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AB-1230 Small Business Development Center Program: appropriation.(2017-2018)

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Date Published: 03/28/2017 09:00 PM
AB1230:v98#DOCUMENT

Amended  IN  Assembly  March 28, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 1230

Introduced by Assembly Member Burke

February 17, 2017

An act to amend Section 6377.1 of the Revenue and Taxation Code, relating to taxation. relating to economic development, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


AB 1230, as amended, Burke. Sales and use taxes: exemption: manufacturing and research. Small Business Development Center Program: appropriation.
Existing law establishes the California Economic Development Fund and authorizes the Governor’s Office of Business and Economic Development, upon appropriation by the Legislature, to provide matching funds for economic development purposes from that fund.
This bill would transfer $2,000,000 from the General Fund to the California Economic Development Fund, with that amount appropriated to the California Development Fund for the 2017–18 fiscal year to provide a cash match for 6 regional lead centers that have contracts with the United States Small Business Administration to administer the federal Small Business Development Center Program in California, subject to a specified condition. The bill would require the 6 regional lead centers of the Small Business Development Center Program in California to produce and submit a report containing specified information to the Legislature and the Governor’s Office of Business and Economic Development by March 1, 2019. The bill would contain related findings regarding the need for small businesses for California’s economic success.

Existing sales and use tax laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. Those laws partially exempt from those taxes, for a specified period, the gross receipts from the sale of, and the storage, use, or other consumption of, specified tangible personal property purchased for use by a qualified person, as defined, to be used primarily in manufacturing or other processes, and in research and development.

This bill would make a nonsubstantive change to this provision.

Vote: MAJORITY2/3   Appropriation: NOYES   Fiscal Committee: NOYES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares as follows:
(a) Small businesses are integral to the success of California’s economy and it is imperative that the state does everything it can to ensure their success. There are 3.7 million small businesses in California, representing 99.2 percent of all California businesses. These small businesses in California employ 6.7 million employees or 49.7 percent of all employees in the state. 95.8 percent of all exporters involved in international trade are small businesses. Additionally, small firms were solely responsible for 44.6 percent of California’s total export value in 2015, competing strongly with larger firms. California, along with New York, Florida, and Texas, had the largest numbers of small businesses in the nation, with California leading the way with 12 percent of small businesses in the nation.
(b) In order for California small businesses to sustain their success they need affordable access to capital. In a recent survey by the Small Business Majority, 91 percent of the small business owners indicated lack of access to capital as a serious barrier. It is imperative that California make a concerted effort to fill this gap. There are organizations statewide already working to solve this issue by directly lending to small businesses at affordable rates. Small Business Development Centers are one example and they have a long history of turning limited funding into opportunity for small businesses statewide. With $2 million in funding Small Business Development Centers were able to leverage $200 million. By providing free, confidential technical assistance to entrepreneurs, these centers are serving the most pressing needs for small businesses in a way that is unparalleled in terms of scale. Despite having a strong track record, Small Business Development Centers currently only receive $1.5 million from the state, a sharp decrease from the $6 million given in 2010 and far off from the $13 million that could be given for a full match from the federal government.

SEC. 2.

 The sum of two million dollars ($2,000,000) is hereby transferred from the General Fund to the California Economic Development Fund, established pursuant to subdivision (a) of Section 13997.6 of the Government Code. That amount is hereby appropriated from the California Economic Development Fund for the 2017–18 fiscal year, to provide the cash match for the six regional lead centers that have contracts with the United States Small Business Administration to administer the federal Small Business Development Center Program in California. Funds shall be awarded to lead centers that submit written confirmation from the regional administrator of the United States Small Business Administration documenting that the state funds will be matched by federal funds on a one-for-one basis.

SEC. 3.

 (a) The six regional lead centers of the Small Business Development Center Program in California shall do both of the following:
(1) Produce a report on the number of businesses consulted, jobs created, businesses started or bought, total number of loans given, the dollar amount of the loans given, total training events, and client hours.
(2) Submit the report to the Legislature and the Governor’s Office of Business and Economic Development on or before March 1, 2019.
(b) A report to be submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795 of the Government Code.
SECTION 1.Section 6377.1 of the Revenue and Taxation Code is amended to read:
6377.1.

(a)Except as provided in subdivision (e), on or after July 1, 2014, and before July 1, 2022, 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)Qualified tangible personal property purchased for use by a qualified person to be used primarily in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property, beginning at the point any raw materials are received by a qualified person and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required.

(2)Qualified tangible personal property purchased for use by a qualified person to be used primarily in research and development.

(3)Qualified tangible personal property purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any qualified tangible personal property described in paragraph (1) or (2).

(4)Qualified tangible personal property purchased for use by a contractor purchasing that property for use in the performance of a construction contract for the qualified person, that will use that property as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or as a research or storage facility for use in connection with those processes.

(b)For purposes of this section:

(1)“Fabricating” means to make, build, create, produce, or assemble components or tangible personal property to work in a new or different manner.

(2)“Manufacturing” means the activity of converting or conditioning tangible personal property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property.

(3)“Primarily” means 50 percent or more of the time.

