Article
Making wine? A California incentive for manufacturers could lighten your tax load
June 14, 2015 · Authored by Michael Ricioli
Many California wineries are ramping up their production volumes to near prerecession levels. As a result, they may be unknowingly increasing their tax liabilities — but lucky enough, California now provides a partial sales and use tax exemption that could help offset the increase.
The partial exemption is available to businesses engaged in R&D or qualified manufacturing activities. That may not sound quite like your winery, but on a closer look it applies to many of the activities wineries regularly engage in.
The partial exemption became effective July 1, 2014, and applies to the purchase or lease of qualified property primarily used in these qualified activities by a qualified person. Although the applicable laws are somewhat more complex, qualified property is generally defined as tangible personal property used in a qualified activity that has a useful life of greater than one year.
In regards to the actual benefit, the partial exemption reduces the tax rate on these qualified expenditures by approximately 55%, with a rate reduction of a little under 4.2%. Since the current statewide tax rate is 7.5%, the partial exemption reduces the sales tax on qualifying property sold to a qualified person to a rate of just over 3.3%, plus any applicable district taxes. Simply put, $1 million in qualified expenditures would result in an immediate $42,000 of above-the-line savings.
What activities and purchases qualify?
Most wineries will find that their production falls into California’s definition of manufacturing. Moreover, if you’re building a new winery production facility, many of the construction costs may also qualify to generate tax savings.
If your winery does qualify for the incentive, you’ll need to complete an exemption certificate specific to this program and provide it to your construction vendor for a reduced tax rate.
Purchases of the following items likely qualify for the partial exemption:
- Crushers
- Stainless steel fermentation tanks
- Bottle washers
- Laboratory testing equipment
The construction of barrel buildings and other special purpose buildings also potentially qualify for the partial exemption. The following three categories of property, on the other hand, are ineligible for the partial exemption:
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.