Today's Law As Amended


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AB-2574 Sales and use taxes: exemption: research and development: design: digital interactive media.(2017-2018)



As Amends the Law Today


SECTION 1.

 Section 6378.5 is added to the Revenue and Taxation Code, to read:

6378.5.
 (a) There are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption in this state of, any of the following:
(1) Tangible personal property purchased for use by a qualified person to be used primarily in the research and development of, and design of, digital interactive media.
(2) Tangible personal property purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any property described in paragraph (1).
(b) This exemption shall not apply to any tangible personal property that is used primarily in administration, general management, or marketing.
(c) For purposes of this section:
(1) “Design” means the process of designing the content and rules of digital interactive media in the preproduction stage and designing the game play environment, storytime, and characters in the production stage.
(2) (A) “Digital interactive media” means interactive software that meets all of the following requirements:
(i) Is produced for distribution on or accessed via electronic media, including, but not limited to, software that may be accessed via or downloaded from the Internet or mobile networks and software that is distributed on optical media or embedded in or downloadable to electronic devices, including, but not limited to, mobile phones, game systems, personal digital assistants, or other handheld electronic devices.
(ii) Allows users to interact with the software via an electronic device, which may include, but is not limited to, a computer, a game system, a mobile phone, a personal digital assistant, or other handheld electronic devices, in order to achieve a goal or set of goals and objectives.
(iii) Includes an appreciable quantity of text, sound, music, fixed images, animated images, or 3-D geometry.
(iv) Is intended primarily for entertainment purposes.
(B) “Digital interactive media” does not include media that contains obscene matter. For purposes of this subparagraph, “obscene matter” means any media that depicts sexually explicit conduct as enumerated in Section 2256 of Title 18 of the United States Code and as defined in Section 311 of the Penal Code.
(3) “Primarily” means tangible personal property used 50 percent or more of the time in an activity described in subdivision (a).
(4) “Qualified person” means any person that is primarily engaged in research and development and design of digital interactive media that are described in Codes 511210, 512191, and 54151 of the North American Industry Classification System Manual published by the United States Office of Management and Budget, 2017 edition.
(5) “Research and development” shall have the same meaning as “basic research” under Section 23609.
(6) (A) “Tangible personal property” includes, but is not limited to, all of the following:
(i) Machinery and equipment, including component parts.
(ii) All equipment or devices used or required to research and develop and design, operate, control, regulate, or maintain the machinery for digital interactive media, including, but not limited to, computers, data processing equipment, computer servers, workstations, server racks, hard drives, optical drives, monitors, keyboards, integrated video and audio equipment, networking routers, switches, network cabling, and computer software, and other similar technology now or hereafter developed, together with all repair and replacement parts with a useful life of one or more years, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the qualified person or another party.
(B) “Tangible personal property” does not include furniture, inventory, or equipment used to store products.
(d) No exemption shall be allowed under this section unless the purchaser furnishes the retailer with an exemption certificate, completed in accordance with any instructions or regulations as the department may prescribe, and the retailer subsequently furnishes the department with a copy of the exemption certificate. The exemption certificate shall contain the sales price of the machinery and equipment that is exempt pursuant to subdivision (a).
(e) (1) Notwithstanding any provision of the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200)) or the Transactions and Use Tax Law (Part 1.6 (commencing with Section 7251)), the exemption established by this section shall not apply with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, either of these laws.
(2) The exemption established by this section shall not apply to any sale or use of property that, within one year from the date of purchase, is either removed from California or converted from an exempt use under subdivision (a) to some other use not qualifying for the exemption.
(f) If a purchaser certifies in writing to the seller that the property purchased without payment of the tax will be used in a manner entitling the seller to regard the gross receipts from the sale as exempt from the sales tax, and within one year from the date of purchase, the purchaser (1) removes that property outside California, (2) converts that property for use in a manner not qualifying for the exemption, or (3) uses that property in a manner not qualifying for the exemption, the purchaser shall be liable for payment of sales tax, with applicable interest, as if the purchaser were a retailer making a retail sale of the property at the time the property is so removed, converted, or used, and the sales price of the property to the purchaser shall be deemed the gross receipts from that retail sale.
(g) This section shall remain in effect only until January 1, 2024, and as of that date is repealed.
SEC. 2.
 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect. However, the provisions of this act shall become operative on the first day of the first calendar quarter commencing more than 90 days after the effective date of this act.