Current through Register Vol. 46, No. 12, March 20, 2024
(a)
Exemption.
(1) The sale of tangible personal property
purchased for use or consumption directly and predominantly in research and
development in the experimental or laboratory sense is exempt from the sales
and use tax.
(2) The exemption does
not extend to installation and repair services for such property.
(3) An exemption is allowed for the sale of
gas, electricity, refrigeration and steam, and gas, electric, refrigeration and
steam service of whatever nature for use or consumption directly or exclusively
in research and development in the experimental or laboratory sense.
(4) An Exempt Use Certificate (form ST-121)
is used to make purchases eligible for this exemption, without payment of sales
tax. (See section
532.4[e]
of this Title.)
(b)
Research and development.
(1)
Research and development, in the experimental or laboratory
sense, means research which has as its ultimate goal:
(i) basic research in a scientific or
technical field of endeavor;
(ii)
advancing the technology in a scientific or technical field of
endeavor;
(iii) the development of
new products;
(iv) the improvement
of existing products; and
(v) the
development of new uses for existing products.
(2) Research and development in the
experimental or laboratory sense does not include:
(i) testing or inspection of materials or
products for quality control (for machinery and equipment used for quality
control in the production of products for sale, see section
528.13
of this Part);
(ii) efficiency
surveys;
(iii) management
studies;
(iv) consumer surveys,
advertising and promotions; and
(v)
research in connection with literary, historical or similar projects.
(c)
Directly,
predominantly, exclusively.
(1)
Direct use in research and development means actual use in the
research and development operation. Tangible personal property for direct use
would broadly include materials worked on, and machinery, equipment and
supplies used to perform the actual research and development work. Usage in
activities collateral to the actual research and development process is not
deemed to be used directly in research and development.
(2) Tangible personal property is used
predominantly in research and development if over 50 percent of the time it is
used directly in such function.
(3)
Tangible personal property is exempt only if it meets the tests of direct and
predominant use.
Example 1:
Test tubes, flasks, reagents, microscopes and slides
purchased by a chemical manufacturer for its research laboratory for developing
new pesticides are exempt from sales tax.
Example 2:
Laboratory tables for use in a research laboratory are
exempt, but desks and chairs used by clerical personnel are not used directly
in research.
Example 3:
A company constructs apparatus in its own machine shop, for
use only in its research department in experiments on the strength of different
alloys. It purchases the materials from which the apparatus is constructed, and
special tools and dies needed to construct the apparatus from its suppliers.
The materials may be purchased without payment of tax, as directly and
predominantly used in research. The special tools and dies are not exempt, as
they are not used directly and predominantly in research.
Example 4:
An aircraft manufacturer assembles two airplanes, which it
uses for function and reliability tests prior to manufacturing this type of
airplane for sale. The parts, equipment, instrumentation and fuel used on the
airplanes during the testing phase are exempt as they are used directly and
predominantly in research and development.
Example 5:
Technical books and journals purchased for a research and
development laboratory, for use in doing background research are exempt.
Example 6:
Paper on which research and development test results are
recorded is exempt, but paper for in-house printing of a summary of research
and development findings so that decisions may be made as to the marketability
of the new products is taxable as the decisionmaking activity is
administrative.
(4)
(i) Gas, electricity, refrigeration and steam
and gas, electric, refrigeration and steam service is used exclusively in
research and development if 100 percent of its use is in such
function.
(ii) Because gas,
electricity, refrigeration and steam when purchased by the user is normally
received in bulk or in a continuous flow and a portion thereof is used for
purposes which would make the exemption inapplicable to such purchases, the
user may claim a refund or credit for the tax paid on the portion used or
consumed directly and exclusively in research and development.
(iii) The user must maintain adequate records
with respect to the allocation of gas, electricity, refrigeration and steam
used directly and exclusively in research and development from that used for
nonexempt purposes, the user must, when claiming a refund or credit, submit an
engineering survey or the formulae used in arriving at the amounts used in an
exempt manner.
Example 7:
A biological laboratory that develops new vaccines has an
autoclave to sterilize instruments and a refrigerator for storage of the
vaccine, both run by electricity. It receives one electric bill, which covers
general lighting and the electricity required for the autoclave and
refrigerator. It may obtain a refund of the portion of the tax applicable to
the charge for electricity required to run the autoclave and
refrigerator.
