California Sales Tax Exemption for Power

Author: Keith Martin Publication | August 2017

California will not collect sales and use taxes on equipment bought after this year for use in electricity generation, storage, transmission or distribution.

The exemption will not apply to generating equipment used to make electricity from a conventional power source, meaning nuclear energy or a hydropower facility greater than 30 megawatts in size or a fossil fuel power plant, unless the fossil fuel is used for cogeneration of more than one useful energy output.

The exemption is in a bill, A.B. 398, that the governor signed in late July.

California, like other states, has a “manufacturing exemption” from sales and use taxes. Sales taxes are collected on equipment purchased in state. Use taxes must be paid on equipment purchased elsewhere and brought into the state for use there. However, equipment purchased for use in manufacturing is usually exempted from sales and use taxes. Many states view electricity generation as a form of manufacturing. Not all do. The exemption in A.B. 398 is language added at the end of the existing manufacturing exemption.

The person buying the equipment must be engaged in a power-related business. Purchases by construction contractors installing equipment for such persons are also exempted.


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Keith  Martin

Keith Martin

Washington, DC