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Responses provided herein are preliminary opinions that may be amended during the process of drafting the regulations interpreting and applying the provisions of AB426. The opinions contained herein are further subject to changes based on any future clean-up legislation that may impact AB426. These opinions should only be considered initial positions with respect to the questions presented. Any formal position by this Agency will be set forth in regulations approved by the Board. Opinions specific to any particular taxpayer will require an analysis of the actual facts surrounding that taxpayer’s operations as well as an identification of the taxpayer in order to obtain relief of tax as authorized by RTC section 6596.

General Information:

1. I heard about Assembly Bill 426, but am not sure the provisions of the bill apply to my sales or purchases. What sections of California Law were amended or added by the bill?
2. I understand that AB 426 either amended existing statutes or added new statutes to the Revenue and Taxation Code. Which new or amended statutes provide a new exemption from sales or use tax for purchases of specified tangible personal property?
3. When do the provisions of AB 426 become effective? Are the provisions retroactive?
4. I am not sure I understand what the rules are regarding when a sale or purchase is deemed to occur and the applicable tax is due. Would you explain?
5. Do the provisions of AB 426 and the applicable law also apply to leases in the same manner as they do to sales and purchases?
6. I am a lessor of various types of equipment. I currently pay tax on the purchase price of the equipment before I place the equipment into rental inventory. As such, I do not remit or collect tax on the lease payments received from my customers. Will these types of leases also qualify for the partial exemption?
7. If my sales qualify for one of the exemptions provided by AB 426, what type of documentation is necessary to support the exemption?
8. What do you mean by your statement that the document must be taken timely and in good faith?
9. How long does the retailer have to retain copies of the exemption certificates that support his or her sales?
10. I am a California retailer who makes sales of products to customers who meet the provisions of the applicable RTC sections enacted under AB 426. Accounting for the various exemptions will require extensive record keeping and revisions to my current accounting methods. Do I have to accept an exemption certificate from my customers?
11. I purchase qualifying property from an out-of-state retailer not obligated to collect the use tax due on my purchases. Do I still need to complete an exemption certificate?
12. Does the Board have sample exemption certificates available for a retailer or purchaser’s use? If so, how do I get copies?
13. I purchased some equipment under a partial exemption certificate. At the time of purchase I intended to use the equipment in a qualifying manner, as required. However, my plans changed and I used the equipment in a nonqualifying manner. What do I do now?
14. I purchased equipment on September 10, 2001 and did not provide the retailer with a partial exemption certificate. Consequently, the retailer collected sales tax reimbursement at the full sales tax rate. My purchase qualifies for a partial exemption from tax. How do I get a refund of the sales tax reimbursement paid to the retailer? What if my purchase was subject to use tax, not sales tax?
15. On January 1, 2001 the state portion of the sales and use tax was reduced by ¼%. I have heard that the tax rate will increase on January 1, 2002. Is this true?
16. My purchases qualify for partial exemption under AB 426. I purchase equipment from a farm dealership that has several retail outlets. Should I complete a partial exemption certificate for each of the retail locations?
17. I am a purchasing agent for a large corporation. The corporation owns several small corporations and partnerships. Am I required to complete and provide the retailers with a separate exemption certificate for each entity?

Sales and Purchases of Liquefied Petroleum Gas (LPG):

18. RTC section 6353(b) provides an exemption from sales or use tax for qualified purchases of LPG. Does the law also apply to sales and purchases of propane?
19. I live in an area where natural gas was not available and it was necessary to purchase propane for my central heating system. Natural gas mains were recently installed and propane is no longer my only option. However, I still have propane delivered into my 75-gallon tank for use as a secondary-heating source. Do my purchases of propane qualify for the exemption under RTC section 6353(b)?
20. I purchased a time-share in an ocean condominium. The condominium is not serviced by gas mains; however, the property does house a 175-gallon propane tank owned by the time-share owners. Do my purchases of LPG qualify for exemption from tax under 6353(b)?
21. My propane dealer sent me a contract last year and said that my purchase of propane would not be subject to tax if I signed the contract. The dealer explained that the contract contained a title transfer clause that transferred title to the propane to me in a vapor form, not in the liquid form. After I signed the contract, I no longer had to pay sales tax on my purchases of propane. How does the new LPG exemption affect my current contract?
22. I know my purchases of LPG qualify for the new sales and use tax exemption. However, I just received a bill from my propane dealer for my annual tank rental. They added sales tax to the rental fee. Does my annual tank rental fee qualify for exemption from tax?
23. I am a propane vendor and make sales of LPG to residents for household use. I currently have a customer who rents two 50-gallon tanks from me. Due to the nature of the customer’s property and their tank space availability, I make deliveries into both tanks when I deliver propane. Does this affect the exemption provided under RTC section 6353(b)? Would your answer be different if one of the tanks was less than 30 gallons?
24. In July, my propane dealer delivered to my primary residence, 75 gallons of LPG into my 100-gallon tank. I will not use the LPG until it gets colder. Is the dealer permitted to make an adjustment to exempt my purchase?
25. I understand what type of general information must be included in an exemption certificate. What type of specific information is required for the LPG exemption?
26. What constitutes a "person who assists a qualified person?"

