Tax 11.20(2)(a)(a) The sales price from the sale of and the storage, use, or other consumption of machinery and equipment, including attachments, parts, and accessories, and other tangible personal property or items or property under s. 77.52 (1) (b) or (c), Stats., that are sold to any of the following and that are consumed or destroyed or lose their identities while being used exclusively and directly in qualified research is exempt: Tax 11.20(2)(a)3.3. A combined group member who is conducting qualified research for another combined group member and that other combined group member is a person described under subd. 1. or 2. Tax 11.20(2)(b)(b) For purposes of determining whether a person is engaged primarily in biotechnology in this state under par. (a), only activities in Wisconsin are considered. When a person conducts activities in Wisconsin in addition to biotechnology, the person must allocate its activities between its biotechnology activities and its other activities using a reasonable and consistent method. If a person’s biotechnology activities in Wisconsin are more than 50% of its total activities in Wisconsin, the person is engaged primarily in biotechnology in this state. Tax 11.20 NoteExamples: (1) Company A performs research and development services at locations in Wisconsin for its customers. This is Company A’s only activity in Wisconsin. Some of the research and development services are biotechnology and some of the research and development services are not biotechnology. Using the sales price of its services as the measure of activity, more than 50% of the total sales price Company A receives for performing all of its research and development services in Wisconsin is derived from biotechnology. Therefore, Company A is primarily engaged in biotechnology in Wisconsin.
Tax 11.20 Note(2) Company B performs research and development services at locations outside of Wisconsin that constitute biotechnology. Company B also manufactures tangible personal property at a building in Wisconsin, assessed under s. 70.995, Stats. The manufacturing activity does not constitute biotechnology. This is Company B’s only activity in Wisconsin. The products manufactured in Wisconsin are used by Company B in performing its research and development services at locations outside of Wisconsin. Company B is not engaged primarily in biotechnology in Wisconsin but is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Tax 11.20 Note(3) Company X manufactures machinery at a plant outside of Wisconsin. Company X operates a facility in Wisconsin that is devoted solely to research and development relating to the products Company X manufactures. Although Company X’s activities in Wisconsin are research and development activities that constitute qualified research, its activities in Wisconsin are not biotechnology. The research and development activities are Company X’s only activities in Wisconsin. Therefore, Company X is neither engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats., nor engaged primarily in biotechnology in Wisconsin. Tax 11.20 Note(4) Company Z manufactures products at a plant outside of Wisconsin. Company Z operates a facility in Wisconsin that is devoted solely to research and development. This is Company Z’s only activity in Wisconsin. The research and development relates to products Company Z currently manufactures as well as to new products that Company Z may manufacture. Some of its research and development activities in Wisconsin constitute biotechnology and qualified research. Since Company Z only performs research and development activities for itself, it does not have any sales revenue from these activities. Company Z reasonably allocates its costs and expenses incurred in conducting all of these research and development activities in Wisconsin between biotechnology and non-biotechnology. More than 50% of these costs and expenses are for biotechnology. Therefore, Company Z is engaged primarily in biotechnology in Wisconsin.
Tax 11.20 Note(5) Company T is a new business located solely in Wisconsin. In its first year of operation, Company T’s only activity is developing new products for itself. Some of these development activities are biotechnology. Since Company T only performs development activities for itself, it will not have any sales revenues during its first year of operations. Company T reasonably allocates its costs and expenses incurred in conducting all of its development activities in Wisconsin between biotechnology and non-biotechnology during its first year of operations. More than 50% of these costs and expenses are for biotechnology. Therefore, Company T is engaged primarily in biotechnology in Wisconsin.
