Sales and Use Tax Exclusion (STE) Program
Frequently Asked Questions
Basic Program Structure
- What is the Sales and Use Tax Exclusion Program?
- What purchases are excluded from sales and use tax? What is “Qualified Property”?
- How does a manufacturer receive an STE award?
- What is the maximum award amount?
- What are the fees associated with the Program?
- Where can I find information on applications considered and approved by the Board?
- Who may apply for a sales and use tax exclusion (STE)?
- What is an Alternative Source?
- What are Advanced Transportation Technologies?
- What is Advanced Manufacturing?
- What is Recycled feedstock?
- My Recycled feedstock project qualifies under multiple eligibility pathways, which is the appropriate pathway?
Application & Approval Process
- What is the Program’s application process?
- Where do I submit an STE Application?
- What is the timeline for consideration of an application?
- Who approves the applications and grants the STE award?
- What point threshold must an applicant meet to be recommended for approval by CAEATFA staff?
- In what order will applications be heard?
- The Program is oversubscribed, how will CAEATFA determine the order in which applications are considered?
- What are the competitive criteria?
- Should a representative for the applicant be present during the CAEATFA Board meeting?
Using the STE Award
- How does an approved applicant use the exclusion?
- When can an approved applicant begin using the STE award?
- How soon must an approved applicant start making purchases?
- What about purchases made prior to receiving the award?
- Can a contractor for an approved applicant use the exclusion?
- How long do approved applicants have to use the exclusion?
- Can Qualified Property purchases be used for purposes outside of the approved project?
- Can Qualified Property purchases be moved out of state?
- Is the award assignable or transferrable?
- What are the steps after an applicant is approved?
- What is the Master Regulatory Agreement?
- What are the on-going reporting requirements in order to retain the STE award?
- How long must I continue to submit reports?
- How do I report purchases made prior to approval?
- What happens if a reporting requirement is missed?
Basic Program Structure
The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) Sales and Use Tax Exclusion (STE) Program (the “Program”) excludes from sales and use taxes purchases of Qualified Property:
- if its use is either to process Recycled feedstock or using Recycled feedstock in the production of another product or soil amendment, or
- that is used in an Advanced Manufacturing process, or
- that is used to manufacture Alternative Source products or Advanced Transportation Technologies.
Eligible manufacturers planning to construct a new manufacturing facility or expand or upgrade a currently existing manufacturing facility may apply to CAEATFA for an STE award, and if approved, the purchases of Qualified Property for the project are not subject to state and local sales and use tax.
The exclusion applies to Qualified Property purchases:
- tangible personal property if at least 50 percent of its use is either to process Recycled feedstock that is intended to be reused in the production of another product or using Recycled feedstock in the production of another product or soil amendment, or
- tangible personal property that is used in the state in an Advanced Manufacturing process, or
- for the design, manufacture, production, or assembly of Advanced Transportation Technologies, or Alternative Source products, components, or systems.
Generally, Qualified Property includes manufacturing machinery and equipment with an estimated useful lifespan of over one year, as well as information technology used to operate or control the machinery and equipment. Qualified purchases may also include tangible personal property required for infrastructure improvements to the manufacturing facility, such as foundation, reinforcement, piping, and fire safety.
Qualified Property does not include consumables or the raw materials of which the product being manufactured is composed; typically this will include items with an estimated useful lifespan of less than one year.
The property must be used to process Recycled feedstock or create another product or soil amendment utilizing Recycled feedstock, or in an Advanced Manufacturing process or for the manufacturing of the Alternative Source product or Advanced Transportation Technology for more than 50% of the time.
Eligible manufacturers may apply for an STE by submitting an application to CAEATFA. CAEATFA staff will review the application for completeness and reasonableness of assumptions provided in the application, and then make a recommendation to the CAEATFA Board. CAEATFA’s Board considers and votes on the STE applications at regularly scheduled monthly meeting.
Statute limits the Program to awarding $100 million in sales and use tax exclusions in each calendar year.