Sales and Purchases of Farm Equipment, Machinery, and Parts:

27. I sell automatic feeding systems, including self-feeding equipment that rely on gravity to dispense food or water to livestock. Do these sales qualify for the farm equipment and machinery partial exemption?
28. My company sells squeeze chutes, portable farrowing crates, and other handling equipment to farmers. Will these sales qualify for the partial exemption?
29. I am a farmer and I plan to sell some of my used farming equipment. Will my sales be subject to tax? If so, will the partial exemption apply to my sales?
30. I sell large quantities of hydraulic hose, fittings, and adapters. If these items are sold and installed on farm equipment as new or replacement parts, will the sale qualify for partial exemption? What about engine oil?
31. My company provides crop protection services (crop spraying). Will our purchases of equipment used in spraying crops qualify for the partial exemption?
32. My company contracts with various farmers to remove trees and vines in order to prepare the fields for planting. Will our purchases of equipment used in these activities qualify for the partial exemption?
33. I work for a company that leases all terrain vehicles (ATV). If the ATV is leased to a farmer for use in producing and harvesting agricultural products, will the lease qualify for the partial exemption? What type of records do we need to keep?
34. I am in the business of harvesting pistachios and will lease harvesting equipment for use in our harvesting activities. Will the lease qualify for the partial exemption?
35. I work for an Irrigation District that provides water for use by qualified farmers in producing and harvesting agricultural products. Does the Irrigation District qualify as a person who assists the farmer?
36. I understand what type of general information must be included in an exemption certificate. What type of specific information is required for qualified purchases of farm equipment and machinery used in producing and harvesting agricultural products?

Diesel Fuel Used in Farming Activities and Food Processing:

37. Do the provisions of RTC section 6357.1, pertaining to sales of diesel fuel, apply to sales of red-dyed fuel also?
38. My company contracts with ranchers to deliver livestock to the marketplace. Do our purchases of diesel fuel qualify for a partial exemption?
39. I work for a medium sized dairy. Do our purchases of diesel fuel used in transporting the dairy products to our customers qualify for the partial exemption?
40. Where can I get a copy of IRC Section 263A? I am confused as to what type of farming activities qualify under RTC section 6357.1.
41. I have a customer that operates a large ranch where he raises cattle and also operates a second business. He transports the product from the second business to market with his own trucks. Will his purchases of diesel fuel qualify for the partial exemption?
42. I understand what type of general information must be included in an exemption certificate. What type of specific information is required for qualified purchases of diesel fuel?

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General Information:

1. I heard about Assembly Bill 426, but am not sure the provisions of the bill apply to my sales or purchases. What sections of California Law were amended or added by the bill?

Assembly Bill 426 was enacted by the Legislature to amend Revenue and Taxation Code (RTC) sections 6353, 20543, and 20544. The bill also adds RTC sections 6051.45, 6201.45, 6356.5, 6356.6, 6357.1, and 6358.5 to the RTC. The bill was signed into law by the Governor and filed with the Secretary of State on August 7, 2001.

RTC sections 6353(b), 6356.5, 6356.6, 6357.1, and 6358.5 provide either a full or partial exemption from the sales or use tax for the sale or use of specified tangible personal property, by specified persons.

RTC sections 6051.45 and 6201.45 provide new provisions related to the imposition or suspension of the one-quarter percent (1/4%) state sales and use tax provided under RTC sections 6051.4 and 6201.4. See Question 15 for additional information regarding the status of the ¼% state fund portion of the sales and use tax rate.

Except for RTC sections 20543 and 20544, the provisions of AB 426 apply to the California Sales and Use Tax Law. This law is administered by the Board of Equalization. RTC sections 20543 and 20544 are contained within the Gonsalves-Deukmejian-Petris Senior Citizens Property Tax Assistance Law. See Assembly Bill 426 for a reading of these RTC sections. Any additional questions related to RTC sections 20543 and 20544 should be directed to the Franchise Tax Board.

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2. I understand that AB 426 either amended existing statutes or added new statutes to the Revenue and Taxation Code. Which new or amended statutes provide a new exemption from sales or use tax for purchases of specified tangible personal property?

RTC section 6353(b), Liquefied Petroleum Gas (LPG), provides a new exemption from sales or use tax for qualifying sales and purchases of LPG. Beginning September 1, 2001, qualified sales and purchases of LPG for household or agricultural use are exempt from the California sales and use tax. Qualifying sales and purchases of LPG are subject to a full exemption from the statewide sales and use tax rate, currently 7%, as well as any applicable district taxes. To qualify for exemption, the LPG must be delivered into a tank with a storage capacity equal to or greater than 30 gallons. Delivery into storage tanks with a capacity less than 30 gallons will not qualify even if the total LPG delivered exceeds 30 gallons.

Household use. To qualify for exemption, the seller must deliver the LPG to a qualified residence for household use. A "qualified residence" is defined as a primary residence not serviced by gas mains and pipes. Delivery of LPG to a customer’s vacation home, or other secondary residence would not qualify for exemption.

