Property Used in Qualified Research and Later Used in Other Activities

Statutes: Sections 77.53(1b), 77.53(12), 77.54(57d)(b) and 77.57, Wis. Stats. (2015-16)

Wis. Adm. Code: Section Tax 11.20(2), Wis. Adm. Code (August 2014 Register)

Introduction: This tax release explains the sales and use tax exemption for qualified research when property used in qualified research is later used in other activities.

Background: 

Section 77.53(1b), Wis. Stats. (2015-16), provides:

The storage, use, or other consumption in this state of tangible personal property or items, property, or goods under s. 77.52(1)(b), (c), or (d), and the use or other consumption in this state of a taxable service, purchased from any retailer is subject to the tax imposed in this section unless an exemption in this subchapter applies.

Section 77.53(12), Wis. Stats. (2015-16), provides:

If a purchaser who gives a certificate makes any storage or use of the property, or items, property, or goods under s. 77.52(1)(b), (c), or (d), or service other than retention, demonstration, or display while holding it for sale in the regular course of operations as a seller, the storage or use is taxable as of the time the property, or items, property, or goods under s. 77.52 (1)(b), (c), or (d), or service is first so stored or used.

Section 77.54(57d)(b), Wis. Stats. (2015-16), provides an exemption from Wisconsin sales and use tax for the following:

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) 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:

  1. A person engaged in manufacturing in this state at a building assessed under s. 70.995.
  2. A person engaged primarily in biotechnology in this state.
  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.

Section 77.57, Wis. Stats. (2015-16), provides:

If a purchaser certifies in writing to a seller that the tangible personal property or items, property, or goods under s. 77.52(1)(b), (c), or (d) purchased will be used in a manner or for a purpose entitling the seller to regard the sales price from the sale as exempted by this subchapter from the computation of the amount of the sales tax and uses the property or items, property, or goods under s. 77.52(1)(b), (c), or (d) in some other manner or for some other purpose, the purchaser is liable for payment of the sales tax. The tax shall be measured by the sales price of the property or items, property, or goods under s. 77.52(1)(b), (c), or (d) to the purchaser.

Tax Treatment:

Property Used in Qualified Research and Later Used in Another Exempt Manner

Property (such as machinery and equipment) purchased for exempt use in qualified research, as described in sec. 77.54(57d)(b), Wis. Stats., and later used in another exempt manner in Wisconsin is not subject to Wisconsin sales and use tax (i.e., the property was never used in a taxable manner).

Example: Company purchases equipment exempt from tax because it will be used exclusively and directly in qualified research. Two years later, Company begins using the equipment exclusively and directly in manufacturing. No Wisconsin sales and use tax is due, since the equipment was not used in a taxable manner.

Property Used in Qualified Research and Later Used in a Taxable Manner

Property (such as machinery and equipment) purchased for exempt use in qualified research, as described in sec. 77.54(57d)(b), Wis. Stats., and later used in a taxable manner in Wisconsin is subject to Wisconsin sales and use tax. When a taxable use is made of the property, sales and use tax is owed on the original purchase price of the property.

Example: Company purchases equipment exempt from tax for use exclusively and directly in qualified research. Two years later, Company begins using the equipment in funded/unqualified research. At the time that Company begins using the equipment in funded research, Company owes Wisconsin use tax on its purchase price of the equipment.

October 30, 2018