Hey there, California businesses! We’ve got some exciting updates coming your way. This is the first in a series of posts where we’ll discuss various bills that are currently on Governor Newsom’s desk, awaiting his signature. Today, let’s dive into Assembly Bill 52 (AB 52), which could significantly impact your manufacturing and research and development (R&D) activities.

Stay tuned for our next post, where we’ll cover AB 2854.

Breaking news: Governor Newsom has vetoed this bill. But stay tuned – we’ll let you know if it gets re-instated in future sessions.

What’s AB 52 All About?

A Quick Overview

AB 52 is a new bill that aims to provide an income tax credit for sales and use taxes paid on specific manufacturing and R&D equipment. This bill is designed to kick in for taxable years starting January 1, 2025, and will be in effect until January 1, 2030.

Key Points to Know:

  1. Tax Credit Scope:
    • The credit applies to the amount of sales tax you pay on the purchase of qualifying equipment.
    • This includes equipment used mainly in manufacturing, processing, refining, fabricating, recycling, or R&D.
  2. Who’s Eligible?
    • If your business would typically qualify for the partial tax exemption under the Sales and Use Tax Law but still has a large sales tax amount due because of certain local tax rules, this credit is for you.
    • Corporations can also benefit from this credit.

How Does the Tax Credit Work?

Amount and Application

  • The tax credit matches the amount of sales or use tax you paid during the year.
  • If your credit is more than your tax liability for the year, you can carry it forward to reduce your tax bill for the next eight years.

Important Conditions

  • Make sure to claim the credit on your original tax return.
  • The equipment needs to stay in use in California for at least a year after purchase.
  • The California Department of Tax and Fee Administration (CDTFA) will share relevant information with the Franchise Tax Board (FTB) to help manage this credit.

What Does This Mean for Your Business?

A Competitive Edge

California’s high sales tax rates can make it expensive to buy the equipment you need. This tax credit aims to level the playing field by reducing these costs, making it more attractive to invest in California.

Financial Planning

Think about how this tax credit could fit into your financial plans, especially if you’re planning to buy new equipment in the next few years.

Stay Compliant

Keep detailed records and ensure you file everything on time to take full advantage of this credit. Proper documentation is key!

Real-World Example

Let’s Make It Real:

Imagine your biotech company is buying new R&D equipment worth $1 million in 2025. Normally, you’d pay around $90,000 in sales tax at an 8% rate. Currently, you may be eligible for the partial manufacturing/research & development sales tax deduction of 3.9375% ($39,375). This would leave you with a remaining sales tax due of $50,625.

With AB 52, you could additionally claim an income tax credit for the local portion of that sales tax paid ($50,625), potentially saving you a significant amount.

AB 52 is a fantastic opportunity for California businesses involved in manufacturing and R&D. By reducing the effective cost of essential equipment, this tax credit helps keep your business competitive and thriving in the Golden State.

Got Questions?

Curious about how AB 52 could impact your business? Schedule a call with us here.

Stay Informed

Stay tuned for more updates as AB 52 moves forward. If you need personalized advice or have any questions, don’t hesitate to reach out!