Agricultural use. To qualify for exemption, the LPG must be purchased by a qualified person. A qualified person is defined as a person engaged in the business of producing and harvesting agricultural products as described under Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual (1987 Edition) and any other person who assists that qualified person. A complete listing of SIC codes is available from the US Department of Labor OSHA website at www.osha.gov. You may also click on the links above for the industries listed under Codes 0111 to 0291.

RTC section 6356.5, Farm Equipment, Machinery and Parts, provides a new partial exemption from the state general fund portion of the sales and use tax (currently 4.75%) for qualified sales and purchases (including certain leases) of new or used farm equipment, machinery, and parts purchased by qualified persons for use primarily in producing and harvesting agricultural products. Qualifying sales and purchases are still subject to a statewide tax rate of 2.25%, plus any applicable district taxes. In total, the sale or purchase will be subject to a tax rate ranging between 2.25% and 3.75%, depending on which district taxes apply, if any.

For the purposes of RTC section 6356.5, qualified person generally means a person engaged in the business of producing and harvesting agricultural products as described under Codes 0111 to 0291 of the Standard Industrial Classification (SIC) Manual (1987 Edition) and any other person who assists that qualified person. See SIC Codes 0111 through 0291 for a listing of qualifying industries.

Primarily means 50% or more. To qualify for the partial exemption, the equipment or machinery must be used 50% or more of the time in producing and harvesting agricultural products. Also for purposes of RTC section 6356.5, "farm equipment and machinery" means implements of husbandry as defined in RTC section 411. Such property generally includes any tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations. Implements of husbandry are further defined in Division 16 of the California Vehicle Code. These types of vehicles qualify if used exclusively in the conduct of agricultural operations.

RTC section 6356.6, Timber Harvesting Equipment, Machinery and Parts, provides a new partial exemption from the state general fund portion of the sales and use tax (currently 4.75%) for qualified sales and purchases (including certain leases) of new or used equipment, machinery, and parts designed primarily for off-road use in commercial timber harvesting operations. Qualifying sales and purchases are still subject to a statewide tax rate of 2.25%, plus any applicable district taxes. In total, a qualifying sale or purchase will be subject to a tax rate ranging between 2.25% and 3.75%, depending on which district taxes apply, if any. To qualify for the partial exemption (1) the purchaser must be engaged in commercial timber harvesting, (2) the equipment or machinery must be designed primarily for off-road use in commercial timber harvesting operations, and (3) the equipment or machinery must be primarily used in harvesting timber. Primarily means 50% or more of the time.

For the purposes of RTC section 6356.6, timber means trees of any species harvested for forest products, including Christmas trees. Commercial timber harvesting involves the cutting or removal, or both, of timber from timberlands for the purpose of buying and selling timber products. Timberland means privately or publicly owned land devoted to and used for growing and harvesting timber and compatible uses, and which is capable of growing an average annual volume of wood fiber of at least 15 cubic feet per acre.

RTC section 6357.1, Diesel Fuel, provides a new partial exemption from the state general fund portion of the sales and use tax (currently 4.75%) for qualified sales and purchases of diesel fuel used in farming activities and food processing. Qualifying sales and purchases are still subject to a statewide tax rate of 2.25%, plus any applicable district taxes. In total, the sale or purchase will be subject to a tax rate ranging between 2.25% and 3.75%, depending on which district taxes apply, if any.

For purposes of RTC section 6357.1, farming activities has the same meaning as farming business as set forth in Section 263A of the Internal Revenue Code. As provided in Section 263A, farming business means a business involving the cultivation of land or the raising and harvesting of any agricultural or horticultural commodity. Farming activities also include the transportation and delivery of farm products to the marketplace. Farming activities do not include operating a garden plot, orchard, or farm for the person’s own use, contract harvesting of an agricultural or horticultural commodity grown or raised by another, or merely buying and reselling plants or animals grown or raised entirely by another. Farming activities also do not include the transportation and delivery of the products of food processing from the food processor to the marketplace.

RTC section 6358.5, Racehorse Breeding Stock, provides a new partial exemption from the state general fund portion of the sales and use tax (currently 4.75%) for qualified sales and purchases (including certain leases) of racehorse breeding stock. Qualifying sales and purchases are still subject to a statewide tax rate of 2.25%, plus any applicable district taxes. In total, the sale or purchase will be subject to a tax rate ranging between 2.25% and 3.75%, depending on which district taxes apply, if any. For the purposes of RTC section 6358.5, racehorse breeding stock means a racehorse that is capable of reproduction and for which the purchaser’s sole intent is to use the racehorse for breeding purposes.

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3. When do the provisions of AB 426 become effective? Are the provisions retroactive?

The provisions of AB 426 became effective on September 1, 2001. The provisions of the bill apply only to sales or purchases (including certain leases) of qualifying property, by qualified persons, made on or after September 1, 2001. Your sales or purchases that occurred prior to September 1, 2001 will generally not qualify under the provisions of AB 426. For example, your customer ordered and paid for a large piece of equipment on August 20, 2001. The equipment was delivered on August 28, 2001. As described, the sale will not qualify for exemption from tax.