Individual projects are limited to $20 million of STE in a given calendar year. Projects may receive more than the $20 million individual cap, at the discretion of the Authority and subject to STE allocation availability at the end of the calendar year.
The Program has two types of fees: Application Fees and Administrative Fees.
The fee calculator on CAEATFA’s website will assist in calculating the potential fees associated with an application.
- The Application Fee is 0.0005 (0.05%) of the total amount of Qualified Property identified in the application (minimum $250, maximum $10,000), and is due with the application submission.
- The Administrative Fee is 0.004 (0.4%) of the total amount of Qualified Property actually purchased (minimum $15,000, maximum $350,000). The minimum Administrative Fee of $15,000 is due after approval, upon execution of the Master Regulatory Agreement. The balance of the Administrative Fee is payable with each semi-annual report in an amount equal to 0.004 of the Qualified Property purchase amount made during the applicable reporting period, until the total Administrative Fee amount is paid.
In addition to the fees required of all Applicants, there are fees intended to cover costs incurred due to specific requests from Applicants.
- An Applicant that requests a modification to its Regulatory Agreement or authorizing resolution that must be approved by the Authority shall pay an additional administrative fee of $500.
- An Applicant that requests a modification to its Regulatory Agreement or authorizing resolution that requires a revised application to be considered by the Authority shall pay .00005 (one two hundredth of one percent) of the total amount of Qualified Property identified in the Authority resolution approved by the Board (minimum $500, maximum $2,000).
Staff summaries prepared for each application brought before the Board, as well as data on each approved application, may be found on the Meeting Agendas, Staff Reports and Minutes page.
A list of all projects approved and considered can also be found on the STE Program page.
The STE is available to the following four categories of manufacturers in California:
- Alternative Source product manufacturers,
- manufacturers of Advanced Transportation Technologies,
- Advanced Manufacturers, and
- manufacturers that process Recycled feedstock or utilize Recycled feedstock in the production of another product or soil amendment.
Manufacturers of components of Alternative Sources and Advanced Transportation Technologies are also eligible if the component constitutes a “Green Component”, defined as the component or system within Advanced Transportation Technologies or Alternative Source products that is responsible for or required to enable the increase in energy efficiency, Alternative Source generation, or pollution reduction.
Alternative Sources are defined in Public Resources Code Section 26003(a)(3) as:
- devices or technologies used for a renewable electrical generation facility,
- a combined heat and power system,
- distributed generation and energy storage technologies eligible under the self-generation incentive program pursuant to Section 379.6 of the Public Utilities Code, as determined by the Public Utilities Commission,
- a facility designed for the production of renewable fuels, the efficient use of which reduce the use of fossil or nuclear fuels, or
- energy efficiency devices or technologies that reduce the need for new electric generation and reduce emissions of toxic and criteria pollutants and greenhouse gases
Examples of past Alternative Source manufacturing projects approved include: solar photovoltaic, biogas, biomass, landfill gas, and renewable fuels. Equipment used to manufacture these products is eligible under the STE award.
Advanced Transportation Technologies are defined in Public Resources Code Section 26003(a)(2) as emerging commercially competitive transportation-related technologies capable of creating long-term, high value-added jobs for Californians while enhancing the state’s commitment to energy conservation, pollution and greenhouse gas emissions reduction, and transportation efficiency.
To qualify as an Advanced Manufacturer, the manufacturing process must meet all of the following requirements:
- Improve existing, or create entirely new materials, products, and processes through:
- the use of science, engineering, or information technologies,
- high-precision tools and methods,
- a high-performance workforce, and
- innovative business or organizational models.
- Use any of the following technology areas:
- Micro- and nanoelectronics, including semiconductors.
- Advanced materials.
- Integrated computational materials engineering.
- Additive manufacturing.
- Industrial biotechnology.
- Result in a substantive advancement, whether incremental or breakthrough, beyond the current industry standard, in the production of materials and products.
