California Alternative Energy & Advanced Transportation Finance Authority: Sales & Use Tax Exclusion (STE) Program

Through a competitive application and approval process, the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides a sales and use tax exclusion for advanced manufacturers, manufacturers of alternative source and advanced transportation products, components or systems.

Businesses that are approved by the CAEATFA Board to receive an STE award agreement may purchase qualified property (property used directly in their qualified business activity) free from California sales and use tax for a period of 36 months from the date that their STE award agreement is executed.

The STE Program was recently expanded by Assembly Bill 199 to include equipment that processes or utilizes recycled feedstock. The amount of approved sales and use tax exclusion is limited to $100 million per calendar year.

How SDTCG Can Help

Often considered one of the most competitive incentive programs in California, our team of professionals have had exceptional success in representing clients through the STE application and approval process. This includes a very recent success with one of our Southern California manufacturing clients—resulting in a tax benefit in excess of $10.5 million.

From our pre-application planning, application preparation and STE award agreement negotiations, we have the technical expertise, resources, insight and proven track record to help your business take advantage of this highly lucrative and sought after California tax incentive.

Program Updates

Although the acceptance of new STE applications has been suspended since November of 2015, CAEATFA is currently working on finalizing proposed regulations to incorporate Assembly Bill 199 (as discussed above) as well as other modifications to the STE Program.

It is anticipated that CAEATFA will begin accepting Assembly Bill 199 applications in August, in order for applications to go before the CAEATFA Board in October. Similarly, it is anticipated that non-AB 199 applications will be accepted in September for CAEATFA Board review in November of 2016. Consistent with years passed (and once the application suspension is lifted), CAEATFA will accept applications on a rolling basis, with CAEATFA Board approval meetings to occur on a monthly basis.

California's Partial Exemption

Two years ago—in an effort to spur California-based manufacturing and R&D activities, Governor Jerry Brown enacted a partial sales and use tax exemption through Assembly Bill 93. This state-wide program allows qualified persons to purchase qualified property using a 4.1875% sales and use tax exemption.

"Qualified person" is generally defined as a person or business engaged in manufacturing and/or research & development activities. As a guideline, California uses the North American Industry Classification System (NAICS). Codes from 311100 to 339999 for manufacturers and codes 541711 or 541712 for research & development businesses are deemed to qualify.

Although the program has been active since July 1, 2014, many qualifying businesses have not fully utilized its potential.

How SDTCG Can Help

We have significant experience with this program as well as many of the manufacturing and R&D sales and use tax exemptions across the nation. We find that many businesses will either overlook this incentive program completely, or will miss certain purchases that do not appear to qualify at first glance.

Since California's partial sales and use tax exemption allows for refunds on prior qualified purchases, we have had extensive experience and successes in assisting clients claim refunds of overpaid California sales and use tax.

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