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4. I am not sure I understand what the rules are regarding when a sale or purchase is deemed to occur and the applicable tax is due. Would you explain?

Under the California Sales and Use Tax Law, a sale is deemed to occur when title to, or possession of, tangible personal property is transferred to the purchaser or the purchaser’s representative, for consideration. If a contract of sale does not pass title prior to shipment, the sale generally occurs when the retailer completes his or her obligations with respect to physical delivery of the property such as when the retailer provides the property to a common carrier for delivery. Using the prior example in question 3, let’s assume the equipment was shipped on September 5, 2001. Unless the contract provides otherwise (i.e., title transfer clause), the sale occurs when the equipment is provided to the common carrier for shipment to the customer. Until that time, the retailer has not completed his or her sale. As such, the new partial tax exemption applies to the retailer’s sale.

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5. Do the provisions of AB 426 and the applicable law also apply to leases in the same manner as they do to sales and purchases?

Leases of qualifying tangible personal property that are classified as "continuing sales" and "continuing purchases" of tangible personal property in accordance with Regulation 1660, Leases of Tangible Personal Property – In General, may qualify for the exemptions (partial or otherwise) provided under AB 426 if the requirements of the applicable statutes are met. If the lease is a continuing sale and purchase, as described in Regulation 1660, and the person and property meet the specified requirements, lease payments made on or after September 1, 2001 will qualify for the applicable exemption, even if the inception of the qualifying lease occurred prior to September 1, 2001. If the lease does not qualify as a continuing sale and purchase, the lease will generally not qualify under AB 426.

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6. I am a lessor of various types of equipment. I currently pay tax on the purchase price of the equipment before I place the equipment into rental inventory. As such, I do not remit or collect tax on the lease payments received from my customers. Will these types of leases also qualify for the partial exemption?

No. The exemptions (partial or otherwise) provided under AB 426 are not available to lessors who elect to pay California sales tax reimbursement or use tax at the time of acquisition of the property where the property is thereafter leased in substantially the same form as acquired.

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7. If my sales qualify for one of the exemptions provided by AB 426, what type of documentation is necessary to support the exemption?

To qualify for any of the exemptions (partial or otherwise) authorized under AB 426, your sales or purchases must first satisfy the statutory requirements of the applicable law. Secondly, your sale or purchase must be supported by an exemption certificate (partial or otherwise), taken timely and in good faith. Sales and Use Tax Regulation 1667, Exemption Certificates, provides that when the form of an exemption certificate is not prescribed by regulation, any document, such as a letter or purchase order, may be used to document the transaction provided it includes the following information:

A sample LPG exemption certificate and a sample blanket exemption certificate for the partial exemptions are currently available on the Board’s website by clicking on one of the links in this paragraph or through our Information Center at (800) 400-7115.

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8. What do you mean by your statement that the document must be taken timely and in good faith?

An exemption certificate (partial or otherwise) will be considered timely if it is taken any time before the retailer bills the purchaser for the property, any time within the retailer’s normal billing or payment cycle, or any time at or prior to delivery of the property to the purchaser or his or her representative.

Good faith with respect to an exemption certificate requires both the absence of fraud or other unlawful conduct coupled with some duty of inquiry on the part of the retailer. The duty to inquire consists of both an objective and subjective obligation. An exemption certificate is not accepted in good faith where a reasonable person in the position of the retailer would not believe that the property sold qualified for an exemption, or that the purchased property would not otherwise be used in an exempt manner. An exemption certificate should also not be accepted where the retailer has specific knowledge that the property is not subject to an exemption or will not be otherwise used in an exempt manner.

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9. How long does the retailer have to retain copies of the exemption certificates that support his or her sales?

A retailer must retain each exemption certificate (partial or otherwise) and any other documentation received from a purchaser for a period of not less than four years from the date on which the retailer claims an exemption based on the exemption certificate. More information regarding the retention of sales records and other such documents is provided in Regulation 1698, Records. A copy of the regulation is available for download from the Board’s website (click on above link) or by calling our Information Center at (800) 400-7115.

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10. I am a California retailer who makes sales of products to customers who meet the provisions of the applicable RTC sections enacted under AB 426. Accounting for the various exemptions will require extensive record keeping and revisions to my current accounting methods. Do I have to accept an exemption certificate from my customers?

There is no provision in the California Sales and Use Tax Law that requires a retailer to accept a customer’s exemption certificate (partial or otherwise). However, if the retailer does not accept the certificate, the sale will be subject to tax at the full tax rate in effect in the same manner as the retailer’s other sales of tangible personal property.

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11. I purchase qualifying property from an out-of-state retailer not obligated to collect the use tax due on my purchases. Do I still need to complete an exemption certificate?