Tax 11.20(2)(c)(c) For purposes of determining whether an activity is qualified research under par. (a), the regulations under Treas. Reg. section 1.41-4 apply, except that qualified research that is funded by a member of a combined group for another member of a combined group shall remain qualified research for purposes of this subsection. Tax 11.20(2)(d)(d) If property or an item purchased without tax by claiming an exemption under par. (a) is used for non-exempt purposes that exceed 5% of total use, that property or item is subject to sales or use tax. Tax 11.20 NoteExamples: (1) Company A is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Company A purchases a machine that it will use directly in conducting qualified research at its manufacturing plant in Wisconsin and purchases it exempt from Wisconsin sales tax claiming the exemption in par. (a). After completing the qualified research and having made no use of the machine other than direct use in qualified research, Company A begins using the machine exclusively and directly in its manufacturing operation, which is another exempt use under s. 77.54 (6) (am) 1., Stats. Company A does not owe Wisconsin sales or use tax on its purchase of the machine since it uses the machine only in an exempt manner. Tax 11.20 Note(2) Company B is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Company B purchases a machine that it will use directly in conducting qualified research at its manufacturing plant in Wisconsin. More than 5% of Company B’s total use of this machine will be for conducting research and development projects that do not meet the definition of qualified research. Company B’s purchase of the machine is taxable because it is not used exclusively in qualified research. Tax 11.20 Note(3) Company C is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Company C develops a new product in an activity that is qualified research. Company C purchases a variety of raw materials. Some of these materials are used exclusively and directly and destroyed in qualified research. Once the qualified research is completed, Company C consumes the remaining raw materials in activities that are not qualified research. Company C’s purchases of the raw materials that it uses exclusively and directly and destroys in qualified research are exempt under par. (a) 2. Company C’s purchases of the raw materials that it uses in activities that are not qualified research do not qualify for exemption under par. (a). Tax 11.20 Note(4) Manufacturer P is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Manufacturer P contracts with Company D to produce a prototype that is tangible personal property. Manufacturer P’s primary objective in this transaction is to obtain the prototype, rather than a research and development service. Company D may purchase the materials used to construct the prototype without tax for resale. Manufacturer P will use the prototype exclusively and directly in one of its research and development activities that constitutes qualified research and may claim the exemption under par. (a) on its purchase of the prototype. Tax 11.20 Note(5) Manufacturer F is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Manufacturer F contracts with Company E to perform research services. Manufacturer F and Company E are not members of the same combined group. Company E will provide a prototype that is tangible personal property to Manufacturer F along with these services. Manufacturer F’s primary objective in this transaction is to obtain the research and development services. Company E’s primary activity in Wisconsin is the provision of professional engineering services that do not involve biotechnology, and Company E is not a manufacturer. Company E may not claim the exemptions under par. (a), since Company E is neither engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats., nor engaged primarily in biotechnology in Wisconsin. In addition, Company E cannot purchase the materials without tax for resale that it uses to construct the prototype, because Company E uses the prototype in performing its research services. The prototype is transferred to Manufacturer F incidental to the research services. Tax 11.20(2)(e)1.1. A business claiming an exemption under par. (a) shall maintain records to substantiate that at least 95% of the property or item’s total use is direct use in qualified research, including records to establish all of the following: Tax 11.20(2)(e)1.c.c. The activity or activities in which the property or item is used constitute qualified research. Tax 11.20(2)(e)2.2. If contemporaneous with the research activity or activities performed, documents that may, as required under subd. 1. c., establish an activity or activities that constitute qualified research include the following: Tax 11.20(2)(e)2.a.a. Materials explaining the research activities conducted, including brochures, pamphlets, press releases, and other similar documents. Tax 11.20(2)(e)2.b.b. Submissions to management, the board of directors, review committees, or other similar groups regarding the research projects, activities, and the expenditures. Tax 11.20(2)(e)2.c.c. Documents prepared by, or on behalf of, internal audit, including quarterly and annual reports that refer in any manner to the research activities. Tax 11.20(2)(e)2.d.d. Minutes, notes, or other similar recordings from budget, board of director, managerial or other similar meetings concerning the research activities. Tax 11.20(2)(e)2.e.e. Project authorizations, budgets, or work orders that initiate a research project.