California

Business Inventory Exemption

Under Revenue and Taxation Code §219, business inventories are exempt from property taxation and the assessor shall not assess them. The BOE states that business inventory is personal property but is 100 percent exempt from taxation. Section 129 defines business inventories as goods intended for sale or lease in the ordinary course of business, including raw materials and work in process; animals and crops held primarily for sale or lease, animals used in the production of food or fiber and feed for such animals; and materials held by a licensed contractor for incorporation into real property, providing the real property will not be retained for the licensed contractor's use. The definition excludes goods actually leased or rented on the lien date; business machinery, equipment, and office furniture (unless held for sale or lease in the ordinary course of business); items held for lease that have been or will be used by the lessor; and goods intended for sale or lease in the ordinary course of business which cannot be legally sold or leased in California. BOE Property Tax Rule 133 implements the exemption and references RTC §§129 and 219.

Sources: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=219. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=129. https://www.boe.ca.gov/proptaxes/pdf/rules/Rule133.pdf

Supplies versus inventory

The BOE distinguishes exempt inventory from taxable supplies. Inventory includes items of personalty that become part of a product or are themselves a product held for sale or lease in the ordinary course of business. Supplies are properties used up in the normal operation of a business but not intended for sale or lease — for example stationery and office supplies, janitorial supplies, fuels used in operations, and chemicals used to produce a chemical or physical reaction. Rule 133 also excludes office supplies, furniture, machines and equipment, manufacturing machinery and tooling, and chemicals used to produce a reaction; the BOE FAQ likewise treats supplies used up in operations as taxable, not inventory.

Sources: https://www.boe.ca.gov/proptaxes/pdf/rules/Rule133.pdf. https://boe.ca.gov/proptaxes/faqs/faqsprop-pp.htm

Is inventory taxed in California?

No. Business inventories are exempt from property taxation under RTC §219, and the assessor shall not assess them. The BOE states that business inventory is personal property but is 100 percent exempt from taxation.

What counts as business inventory in California?

Revenue and Taxation Code §129 defines business inventories as goods intended for sale or lease in the ordinary course of business, including raw materials and work in process. It also includes animals and crops held primarily for sale or lease, animals used in the production of food or fiber and feed for such animals, and materials held by a licensed contractor for incorporation into real property, providing the real property will not be retained for the licensed contractor's use. BOE Property Tax Rule 133 implements this definition and treats eligible inventory as raw materials, work in process, and finished goods held for sale or lease.

What is excluded from California's business inventory exemption?

Section 129 excludes goods actually leased or rented on the lien date; business machinery, equipment, and office furniture (unless held for sale or lease in the ordinary course of business); items held for lease that have been or will be used by the lessor; and goods intended for sale or lease in the ordinary course of business which cannot be legally sold or leased in California. Rule 133 also excludes office supplies, furniture, machines and equipment, manufacturing machinery and tooling, and chemicals used to produce a reaction; the BOE FAQ likewise treats supplies used up in operations as outside the inventory exemption.

When is the California property tax lien date?

12:01 a.m. on January 1. Business personal property and fixtures are valued annually as of that lien date.

Do I still file a Business Property Statement if inventory is exempt?

County assessors use BOE Form 571-L, obtained from the county where the property is situated. Revenue and Taxation Code §441 requires a signed property statement from anyone owning taxable personal property with an aggregate cost of $100,000 or more for the assessment year, or if the assessor requests one. Inventory being exempt does not remove that obligation for taxable fixtures, equipment, and supplies. The statement is generally due April 1; a penalty equal to 10 percent of the assessed value of unreported taxable property under §463 applies to statements not filed by May 7, though §463 allows the penalty to be abated if the failure was due to reasonable cause and circumstances beyond the assessee's control, despite ordinary care and without willful neglect. Confirm locally with the county assessor.

Are warehouse fixtures and equipment taxed in California?

Generally yes. Fixtures, machinery, equipment, and supplies are not business inventory and are assessable as business personal property; inventory held for sale or lease is exempt.