An exemption certificate (partial or otherwise) must be completed by a purchaser to claim an exemption from use tax on purchases of qualified tangible personal property used in a qualified manner from an out-of-state retailer not obligated to collect the use tax. An exemption from use tax shall not be allowed unless the purchaser (1) timely files a sales and use tax return or consumer use tax return for the period in which the purchase occurs, and timely pays any applicable tax in full for purchases that are not exempt; and (2) attaches a completed exemption certificate to the return on which the purchase is reported.

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12. Does the Board have sample exemption certificates available for a retailer or purchaser’s use? If so, how do I get copies?

Yes. For exemptions (partial or otherwise) authorized in accordance with AB 426, a sample LPG exemption certificate and a sample blanket exemption certificate for the partial exemptions are available on the Board’s website and through our Information Center. The Information Center is open from 8:00 a.m. to 5:00 p.m., Monday through Friday, excluding State holidays and may be reached at (800) 400-7115. The Board’s website is located at www.boe.ca.gov. Please note, when applicable regulations are approved, such regulations may include a certificate that differs from these sample certificates.

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13. I purchased some equipment under a partial exemption certificate. At the time of purchase I intended to use the equipment in a qualifying manner, as required. However, my plans changed and I used the equipment in a nonqualifying manner. What do I do now?

Tax applies to your purchase of equipment used in a manner not qualifying for a partial exemption. You are liable for payment of the sales tax, with applicable interest, to the same extent as if you were the retailer making the retail sale of the equipment used by you. You should report and pay the state portion of the sales tax (plus interest) measured by the sales price of the property to you on your sales and use tax return or consumer use tax return, if you do not file a sales and use tax return.

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14. I purchased equipment on September 10, 2001 and did not provide the retailer with a partial exemption certificate. Consequently, the retailer collected sales tax reimbursement at the full sales tax rate. My purchase qualifies for a partial exemption from tax. How do I get a refund of the sales tax reimbursement paid to the retailer? What if my purchase was subject to use tax, not sales tax?

Prior to approval of regulations pertaining to the statutes enacted by AB 426, and for a period of approximately three months thereafter, a purchaser meeting the requirements of the applicable law may claim a refund of the partial exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a partial exemption certificate. The retailer should refund the excess sales tax reimbursement directly to the purchaser or, at the purchaser’s sole option, the purchaser may be credited with such amount. If the retailer has already remitted the tax to the Board, the retailer may file a claim for refund with the Board. There is currently no provision in the applicable law that allows the purchaser to go directly to the Board to obtain a refund of excess sales tax reimbursement paid to a retailer.

If your purchase was subject to use tax, you may file a claim for refund directly with the Board equal to the amount of the partial exemption that you could have claimed pursuant to the applicable law. The procedure for filing a claim shall be the same as for other claims for refund filed pursuant to RTC section 6901.

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15. On January 1, 2001 the state portion of the sales and use tax was reduced by ¼%. I have heard that the tax rate will increase on January 1, 2002. Is this true?

As provided under recently enacted RTC sections 6501.45 and 6201.45, the combined state, county, and local sales and use tax rate may increase from 7.00 percent to 7.25 percent if the state general fund reserves fall below a certain percentage. If the California Department of Finance announces in November that the general fund reserves for fiscal year ending June 30, 2001 do not exceed the required percentage of revenues, there will be a ¼% tax increase effective January 1, 2002. Up-to-date information concerning the possible tax rate increase will be available on our website, as it becomes available to the Board. You may also contact our Information Center at (800) 400-7115.

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16. My purchases qualify for partial exemption under AB 426. I purchase equipment from a farm dealership that has several retail outlets. Should I complete a partial exemption certificate for each of the retail locations?

Although not specifically required, if you purchase qualifying farm equipment from more than one of the dealership’s retail outlets (assuming they are the same legal entity), you may complete a partial exemption certificate for each of the retail outlets from which you make qualifying purchases. However, if the retail outlets are separate legal entities, you are required to provide each entity from which you make qualifying purchases with a fully completed partial exemption certificate.

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17. I am a purchasing agent for a large corporation. The corporation owns several small corporations and partnerships. Am I required to complete and provide the retailers with a separate exemption certificate for each entity?

Each separate legal entity is required to provide a properly completed exemption certificate (partial or otherwise) to the retailer in order to support a claim for exemption (partial or otherwise) on qualified purchases. If you purchase on behalf of the large corporation, you should provide the retailer with an exemption certificate (partial or otherwise) for that large corporation. If you purchase on behalf of one of the wholly owned subsidiaries, you should provide the retailer with an exemption certificate (partial or otherwise) for that wholly owned subsidiary.

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Sales and Purchases of Liquefied Petroleum Gas (LPG):

18. RTC section 6353(b) provides an exemption from sales or use tax for qualified purchases of LPG. Does the law also apply to sales and purchases of propane?

Yes. Liquefied petroleum gas is a mixture of light hydrocarbons, which are gaseous at atmospheric temperature and pressure. Liquefied petroleum gas occurs naturally in crude oil and natural gas production fields and is also produced in the oil refining process. Its main components are Propane (C3H8) at a boiling point of -45°C and Butane (C4H10) at a boiling point of 0°C.