- Be a sustainable manufacturing system that minimizes the use of resources while maintaining or improving cost and performance (not including systems or technologies required to be undertaken pursuant to state or federal law or regulations).
Recycled feedstock is defined as stated in Public Resources Code Section 26011.8(b)(2) as materials that would otherwise be destined for disposal, having completed their intended end use and product lifecycle.
To qualify as Recycled feedstock, the tangible personal property purchased for the project must be used at least 50% of the time to process Recycled feedstock that is intended to be reused in the production of another product or using recycled feedstock in the production of another product or soil amendment.
- Soil amendments may include "compost," as defined in Section 14525 of the Food and Agricultural Code, "fertilizing material," as defined in Section 14533 of the Food and Agricultural Code, "gypsum" or "phosphatic sulfate gypsum," as those terms are defined in Section 14537 of the Food and Agricultural Code, or a substance distributed for the purpose of promoting plant growth or improving the quality of crops by conditioning soils through physical means.
12. My Recycled feedstock project qualifies under multiple eligibility pathways, which is the appropriate pathway?
Some projects may qualify under multiple eligibility pathways. Recycled feedstock projects include projects that are not eligible to apply for a sales and use tax exclusion as an Alternative Source, Advanced Transportation, or Advanced Manufacturing project. For example, projects that create a new product using recycled feedstock, but do so utilizing an Advanced Manufacturing process, must apply under Advanced Manufacturing. Similarly, projects such as biogas, which use recycled feedstock to create an Alternative Source product, must apply under Alternative Source.
Application & Approval Process
The application consists of two parts:
- Part A includes a project narrative, legal questionnaire, and applicant certification. The project narrative includes information about the applicant and the proposed project, including timeline and status of required permits.
- Part B consists of a self-scoring Excel spreadsheet designed to measure and quantify the net fiscal and environmental benefits of the proposed project. Based on the inputs provided by the applicant, the spreadsheet calculates the number of points received by the project. The formulas for determining the points awarded may be found in CAEATFA Regulation Section 10033(c).
CAEATFA staff review each application for completeness and reasonableness of the assumptions provided in the application. To that end, staff may request supporting documentation and more detailed calculations for inputs. To help expedite the review process, applicants may submit supporting documentation relied upon, such as business plans, pro forma financial statements or other comparable documents used for the purpose of soliciting investors, environmental reports, third party price quotes, etc., with the application.
Applications must be submitted electronically via e-mail to CAEATFA@treasurer.ca.gov; hard copies of the application, as well as the application fee, must be received at the CAEATFA office within five business days of submission of the electronic version of the application. The mailing address is:
915 Capitol Mall, Rm 457
Sacramento, CA 95814
The Application Fee is .0005 (or .05%) of the total amount of Qualified Property identified in the application. The minimum Application Fee is $250 and the maximum Application Fee is $10,000.
Applications are accepted on a rolling basis, and may be considered at the first board meeting at least 60 days after the completed application is submitted. The CAEATFA Board meets at regularly scheduled monthly meetings. Potential applicants seeking to be considered in a particular month should consult the Board meeting schedule and associated deadlines.
CAEATFA staff review each application and make a recommendation to the CAEATFA Board. The Board then considers and votes whether to approve an application at regularly scheduled Board meetings.
CAEATFA’s Board consists of the following members: State Treasurer, State Controller, Director of the Department of Finance, Chair of the California Energy Commission, and President of the Public Utilities Commission.
Applicants must receive a total score of at least 1,000 points on the net benefits test in Part B of the application. Additionally, all applicants must receive an environmental benefits score of over 20 points.
Applications shall be considered in the order in which they were received, determined by the time and date stamp of the electronic submission of the application via e-mail.
To the extent that total STEs awarded during the calendar year reach $100 million (the funding statutory cap), no additional applications will be reviewed during that calendar year. Applications that are received but not awarded due to the funding statutory cap will be placed on a waiting list. Applications that are on the waiting list but are not evaluated by staff due to the statutory cap may be considered in the subsequent calendar year.
