California Department of Resources Recycling and Recovery (CalRecycle) 

Regulations: Title 14, Natural Resources--Division 7, CIWMB

Chapter 4. Resource Conservation Programs

Article 2. Recycling Investment Tax Credit Program

Section 17940. Regulatory Effect of Questions.

For the purposes of this Article, both the question and answer in each section have regulatory effect for implementation and enforcement.

Note:

Authority cited: Section 40502, Public Resources Code.


Section 17941. Recycling Investment Tax Credit Program

(a) Definitions: In this regulation the following definitions apply:

(1) Application - is California Integrated Waste Management Board Form 420 identified in section (f) below, that you send to the Board to apply for a Recycling Equipment Tax Credit Certificate.

(2) Board - is the California Integrated Waste Management Board (CIWMB).

(3) Certificate - is the approved Recycling Equipment Tax Credit Certificate Application CIWMB Form 420 that is returned to you by the Board if your application is approved.

(4) Compost - means the product resulting from the controlled biological decomposition of organic wastes that are source separated from the municipal solid waste stream, or which are separated at a centralized facility. "Compost" includes vegetable, yard, and wood wastes which are not hazardous waste.

(5) Finished Product - means a marketable product or component thereof that has an economic value to a consumer and is ready to be used by a consumer or in a manufacturing process without the requirement of further alteration of its form. When used in a manufacturing process, a finished product is one which is comparable to and used in lieu of virgin material. Compost is a finished product if it meets all the criteria of the definition of "finished product".

(6) May - means a provision is permissive.

(7) Must - means a provision is mandatory.

(8) Postconsumer waste - means only those products generated within California by a business or consumer which have served their intended end uses and would normally be disposed of as solid waste, having completed their life cycle as a consumer item.

(9) Qualified property - means machinery or equipment which changes the physical properties and converts secondary or postconsumer waste into a finished product. "Qualified property" excludes equipment which transports, bales, shreds, grinds, compresses, or does not otherwise change the physical properties of the waste unless those operations are the only changes necessary in a manufacturing process to produce a finished product.

Equipment which manufactures products whose primary purpose is to be used as fuel (such as refuse-derived fuel) is not qualified property.

(10) Secondary waste - means fragments of products or finished products of a manufacturing process generated within California, which has converted a virgin resource into a commodity of real economic value, and includes postconsumer waste, but does not include mill broke (paper waste generated in a paper mill prior to completion of the paper making process), wood slabs, chips, sawdust, or other wood residue from a manufacturing process.

(b) What is the purpose of this regulation?

This regulation explains how you can have your equipment or machinery certified as qualified property so that you can apply for a recycling equipment tax credit.

(c) How do I get the tax credit for my recycling equipment?

To receive the tax credit, you must, first, apply for, and receive, a certificate from the Board to designate your equipment as qualified property. Second, you must file Franchise Tax Board Form 3527 along with your California income tax return.

(d) How can I tell if my equipment or machinery is qualified property eligible for the tax credit?

To be qualified property, your equipment or machinery must be located in California and must be used exclusively to manufacture finished products in which either:

(1) the finished product contains at least

(A) Fifty percent secondary waste, and

(B) Ten percent of the secondary waste is postconsumer waste; or

(2) the equipment or machinery uses 100 percent secondary waste, including at least 80 percent postconsumer waste, in lieu of any comparable or substitutable virgin material.

(e) Where must I keep my qualified property?

You must keep qualified property in California. If the equipment is mobile or moveable, the equipment must remain within California.

(f) What information do I need to send to the Board to demonstrate that my equipment is qualified property?

To demonstrate that your equipment is qualified property, you must give the Board a completed Application, CIWMB Form 420 (11/92) which requires the following:

(1) Identification that the application is for an individual, bank/corporation, or partnership.

(2) Social security account number, business/corporation number, or federal employee identification number (FEIN), as applicable.

(3) Indication as to whether equipment is new or replacement equipment.

(4) Name as stated on tax return.

(5) Address of qualified property.

(6) Principal business activity.

(7) Contact person and mailing address of contact person.

(8) The brand name, model, and serial number of the qualified property. If the equipment has no serial number, you must inform the Board of your method of identifying the equipment, such as etching a number on the frame. you must explain the identification method in the application, and the Board must approve the method selected,

(9) A copy of the final invoice, or similar documents, showing the purchase date and cost of each piece of equipment as installed. If you manufacture your own equipment, you must provide a list of all component parts and their costs and breakdown of outside services, labor, and overhead expenses incurred to manufacture the equipment,

(10) At least two 5 inch by 7 inch, or larger, photographs of each piece of equipment,

(11) A function diagram (schematic) that shows how the equipment operates and how each piece interrelates with the other equipment in the production line, and

(12) A description of the finished product produced by the qualifying equipment.