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19. I live in an area where natural gas was not available and it was necessary to purchase propane for my central heating system. Natural gas mains were recently installed and propane is no longer my only option. However, I still have propane delivered into my 75-gallon tank for use as a secondary-heating source. Do my purchases of propane qualify for the exemption under RTC section 6353(b)?

No. RTC section 6353(b) provides an exemption from sales or use tax for the sale or use of LPG delivered into a tank with a storage capacity equal to or greater than 30 gallons, by the seller, for use in a qualified residence. RTC section 6353(b) defines a qualified residence, as a primary residence not serviced by gas mains and pipes. Since natural gas is now available in your area and your residence is serviced by a gas main, this LPG exemption will not apply to your purchases even though the LPG is delivered by the seller into your 75-gallon tank.

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20. I purchased a time-share in an ocean condominium. The condominium is not serviced by gas mains; however, the property does house a 175-gallon propane tank owned by the time-share owners. Do my purchases of LPG qualify for exemption from tax under 6353(b)?

To the extent the condominium is not your primary residence but is a vacation home, your purchases of LPG will not qualify for exemption under RTC section 6353(b).

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21. My propane dealer sent me a contract last year and said that my purchase of propane would not be subject to tax if I signed the contract. The dealer explained that the contract contained a title transfer clause that transferred title to the propane to me in a vapor form, not in the liquid form. After I signed the contract, I no longer had to pay sales tax on my purchases of propane. How does the new LPG exemption affect my current contract?

As described, your current contract with the propane dealer qualifies under RTC section 6353(a) (as amended by AB 426.) When the propane dealer retains ownership of the propane tank and transfers the LPG to your residence in vapor form, it qualifies as a gas under RTC section 6353(a) and your purchases of LPG after conversion to a vapor form continue to qualify for exemption from tax. The addition of RTC section 6353(b) does not affect your current contract with your propane dealer.

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22. I know my purchases of LPG qualify for the new sales and use tax exemption. However, I just received a bill from my propane dealer for my annual tank rental. They added sales tax to the rental fee. Does my annual tank rental fee qualify for exemption from tax?

No. The new provisions of RTC section 6353(b) do not apply to the vendor’s annual rental charge for the rental of the tank.

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23. I am a propane vendor and make sales of LPG to residents for household use. I currently have a customer who rents two 50-gallon tanks from me. Due to the nature of the customer’s property and their tank space availability, I make deliveries into both tanks when I deliver propane. Does this affect the exemption provided under RTC section 6353(b)? Would your answer be different if one of the tanks was less than 30 gallons?

The fact that you deliver LPG into two 50-gallon tanks will not invalidate the exemption authorized under RTC section 6353(b) as long as the other requirements of the section are met. However, when delivering LPG to one 25-gallon tank and one 50-gallon tank, the exemption provided under RTC section 6353(b) will not apply to the delivery of LPG into a tank with a storage capacity less than 30 gallons even though your delivery into both tanks aggregates to purchases of LPG in excess of 30 gallons. When your customer fills out the proper exemption certificate, he or she should note that only those deliveries of LPG into a tank with a storage capacity equal to or greater than 30 gallons qualify for the exemption. Tax will still apply to the customer's purchase of LPG delivered into the 25-gallon tank.

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24. In July, my propane dealer delivered to my primary residence, 75 gallons of LPG into my 100-gallon tank. I will not use the LPG until it gets colder. Is the dealer permitted to make an adjustment to exempt my purchase?

No. RTC section 6353(b) provides an exemption from sales or use tax for the sale or use of LPG delivered into a tank with a storage capacity equal to or greater than 30 gallons by the seller for use in a qualified residence. Although it appears the LPG was delivered to a qualified residence, the delivery occurred prior to September 1, 2001, the effective date of the exemption. As such, the July delivery will not qualify for exemption from sales or use tax.

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25. I understand what type of general information must be included in an exemption certificate. What type of specific information is required for the LPG exemption?

The exemption certificate should, in addition to the general elements required under Regulation 1667, Exemption Certificates, (see Question 7) contain the following specific statement(s) depending on the nature of the purchase and the purchaser: If the certificate is for LPG used for household purposes, the certificate should contain a statement(s) that the LPG (1) will be delivered by the seller into a tank with a storage capacity equal to or greater than 30 gallons at the purchaser’s primary residence not serviced by gas mains and pipes; (2) is purchased for use in a household activity at the purchaser’s primary residence; and (3) how much or what percentage of the LPG will be used in the household activity.

If the certificate is for LPG used in agricultural operations, the certificate should contain a statement(s) that the LPG: (1) will be delivered into a tank with a storage capacity equal to or greater than 30 gallons; (2) is purchased by a person engaged in an industry described in Codes 0111 to 0291 of the Standard Industrial Classification Manual, or by a person assisting such classified person; (3) will be used by such person in producing and harvesting agricultural products; and (4) how much or what percentage of the LPG will be used in the agricultural activity.

A sample LPG exemption certificate is currently available on the Board’s website (click on either link) at www.boe.ca.gov or through our Information Center at (800) 400-7115.