19. If the Program is oversubscribed, how will CAEATFA determine the order in which applications are considered?
In the event that applications received by CAEATFA represent STEs in excess of the statutory cap for that calendar year, the order in which the Applications shall be considered by the Authority will be based on a ranking of competitive criteria of all projects moving forward before the Board within the same month. The competitive criteria are a series of objective criteria that can be verified at the time of application. The competitive process will be handled as follows:
- Each criterion that the Application meets shall be worth between one and five points. The projects with the greatest point score will be reviewed and presented to the CAEATFA Board.
- In the event of a tie, the application representing the smaller STE award will move forward to consideration before the Authority.
- If the STE amounts are identical, the completed application that was received by CAEATFA first shall be heard first.
- When the amount requested in the Application exceeds the STE available in the calendar year, the Authority may award the remaining STE request using STE from the following calendar year.
- Any remaining Applications shall be placed on the waiting list.
Unemployment rate (five points possible).If the project is located in a county with an unemployment rate greater than 110% of the statewide average, the project shall receive points based on the ratio of the local unemployment rate to the highest unemployment rate in the state.
- If a project receives points for the unemployment rate of the proposed project location and, after approval by the Authority, the applicant changes its intended location to a county with a lower unemployment rate, such that the ranking of the applicants would have been affected, the award shall be rescinded and automatically awarded to the next awardee in line.
- If an award is rescinded due to changes in the proposed project location, the applicant may submit a revised application with an updated project location.
Corporate headquarters (one point possible). If the applicant has its corporate headquarters located in California, the project shall receive one point, provided that, if the applicant has a parent company with an ownership interest greater than 50%, the parent company must also have its corporate headquarters in California.
Small business (one point possible). If the applicant is classified as a small business under U.S. Small Business Administration guidelines (Title 13 of the Code of Federal Regulations) and has fewer than 500 employees, the project shall receive one point, provided that, if the applicant has a parent company with an ownership interest greater than 50%, the parent company must also be classified as small business under U.S. Small Business Administration guidelines and have fewer than 500 employees.
New applicants (five points possible). If the applicant has not previously been approved for an award by the Authority, the project shall receive five points, provided that, if the applicant has a parent company with an ownership interest greater than 50%, neither the parent company, nor its subsidiaries or affiliates may have been previously approved for an award by the Authority.
For more details about competitive criteria, see CAEATFA Regulation Section 10032(a)(7).
CAEATFA Board meetings are open to the public, and applicants are strongly encouraged to have a representative who is familiar with the project in attendance. Board members may pose clarifying questions about proposed projects that the applicant should address.
Using the STE Award
To use the exclusion, approved applicants must present Qualified Property vendors with a certificate made pursuant to Board of Equalization specifications – the agency that oversees the process of using the exclusion. CAEATFA does not provide a template form or offer guidance as to the drafting of a certificate.
No money is given to approved applicants, rather approved applicants do not pay the tax at the time of purchase, or, under specific circumstances, seek reimbursement from the vendor or the Board of Equalization of sales and use tax paid on Qualified Property purchases prior to approval.
For additional guidance on how to use the exclusion, please consult with tax counsel or visit the BOE’s website on the STE Program.
Approved applicants must execute a Master Regulatory Agreement with CAEATFA within 30 days of Board approval and pay the minimum Administrative Fee of $15,000. Once the Master Regulatory Agreement is effective, the approved applicant may use the exclusion.
Approved applicants are required to purchase no less than 15% of the total amount listed in the approval resolution within one year of Board approval. Regulatory Agreements for facilities not meeting these requirements will be subject to termination, and if the Regulatory Agreement is terminated, no further purchases will be excluded from the imposition of the sales and use tax.
In some situations, applicants may seek reimbursement for purchases made prior to approval and execution of the Master Agreement. The applicant would seek reimbursement for sales tax from the vendor, and for use tax from the BOE. Equipment must be eligible under Program guidelines and cannot be put to functional use at the time the refund is sought. For more details on eligibility and procedure for refunds, visit the BOE website.
