You are invited to a meeting with the office of Diane Harkey, Member of the State Board of Equalization, District 4, to discuss the application of Sales and Use Tax Regulation 1525.4 Manufacturing and Research & Development Equipment as it pertains to desalination construction projects. The meeting will be held at 1:00 PM on January 19, 2016 at 400 Capitol Mall, Suite 2580, Sacramento, CA.
To qualify for the State’s 4.1875% manufacturing sales tax exemption, the business’s primary activity must fall within the North American Industry Classification System (NAICS) codes 3111 to 3399, inclusive, 541711, or 541712. Questions have been raised regarding the NAICS code that applies to the desalination process and whether the construction projects would qualify for the manufacturer’s exemption.
In a recent opinion letter the Sales and Use Tax Department at the BOE has indicated that they do not believe that desalination projects fall within the specified NAICS codes and therefore do not qualify for the manufacturing exemption (see the attached letter here). We want to thank Chad Straube from DuCharme, McMillen & Associates for bringing this issue to our attention.
Board Member Harkey recognizes the opportunity this new industry brings to the State of California. She would like to encourage the development and growth of this technology and reduce the sales and use tax burden incurred in these projects.
Desalination is the process of removing salts and other minerals from saline water or salt water to produce fresh water suitable for human consumption or agricultural irrigation. The desalination process converts seawater into drinking water through reverse osmosis technology. Seawater is pumped and forced through semipermeable membranes under high pressure to separate salts and other inorganic impurities. We believe the process falls within the qualifying NAICS codes and involves equipment eligible for the exemption.
We would like to meet with concerned parties to discuss information relevant to the qualifying NAICS codes we believe would apply to the manufacturing process of desalination of water and how to proceed with claiming the manufacturing exemption related to desalination projects.
To RSVP for the meeting, please email Diane Harkey. Thank you for your interest in this important tax issue and we look forward to meeting with you.