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26. What constitutes a "person who assists a qualified person?"

A person who assists a qualified person for the purposes of RTC section 6353(b) generally means a person engaged in an activity on a contract or fee basis to perform activities described in Major Group 07 (Codes 0711 to 0783) of the SIC Manual which includes soil preparation services, crop services, animal services, landscape and horticultural services, and farm labor and management services.

A person that assists a qualified person must provide physical aid or assistance in the actual producing and harvesting of agricultural products owned by the qualified person and not merely provide aid in administrative, managerial, or marketing activities. A person that assists a qualified person does not include a person performing services such as an attorney, accountant, consultant, or other similar activity. A person that assists a qualified person also does not include persons who perform repairs to farm equipment and machinery or who perform construction contracts, or a person that assists such persons.

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Sales and Purchases of Farm Equipment, Machinery, and Parts:

27. I sell automatic feeding systems, including self-feeding equipment that rely on gravity to dispense food or water to livestock. Do these sales qualify for the farm equipment and machinery partial exemption?

As described, feeding systems, including self-feeding equipment are considered farm equipment and machinery. As such, sales of feeding systems will qualify for the partial exemption as long as the other provisions of RTC section 6356.5 are met.

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28. My company sells squeeze chutes, portable farrowing crates, and other handling equipment to farmers. Will these sales qualify for the partial exemption?

Generally, animal-handling equipment such as squeeze chutes and portable farrowing crates used for birthing or to hold or restrain an animal while medication or treatment is administered to the animal are considered farm equipment and machinery. As such, sales of these items will qualify for the partial exemption as long as the other provisions of RTC section 6356.5 are met.

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29. I am a farmer and I plan to sell some of my used farming equipment. Will my sales be subject to tax? If so, will the partial exemption apply to my sales?

The provisions of section 6356.5 apply to sales of new and used farming equipment. If the other provisions of section 6356.5 are met, your sales of farm equipment will qualify for the partial exemption. In addition, your sales may qualify as an occasional sale under Regulation 1595, Occasional Sales – Sales of a Business – Business Reorganizations. A copy of the regulation is available on our website or by contacting our Information Center.

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30. I sell large quantities of hydraulic hose, fittings, and adapters. If these items are sold and installed on farm equipment as new or replacement parts, will the sale qualify for partial exemption? What about engine oil?

Generally, parts are considered articles of tangible personal property that are components of equipment or machinery which can be separated from the equipment or machinery and replaced. Like equipment and machinery, parts must have a degree of permanence and durability. Normally, a part replaces a previous part and can include repair and maintenance parts that are identical to the parts they replace, as well as parts that are different from the ones they replace, such as replacement parts added for the purpose of improving or modifying the equipment or machinery. Items such as nuts, bolts, hoses, hose clamps, chains, belts, gears, drill bits, grinding heads, blades, and bearings would ordinarily also be considered parts within the meaning of the partial exemption if used in or on qualifying farm equipment and machinery.

On the other hand, items that are consumed (i.e., burned, evaporate, dissolve, or dissipate through the regular use of the equipment) in a single processing and benefit only one production cycle (such as gasoline) are ordinarily supplies, not parts, within the meaning of the partial exemptions authorized by AB 426. However, engine oil not consumed (e.g., not consumed as part of fuel for a two-stroke engine) is generally regarded as a component part and its sale or use will qualify for the partial exemption if all other requirements of the statute are met.

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31. My company provides crop protection services (crop spraying). Will our purchases of equipment used in spraying crops qualify for the partial exemption?

Your company appears to qualify as a person who assists a qualified person. If the other requirements of RTC section 6356.5 are met, your purchases of equipment used in providing the contract or fee services (crop spraying) will qualify for the partial exemption.

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32. My company contracts with various farmers to remove trees and vines in order to prepare the fields for planting. Will our purchases of equipment used in these activities qualify for the partial exemption?

As described, your company appears to qualify as a person who assists a qualified person. If the other requirements of RTC section 6356.5 are met, your purchases of equipment used in providing the contract or fee services (tree/vine removal) will qualify for the partial exemption.

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33. I work for a company that leases all terrain vehicles (ATV). If the ATV is leased to a farmer for use in producing and harvesting agricultural products, will the lease qualify for the partial exemption? What type of records do we need to keep?

For the partial exemption to apply, the ATV must be used in a qualified activity as defined in RTC section 6356.5, must be leased to a qualified person as defined in RTC section 6356.5, and must be leased as a "continuing sale" and "continuing purchase," as defined in Regulation 1660, Leases of Tangible Personal Property. ATV’s are considered to be qualified farm equipment and machinery when used exclusively in producing and harvesting agricultural products by a person engaged in business in an industry described in SIC Codes 0111 to 0291 or by a person who assists such classified person. Assuming your company reports and pays tax measured by rentals payable, and the other requirements of RTC section 6356.5 are met, your leases of ATV’s used exclusively in producing and harvesting agricultural products, to qualified persons, will qualify for the partial exemption. See Questions 7 & 9 for a discussion on the types of records required to support the claimed partial exemption.

