Overview of the Sales Tax Exemption
L. 2022, H1291 (Act 842), effective July 1, 2022, extends the sunset date for the sales tax exemption related to the sale or lease of computer equipment used by high-technology companies. Previously set to expire on June 30, 2023, this exemption is now valid until December 31, 2023.
Clarification of Exemption Scope
The law clarifies the types of equipment not covered by this exemption. Specifically, it does not apply to:
- Computers or devices issued to employees
- Smartphones
- Tablets
- Wearables
- Personal computers
- Laptops
- Prewritten computer software
New Requirements Effective January 1, 2024
Starting January 1, 2024, additional criteria will apply for companies to benefit from this exemption:
- Minimum Purchase Threshold:
- Companies must make purchases of at least $15 million of eligible computer equipment for the exemption to apply.
- Sales Tax Obligation on Initial Purchases:
- Each person or entity claiming the exemption must pay 10% sales tax on the first $15 million of eligible purchases or leases for which the exemption is claimed.
Summary of Key Points
- Effective Date of Extension: July 1, 2022
- Extended Sunset Date: December 31, 2023
- Clarifications on Exclusions: Employee devices, prewritten software excluded
- New Requirements Effective Date: January 1, 2024
- Threshold for Exemption: $15 million in purchases
- Sales Tax on Initial $15M: 10% applicable
Implications for High-Technology Companies
These updates aim to ensure the exemption targets significant infrastructure investments rather than routine technology purchases for employee use. High-technology companies planning major equipment acquisitions should review their procurement strategies accordingly to remain compliant and optimize tax benefits.
Frequently Asked Questions
What is the purpose of the sales tax exemption under Act 842?
The exemption aims to encourage large-scale investments by high-technology companies in computer equipment by reducing the tax burden, thereby promoting innovation and infrastructure development.
What types of technology purchases are not eligible for the exemption?
Devices issued to employees such as smartphones, tablets, laptops, wearables, and any prewritten computer software are explicitly excluded from the exemption.
When does the sales tax exemption extension take effect and when does it expire?
The extension became effective on July 1, 2022, and remains valid through December 31, 2023.
What are the new requirements for companies starting January 1, 2024?
To qualify for the exemption, companies must spend at least $15 million on eligible equipment and are required to pay a 10% sales tax on the first $15 million of those purchases or leases.
How should companies prepare for these changes?
High-tech firms should evaluate their procurement strategies to ensure compliance with the updated law and to take full advantage of the tax benefits offered.