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. Tax 11.20(2)(e)2.f.f. Position and department descriptions of employees identified as providing qualified research. Tax 11.20(2)(e)2.j.j. Prototype and process testing reports, field and lab verification data/summary data. Tax 11.20(2)(e)2.k.k. Papers, treaties, or other published documents regarding the taxpayer’s research. Tax 11.20(2)(e)2.L.L. Complete copies of contracts, including all modifications, letter agreements, memoranda of understanding, or similar documents for research performed by, or on behalf of, a third party. Tax 11.20 NoteExample: This example illustrates records that are generally acceptable as adequate to document the exemptions under par. (a).
Tax 11.20 NoteCompany A is engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats. Company A attempts to make a new and improved widget. Upon approval of a project, Company A documents the scope and goals of the project, the uncertainties that exist in accomplishing these goals, and the processes by which Company A hopes to eliminate the uncertainties. In addition, contemporaneously with conducting the research project, Company A documents: (1) the location or locations at which the research is conducted, (2) the machinery and equipment used in the project and the manner used, (3) the various materials and supplies used in attempting to produce the improved widget, the purpose and manner in which such items were used, (4) the processes applied, (5) the results achieved throughout the research process, and (6) the point at which Company A either abandons the research project or achieves the goal of eliminating the uncertainties involved with the development of the new widget. Company A purchased various machinery and equipment, and supplies and materials used in conjunction with development of the new widget without tax claiming the purchases are exempt under par. (a). In general, contemporaneous records kept in the manner and detail described will be accepted and used by the department in making its determinations regarding whether the taxpayer is entitled to claim the exemptions under par. (a). Tax 11.20(2)(e)3.3. A business claiming an exemption under par. (a) shall provide records described in subd. 2. or any other information as required by the department to verify that activities are qualified research or that machinery, equipment, or other property or items are used exclusively and directly in qualified research. Tax 11.20(3)(3) Exemptions for raising animals used in qualified research or manufacturing. Tax 11.20(3)(a)(a) Sales of the following property and items to a person who is engaged in the business of raising animals are exempt if all of the animals raised by the seller of the animals are sold primarily to biotechnology businesses, public or private institutions of higher education, and governmental units for exclusive and direct use by those entities in qualified research or manufacturing: Tax 11.20(3)(a)1.1. Machines and specific processing equipment, including accessories, attachments, and parts for the machines or equipment, that are used exclusively and directly in raising such animals. Tax 11.20(3)(a)2.2. Seeds for planting, plants, feed, fertilizer, soil conditioners, animal bedding, sprays, pesticides and fungicides, breeding and other livestock, bees, beehives and bee combs, poultry, farm work stock, baling twine and baling wire, containers for fruits, vegetables, grain, hay, silage and animal wastes, plastic bags, plastic sleeves and plastic sheeting used to store or cover hay or silage, drugs, semen for artificial insemination, fuel, and electricity, that are used exclusively and directly in raising such animals. Tax 11.20 NoteExamples: (1) Company A raises various animals that it sells for use in qualified research. Company A sells more than 50% of the animals it raises to biotechnology businesses for exclusive and direct use in qualified research. All of the feed Company A purchases for exclusive and direct use in raising its animals is exempt.