 to January 1, 2029. The credit will be equal to the amount of the tax refund paid during the tax year in respect of sales tax (or use tax paid) on gross receipts that would be exempt from tax under the Sales and Use Tax Act.

Any deduction allowed for any amount paid or incurred by the taxpayer on which the credit is based will be reduced by the amount of the allowed credit. If the allowed credit exceeds the taxpayer’s net tax, the excess amount can be carried forward for eight years. The Franchise Tax Board will be allowed to make rules for the implementation of this credit.

Under Section 41 of the Revenue and Taxation Code, the Legislature will announce the specific purpose that the loans will achieve is to encourage new and ongoing investment in California in manufacturing, research and development. The Legal Analyst will have until January 1, 2027 to review the effectiveness of the approved loans and publish a review on the office’s website on the Internet.

Section 3 of the bill will add Section 23623 of the Income and Taxation Code, which will allow a taxpayer under the Income Tax Act to qualify for credit from January 1, 2024 to January 1, 2029. The credit will be equal to the amount of the sales tax refund (or use tax paid) paid during the tax year on gross proceeds that would be exempt under the Sales and Use Tax Act.

Any deduction allowed for any amount paid or incurred by the taxpayer on which the credit is based will be reduced by the amount of the allowed credit. If the allowed credit exceeds the taxpayer’s net tax, the excess amount can be carried forward for eight years. The FTB will be allowed to adopt rules for the execution of this loan.

Under Section 41 of the Revenue and Taxation Code, the Legislature will announce the specific purpose that the loans will achieve is to encourage new and ongoing investment in California in manufacturing, research and development. The LAO will need until January 1, 2027 to review the performance of the approved loans and post a review on the office’s online website.