Only the legal entity granted the STE award may use the exclusion. Prospective applicants should consult with tax counsel or contact the BOE for guidance on how to use the exclusion if project construction and purchases will be completed by a contractor.
Generally, approved applicants must make all Qualified Property purchases within three years of application approval. Depending on the projects circumstances, applicants may request additional time during the initial application.
At the end of the purchasing term, if there are extenuating circumstances, this requirement may be waived and the period may be extended beyond three years if the Authority finds that a waiver is in the public interest and advances the purposes of the Program.
Qualified Property must be used more than 50% of the time to process Recycled feedstock that is intended to be reused in the production of another product or for the production of another product or soil amendment using Recycled feedstock, or for the design, manufacture, production, or assembly of Advanced Manufacturing, Advanced Transportation Technologies, or Alternative Source products, components, or systems. Time during which the Qualified Property remains temporarily idle does not affect this calculation. However, time during which the Qualified Property is being used to produce ineligible products, as may be the case for facilities that create multiple products, some of which do not meet the requirements above, must be taken into account.
Qualified Property must be used for the purpose stated in the application for a period equal to the longer of (a) one year or (b) one-half the estimated useful lifespan of the Qualified Property item.
Up to a total of 15% of the dollar volume of reported Qualified Property purchases may be relocated if the CAEATFA Executive Director determines relocation is part of an improvement, upgrade, or increase in the economic efficiency of the project and that approval is likely to continue or increase the anticipated net benefits of the project. Requests to relocate Qualified Property amounts over the 15% threshold must be approved by CAEATFA’s Board.
Any amount of Qualified Property may be relocated outside of California if the approved applicant voluntarily pays an amount equal to the original purchase price of the Qualified Property to be relocated multiplied by the average statewide sales tax rate at the time of the proposed relocation.
The STE award may only be used by the legal entity and specific project approved by the Board. If an approved applicant wishes to have the award transferred to another entity, such as the approved applicant or the project has been sold or if the approved applicant has changed its legal name, then a request for transfer of the award may be brought to the Board for consideration.
Once approved, applicants will:
- Sign a Master Regulatory Agreement
- Use the award
- Fulfill reporting requirements
Information on approved applicant next steps is available on the CAEATFA website.
The Master Regulatory Agreement or “Master Agreement” is a legal contract between CAEATFA and the approved applicant that lays out all the terms and conditions of the award. After approval, staff will request additional information and documents from the applicant in order to draft the legal agreement. The applicant has 30 days from the date of approval to execute the Master Agreement.
Approved applicants have two reporting requirements: semi-annual and annual reports.
Approved applicants must report semi-annually on the actual Qualified Property purchases made, if any, during the reporting period, and certify that all Qualified Property purchases will be used in the State of California.
- The semi-annual report covering the first two calendar quarters of the year must be submitted to the CAEATFA on or before July 31; the semi-annual report covering the last two calendar quarters of the year must be submitted to CAEATFA on or before January 31 of the immediately following calendar year.
All approved applicants must submit annual reports, which are due on or before January 31 of the immediately following calendar year, and include information about payroll, California sales, compliance details regarding the Qualified Property, and project status.
Approved applicants must submit the semi-annual reports throughout the initial term of the Master Regulatory Agreement (typically the three years within which the STE award must be used).
Annual reports are required for a number of years equal to one-half the estimated useful lifespan of the longest lived item of Qualified Property identified in the Application.
- For example, if the longest lived item of Qualified Property has an estimated lifespan of 20 years, the annual reporting requirement will last for 10 years.
Purchases made prior to approval should be reported on the first semi-annual report to be submitted after approval.
If the applicant fails to comply with statute, regulations, or the terms of the Regulatory Agreement, the Executive Director may suspend the Regulatory Agreement until the applicant is once again in compliance. Purchases made during any suspension will not be excluded from the imposition of sales and use tax.