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34. I am in the business of harvesting pistachios and will lease harvesting equipment for use in our harvesting activities. Will the lease qualify for the partial exemption?

If you qualify as a contract harvester who assists a qualified farmer in harvesting his or her agricultural products, your lease of harvesting equipment used primarily in providing harvesting services will qualify for the partial exemption as long as the lessor reports and remits tax based on rentals payable. If the lessor elects to report and remit tax measured by his or her purchase price, the lease will not qualify for the partial exemption.

Assuming the lease qualifies, you should provide the lessor with a completed partial exemption certificate that contains the elements listed in Regulation 1667, Exemption Certificates, (see Question 7), a statement that the property leased is to be used primarily in producing and harvesting agricultural products, and a statement that you are engaged in a line of business as described in SIC Codes 0111 to 0291 or assist such classified person.

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35. I work for an Irrigation District that provides water for use by qualified farmers in producing and harvesting agricultural products. Does the Irrigation District qualify as a person who assists the farmer?

No. To qualify as a person who assists a qualified person, the person must provide physical aid or assistance in the actual producing and harvesting of agricultural products owned by a qualified person. An Irrigation District that provides irrigation water for use by qualified farmers would not qualify as a person who assists a qualified person.

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36. I understand what type of general information must be included in an exemption certificate. What type of specific information is required for qualified purchases of farm equipment and machinery used in producing and harvesting agricultural products?

The partial exemption certificate should, in addition to the elements listed in Regulation 1667, Exemption Certificates, see Question 7, specifically include (1) a statement that the property purchased will be used primarily in producing and harvesting agricultural products, and (2) a statement that the purchaser is a person engaged in a line of business as described in Codes 0111 to 0291 of the Standard Industrial Manual or is a person that assists such classified person.

A sample blanket exemption certificate for the partial exemption is currently available on the Board’s website (click on either link) at www.boe.ca.gov or through our Information Center at (800) 400-7115.

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Diesel Fuel Used in Farming Activities and Food Processing:

37. Do the provisions of RTC section 6357.1, pertaining to sales of diesel fuel, apply to sales of red-dyed fuel also?

For sales and use tax purposes, if the sale of diesel meets the requirements of RTC section 6357.1, it does not matter whether or not the diesel fuel sold is clear or red dyed fuel. AB 426 did not change how tax applies under the Diesel Fuel Tax Law.

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38. My company contracts with ranchers to deliver livestock to the marketplace. Do our purchases of diesel fuel qualify for a partial exemption?

As provided by RTC section 6357.1, farming activities also include the transportation and delivery of farm products to the marketplace. As such, diesel fuel sold to a trucker under contract with the rancher engaged in the farming activity, to transport the rancher’s commodity to the place where the commodity is first sold (e.g., broker, food processor, farmer’s market, slaughtering plant, grocery store, or end-use consumer) qualifies for the partial exemption.

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39. I work for a medium sized dairy. Do our purchases of diesel fuel used in transporting the dairy products to our customers qualify for the partial exemption?

As provided by RTC section 6357.1, farming activities also include the transportation and delivery of farm products to the marketplace. If ownership of the dairy products is retained by the dairy until sold to the customer, diesel fuel sold to a dairy engaged in farming activities, and used to transport the dairy’s commodity to the place where the commodity is first sold (e.g., broker, packer, food processor, farmer’s market, grocery store, or end-use consumer), qualifies for the partial exemption.

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40. Where can I get a copy of IRC Section 263A? I am confused as to what type of farming activities qualify under RTC section 6357.1.

A copy of Section 263A of the Internal Revenue Code is available by clicking on the above link. It is also found in Title 26 of the Internal Revenue Code.

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41. I have a customer that operates a large ranch where he raises cattle and also operates a second business. He transports the product from the second business to market with his own trucks. Will his purchases of diesel fuel qualify for the partial exemption?

RTC section 6357.1 provides a partial exemption from sales or use tax for the sale or use of diesel fuel used in farming activities or food processing. For purposes of this partial exemption, farming activities mean a trade or business involving the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity that may be legally sold to or offered for sale to others. Farming activities also include the transportation and delivery of farm products to the marketplace. If your customer’s second business does not qualify as a farming activity because the product is not an agricultural or horticultural commodity, the purchase of the diesel fuel to transport the product will not qualify for the partial exemption. Only diesel fuel purchased for use in transportation as part of farming activities qualifies for the partial exemption.

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42. I understand what type of general information must be included in an exemption certificate. What type of specific information is required for qualified purchases of diesel fuel?

The partial exemption certificate should, in addition to the general elements required under Regulation 1667, Exemption Certificates (see Question 7), specifically include a statement of how much or what percentage of the diesel fuel purchased will be used in a qualified farming or food processing activity.

A sample blanket exemption certificate for the partial exemption is currently available on the Board’s website (click on either link) at www.boe.ca.gov or through our Information Center at (800) 400-7115.

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Note: This information is provided by the California State Board of Equalization and is effective as of 01/01/02. Please consult your tax professional or the BOE for any current changes.