(13) A description of the types of secondary and postconsumer materials processed by the qualified property to produce a finished product or component of a finished product.

(14) The sources of secondary and postconsumer materials used by the qualified property.

(g) I have several pieces of equipment that will be used in one production line. Do I need to send in an application for each piece of equipment?

No. If all the equipment is used in one production line, and the entire production line is used to produce finished products which meet the secondary and postconsumer waste content requirements as defined in section (d) above, then you can use one application to identify all pieces of that production line.

(h) If I buy equipment to replace existing equipment, can I receive a credit?

(1) Replacement equipment is eligible for the tax credit if it is qualified property and:

(A) it replaces qualified property having lesser production capacity (the eligible costs shall be proportional to the increase in capacity); or

(B) it replaces qualified property and has the capability to process different types of secondary or postconsumer waste which could not be processed into a finished product by the existing equipment. The eligible costs shall be proportional to the estimated increase in secondary waste processed.

(2) To receive the credit for replacement equipment, applicants must provide:

(A) the information listed in section (j) for both the prior year (using the existing equipment) and the current year (using the replacement equipment), or another method as allowed in section (k);

(B) the information specified in section (f)(8), (10), (11), and (12), for the existing equipment; and

(C) all of the information specified in sections (f)(8) through (14) for the replacement equipment.

(i) Will the Board staff visit my plant to check the qualified property?

The Board staff may choose to visit your plant to verify any part of your application. If you do not permit the staff to visit your plant, your application will be denied.

(j) What tests do you recommend I use to ensure that my finished products meet the waste content requirements? You must use an estimation method to find the waste content of your finished product. The information must be provided for each finished product you produce. The recommended method to calculate the waste content of each finished product is described in lines (1) through (12) below:

Annual weight of virgin material put into the production process. ___  (1)
Annual weight of virgin material lost in the production process ___  (2)
Subtract line (2) from line (1). ___  (3)
Note: Line (3) is the amount of virgin material consumed annually in producing the finished product.
Annual weight of all secondary waste, including post- consumer waste, put into the production process. ___  (4)
Annual secondary waste lost in the production process. ___  (5)
Subtract line (5) from line (4). ___  (6)
Note: Line (6) is the amount of secondary waste consumed annually in producing the finished product.
Add line (3) and line (6). ___  (7)
Divide line (6) by line (7) and multiply by 100. ___%(8)
Note: Line (8) is the percentage of secondary waste in the finished product. It must equal at least 50% for your equipment to qualify for the tax credit.
Annual weight of postconsumer waste put into the production process. ___  (9)
Annual weight of postconsumer waste lost in the production process. ___ (10)
Subtract line (10) from line (9). ___ (11)
Note: Line (11) is the amount of postconsumer waste consumed in the production process.
Divide line (11) by line (6) and multiply by 100. ___%(12)

Line (12) is the percentage of postconsumer waste in relation to secondary waste in the finished product. It must equal at least 10% for your equipment to qualify for the tax credit.

For manufacturing equipment which uses 100 percent secondary waste including 80 percent postconsumer waste as described in section (d) above, line (1) must be zero, line (8) must be 100%, and line (12) must be at least 80%.

(k) Do I have to use the method in section (j) to estimate the waste material content of my finished products?

No, you may use another method other than the one in section (j) above to estimate the waste material content of your finished products. The Board must approve your method, which you must explain in an attachment to CIWMB Form 420.

(l) When will I hear from the Board about my application? The Board will respond to your application within 120 days of its receipt. If the Board approves your application, you will receive a certificate. If the Board denies your application, the Board will inform you in writing of the reasons for the denial.

(m) Do I have to submit an annual report to the Board on the amount of secondary and postconsumer waste used in production once my equipment is certified?

Yes. In order to determine the amount of waste material diverted from landfills, an annual report identifying the amount of secondary and postconsumer waste used by your qualifying equipment is required. Annual reports are required for the calendar year the qualified property was installed through calendar year 1993. The method used to determine the content must be the same as the method defined in section (j) or (k) above, but must provide actual rather than estimated values. The report must be submitted to the Board according to the following schedule.

Calendar year reporting Report due
1989 Feb 15, 1992
1990 Feb 15, 1992
1991 Feb 15, 1992
1992 Feb 15, 1993
1993 Feb 15, 1994

Note:

Authority cited: Section 40502, Public Resources Code, Sections 17052.14 and 23612.5, Revenue and Taxation Code.
Reference: Sections 17052.14 and 23612.5, Revenue and Taxation Code.

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Last updated: CalRecycle regulations are updated continuously as changes are made and approved by the Office of Administrative Law.
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Legal Office: LegalSec@CalRecycle.ca.gov (916) 327-0089