Wisconsin Department of Revenue Explains New Sales Tax Exemption for Qualified Research

Wednesday, April 25th, 2012

 
 
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Wisconsin
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The Wisconsin Department of Revenue (DOR) recently published a fact sheet explaining the new sales tax exemption for tangible personal property used in "qualified research." Wisc. Fact Sheet: Sales and Use Tax Exemption for Qualified Research (Dept. of Revenue Apr. 20, 2012).

Effective January 1, 2012, Wisconsin exempts sales of certain items to persons who are engaged primarily in manufacturing or biotechnology for use directly and exclusively in "qualified research." This exemption expressly applies to both (1) machinery and equipment, including attachments, parts, and accessories, used exclusively and directly in qualified research and (2) tangible personal property that is consumed or destroyed or loses its identity while being used exclusively and directly in qualified research. See Wis. Stat. sec. 77.54(57)(b).

Wisconsin defines "qualified research" by cross referencing that term in section 41(d) of the Internal Revenue Code (26 U.S.C. sec. 41(d)). To be "qualified research," the activity must satisfy all of the following requirements:

  • It must be in connection with the taxpayer's trade or business;
  • It must be research and development in the experimental or laboratory sense;
  • It must be undertaken for the purpose of discovering information which is technological in nature;
  • It must be intended to be useful in the development of a new or improved business component of the taxpayer; and
  • It must constitute an element of a process of experimentation.

Several research-oriented activities are excluded from "qualified research." For example, research that relates to style, taste, cosmetic, or seasonal design factors, is not "qualified research." Similarly, none of the following activities are "qualified research": the ordinary testing or inspection for quality control; efficiency surveys; management studies; consumer surveys; advertising; promotions; or research in connection with literary, historical, or similar projects. Consequently, items purchased for use in connection with these activities are taxable.


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