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The sales or use tax incurred in connection with a purchase of
qualified
property used exclusively in the zone can be taken as a tax credit. The use tax paid
on purchases outside California qualify for the credit only if machinery of a comparable
quality and price was not available in California at the time it was needed.
Additionally, property that has been acquired by a lease arrangement in which sales or
use tax was paid or incurred may qualify if structured using a financial (conditional
sales) contract.
Qualified
Property
-
Machinery and machinery parts used to manufacture, process, fabricate or otherwise
assemble a product; or product renewable energy resources; and air or water pollution
control mechanisms
- Produce renewable
energy resources
- Control air or water
pollution
- Data processing and
communications equipment including, but not limited to,
computers, computer-automated drafting systems, copy
machines, telephone systems, and fax machines; and
- Motion picture
manufacturing equipment central to production and
postproduction, including, but not limited to, cameras,
audio recorders, and digital image and sound processing
equipment
Maximum Credit
Corporations may take a tax credit equal to the sale or use tax paid or incurred on the
purchase of the first $20 million of machinery cost. Individuals may claim a credit
on the purchase of the first $1 million of machinery cost.
Example
A
zone business purchases $10,000,000 in new machinery used to manufacture wooden
chairs. The sales tax of 7.25 percent amounts to $725,000. Since the tax
liability is only $150,000, the credit is $150,000 for that tax year. The remaining
$450,000 in unused credits may be carried over to future years until it is
used
up. (If the amount of sales and use tax credit is greater than the tax on zone
income in any year, the excess credit can be carried over to future years to offset
enterprise zone tax.)
If the business in the above
example were a sole proprietorship or a partnership, the amount of purchase would be
limited to $1,000,000 and the credit to $72,500. |
