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State Sales and Use Tax
California provides a
partial exemption from the sales and use tax for capital equipment
purchases by certain new manufacturing businesses. Regulation
1525.2, Manufacturing Equipment, provides an exemption from the
state general fund portion of the tax rate (currently 5%) for purchases by
qualified persons of tangible personal property for use:
1. In manufacturing,
processing, refining, fabricating or recycling
2. In research and
development activities described in Section 174 of the Internal Revenue
Code
3. To maintain,
repair, measure, or test any property described in 1 or 2 above
For more information see
the Tax Information Bulletin dated March 2002 or go to
www.boe.ca.gov
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Tax Benefits for Capital Equipment
Purchased and Installed in 2007
Cost of capital equipment
$285,500.00
2007 Special Expense allowance
($112,000.00)
$173,500.00
Additional 14% straight Line
Depreciation for 1st year
($24,785.00)
Total 1st year depreciation
$136,785.00
Tax Savings at maximum rate
$47,875.00
Assumptions:
1. Maximum corporate rate is 35%
2. Seven year depreciation schedule for equipment
3. Equipment must be put into operation by 12/31/07 to apply
4. This special expense allowance phases out once more than $450,000.00
worth of assets are put into service for the year.
Example:
Company A
Company B
(no capital spending)
(with capital spending) Sales
5,000,000
5,000,000
Cost of goods sold 4,000,000
4,000,000
Gross profit
1,000,000
1,000,000 Expenses
600,000
736,785 Net Income
400,000
263,215 Tax Liability
140,000
92,125
Savings $47,875.00 |
1586 N. Batavia, Orange, CA 92867 Phone 714-890-6600
FAX 714-890-6696 