(4)“Process” means the period beginning at the point at which any raw materials are received by the qualified person and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified person and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified person has altered tangible personal property to its completed form, including packaging, if required. Raw materials shall be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified person’s manufacturing, processing, refining, fabricating, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified person’s manufacturing, processing, refining, fabricating, or recycling activity is conducted shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process.

(5)“Processing” means the physical application of the materials and labor necessary to modify or change the characteristics of tangible personal property.

(6)(A)“Qualified person” means a person that is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.

(B)Notwithstanding subparagraph (A), “qualified person” shall not include either of the following:

(i)An apportioning trade or business that is required to apportion its business income pursuant to subdivision (b) of Section 25128.

(ii)A trade or business conducted wholly within this state that would be required to apportion its business income pursuant to subdivision (b) of Section 25128 if it were subject to apportionment pursuant to Section 25101.

(7)(A)“Qualified tangible personal property” includes, but is not limited to, all of the following:

(i)Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures.

(ii)Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited to, computers, data-processing equipment, and computer software, together with all repair and replacement parts with a useful life of one or more years therefor, 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.

(iii)Tangible personal property used in pollution control that meets standards established by this state or any local or regional governmental agency within this state.

(iv)Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those processes. Buildings used solely for warehousing purposes after completion of those processes are not included.

(B)“Qualified tangible personal property” shall not include any of the following:

(i)Consumables with a useful life of less than one year.

(ii)Furniture, inventory, and equipment used in the extraction process, or equipment used to store finished products that have completed the manufacturing, processing, refining, fabricating, or recycling process.

(iii)Tangible personal property used primarily in administration, general management, or marketing.

(8)“Refining” means the process of converting a natural resource to an intermediate or finished product.

(9)“Research and development” means those activities that are described in Section 174 of the Internal Revenue Code or in any regulations thereunder.

(10)“Useful life” for tangible personal property that is treated as having a useful life of one or more years for state income or franchise tax purposes shall be deemed to have a useful life of one or more years for purposes of this section. “Useful life” for tangible personal property that is treated as having a useful life of less than one year for state income or franchise tax purposes shall be deemed to have a useful life of less than one year for purposes of this section.

(c)An exemption shall not 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 board may prescribe, and the retailer retains the exemption certificate in its records and furnishes it to the board upon request.

(d)(1)   Notwithstanding the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200)) and 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 those laws.

(2)Notwithstanding subdivision (a), the exemption established by this section shall not apply with respect to any tax levied pursuant to Section 6051.2, 6051.5, 6201.2, or 6201.5, pursuant to Section 35 of Article XIII of the California Constitution, or any tax levied pursuant to Section 6051 or 6201 that is deposited in the State Treasury to the credit of the Local Revenue Fund 2011 pursuant to Section 6051.15 or 6201.15.

(e)(1)The exemption provided by this section shall not apply to either of the following:

(A)Any tangible personal property purchased during any calendar year that exceeds two hundred million dollars ($200,000,000) of purchases of qualified tangible personal property for which an exemption is claimed by a qualified person under this section. For purposes of this subparagraph, in the case of a qualified person that is required to be included in a combined report under Section 25101 or authorized to be included in a combined report under Section 25101.15, the aggregate of all purchases of qualified personal property for which an exemption is claimed pursuant to this section by all persons that are required or authorized to be included in a combined report shall not exceed two hundred million dollars ($200,000,000) in any calendar year.

(B)The sale or storage, use, or other consumption of property that, within one year from the date of purchase, is removed from California, converted from an exempt use under subdivision (a) to some other use not qualifying for exemption, or used in a manner not qualifying for exemption.

(2)If a purchaser certifies in writing to the seller that the tangible personal 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 the purchase exceeds the two-hundred-million-dollar ($200,000,000) limitation described in subparagraph (A) of paragraph (1), or within one year from the date of purchase, the purchaser removes that property from California, converts that property for use in a manner not qualifying for the exemption, or 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 tangible personal property at the time the tangible personal property is so purchased, removed, converted, or used, and the cost of the tangible personal property to the purchaser shall be deemed the gross receipts from that retail sale.

(f)This section shall apply to leases of qualified tangible personal property classified as “continuing sales” and “continuing purchases” in accordance with Sections 6006.1 and 6010.1. The exemption established by this section shall apply to the rentals payable pursuant to the lease, provided the lessee is a qualified person and the tangible personal property is used in an activity described in subdivision (a).

(g)(1)Upon the effective date of this section, the Department of Finance shall estimate the total dollar amount of exemptions that will be taken for each calendar year, or any portion thereof, for which this section provides an exemption.

(2)No later than each March 1 next following a calendar year for which this section provides an exemption, the board shall provide to the Joint Legislative Budget Committee a report of the total dollar amount of exemptions taken under this section for the immediately preceding calendar year. The report shall compare the total dollar amount of exemptions taken under this section for that calendar year with the department’s estimate for that same calendar year. If that total dollar amount taken is less than the estimate for that calendar year, the report shall identify options for increasing exemptions taken so as to meet estimated amounts.

(h)This section is repealed on January 1, 2023.