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Reduced CA Sales/Use Tax Rate on Equipment Purchased for Research

Reduced sales/use tax rate on equipment purchased for research.

Effective now through June 30, 2030, the California Department of Tax and Fee Administration (CDTFA) is offering a reduced sales/use tax rate on equipment purchased for research. 

What does the Reduced Rate Apply To?

  • Machinery and equipment with a minimum useful life of a year that will be used over 50% of the time and for over one year in research and development anywhere in California. While the CDTFA does not have a minimum threshold for qualified purchases, we have opted to make this exemption available for purchases that meet the capital equipment definition of $5K and above. This practice is consistent UC-wide. Also, the CDTFA has limited the reduced rate to a specific purchase amount over the calendar year, which will be monitored by UC Davis Finance and Business. 
  • The tax exemption includes leased equipment and special-purpose buildings.

The exemption reduces the current sales tax rate by 3.9375%, resulting in an effective rate of 3.3125% for research equipment delivered to campus. The effective rate may change if equipment is delivered to a different location in California. 

How Does the Tax Reduction Process Work?

The reduction is documented on the Aggie Enterprise Requisition document.

  1. If making a purchase that qualifies for the partial tax exemption, select the appropriate option on the R&D Exemption field in the Billing section.  
  2. Complete and attach the Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist to the Aggie Enterprise Requisition. 
  3. The completed and submitted Requisition will automatically route to Procurement and Contracting Services and the Tax, Compliance and Controls units:
    1. Tax, Compliance and Controls will review the information provided to confirm that it qualifies for the tax reduction. 
    2. The Procurement and Contracting Services buyer will insert appropriate language and reduce the sales tax amount on the Purchase Order. 

Special Cases

In some instances, the vendor may require a Partial Exemption Certificate to allow for the reduction. If this is the case, please ensure that the top & middle sections are completed and forwarded to the Tax unit for authorization:

  • The UC Davis Tax unit is the proper office for authorizing these certificates, which are only valid for the specific item(s) mentioned. 
  • The certificate should not be used as a blank certificate to authorize an exemption for multiple purchases of different items from the same vendor. 
  • For those transactions where the vendor is not collecting sales tax and we are self-assessing use tax, please follow the same process of completing the checklist and attaching it to the Aggie Enterprise Requisition.

We encourage departments to actively work with vendors to ensure the appropriate sales tax rate is applied to the initial purchase to ensure efficiency and timeliness in taking advantage of this exemption. 

Retroactive Sales Tax Refunds

R&D Reduced Tax Exemption Must Be Requested at Requisition Submission

To ensure compliance with University policy and California tax requirements, please note that the Research & Development (R&D) Reduced Tax Exemption cannot be applied after a purchase has been processed. For audit purposes, the exemption must be requested when the initial requisition is submitted. If you believe a purchase may qualify for the California R&D Reduced Tax Program, please complete the following steps:

  • Verify the eligibility of the capital asset purchase for a qualifying California research project under the California reduced use tax program.
  • Complete the Capital Asset Form for all applicable purchases.
  • In the Billing section of the requisition, select the “R&D Reduced Tax” checkbox. Complete and attach the Partial Sales Tax Exemption – Equipment Eligibility Checklist. This will route the requisition to Tax Reporting & Compliance for review and approval.
  • If the requisition is approved, the applicable reduced tax rate will be calculated during processing.

Requests to apply the R&D Reduced Tax Exemption after an order has been processed cannot be accommodated. Thank you for your attention to this requirement and for helping us maintain compliance with audit and tax-reporting requirements.

Contact

For more information, please contact Ricardo Buenrostro, Director of the Tax, Compliance and Controls unit, at [email protected] or 530-752-6155.