Section Tax 11.20 - Property used in qualified research and property used to raise research animals(1) DEFINITIONS. In this section: (a) "Animals" include bacteria, viruses, and other microorganisms.(b) "Biotechnology" means the application of biotechnologies, including recombinant deoxyribonucleic acid techniques, biochemistry, molecular and cellular biology, genetics, genetic engineering, biological cell fusion, and other bioprocesses, that use living organisms or parts of an organism to produce or modify products to improve plants or animals or improve animal health, develop microorganisms for specific uses, identify targets for small molecule pharmaceutical development, or transform biological systems into useful processes and products.(c) "Biotechnology business" means a business certified, as described in sub. (4), by the department to be primarily engaged in the application of biotechnologies that use a living organism or parts of an organism to produce or modify products to improve plants or animals, develop microorganisms for specific uses, identify targets for small molecule pharmaceutical development, or transform biological systems into useful processes and products. (cg) "Building" has the meaning given in s. 70.111(10) (a) 1, Stats. (cr) "Combined group" has the meaning given in s. 71.255(1) (a), Stats.(d) "Institution of higher education" means an accredited educational organization providing education after completion of high school, including undergraduate, graduate, and professional education.(e) "Machinery" has the meaning given in s. 70.11(27) (a) 2, Stats., and means a structure or assemblage of parts that transmits forces, motion or energy from one part to another in a predetermined way by electrical, mechanical or chemical means, but "machinery" does not include a building.(f) "Person" includes any natural person, firm, partnership, limited liability company, joint venture, joint stock company, association, public or private corporation, the United States, the state, including any unit or division of the state, any county, city, village, town, municipal utility, municipal power district or other governmental unit, cooperative, unincorporated cooperative association, estate, trust, receiver, personal representative, any other fiduciary, any other legal entity, and any representative appointed by order of any court or otherwise acting on behalf of others.(g) "Primarily" means more than 50 percent.(h) "Qualified research" means qualified research as defined under section 41 (d) (1) of the Internal Revenue Code, except that it includes qualified research that is funded by a member of a combined group for another member of a combined group.(i) "Used exclusively" means used to the exclusion of all other uses except for other use not exceeding 5% of total use.(2) EXEMPTIONS FOR PROPERTY AND ITEMS USED IN QUALIFIED RESEARCH. (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: 1. A person engaged in manufacturing in this state at a building assessed under s. 70.995, Stats.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. (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. Examples:
(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 bio- technology in Wisconsin. (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. (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. (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. (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.(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. Examples:
(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 unders. 77.54(6) (am) 1, Stats. Company A does not owe Wisconsin sales or use ax onits purchase of the machine since it uses the machine only in an exempt manner. (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. (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 mate-rials 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). (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. (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., norengaged 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 pro-to type is transferred to Manufacturer F incidental to the research services. (e)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: a. The activity or activities in which the property or item is used.b. The manner in which the property or item is used in each activity.c. The activity or activities in which the property or item is used constitute qualified research.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: a. Materials explaining the research activities conducted, including brochures, pamphlets, press releases, and other similar documents.b. Submissions to management, the board of directors, review committees, or other similar groups regarding the research projects, activities, and the expenditures.c. Documents prepared by, or on behalf of, internal audit, including quarterly and annual reports that refer in any manner to the research activities.d. Minutes, notes, or other similar recordings from budget, board of director, managerial or other similar meetings concerning the research activities.e. Project authorizations, budgets, or work orders that initiate a research project.f. Position and department descriptions of employees identified as providing qualified research.g. The internal authorization policies for approving a research project.i. Project summaries and/or project reports and project meeting minutes.j. Prototype and process testing reports, field and lab verification data/summary data.k. Papers, treaties, or other published documents regarding the taxpayer's research. 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. Example: This example illustrates records that are generally acceptable as ade-quate to document the exemptions under par. (a).
Company A is engaged in manufacturing in Wisconsin at a building assessed unders. 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 were used, (4) the processes applied, (5) the results achieved throughout theresearch process, and such items (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 tax payer is entitled to claim the exemptions under par. (a).
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. (3) EXEMPTIONS FOR RAISING ANIMALS USED IN QUALIFIED RESEARCH OR MANUFACTURING. (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: 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.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. Examples:
(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. (2) Company T raises various animals that it sells for use in qualified research. Company T uses cages to raise some of these animals. Company T's purchases of cages are exempt only if more than 50% of all the animals raised by Company T are sold to biotechnology businesses, public or private institutions of higher education, and governmental units for exclusive and direct use by those organizations in qualified research or manufacturing.(c)1. Except as provided in subd. 2. and sub. (4) (am), a person claiming an exemption under par. (a) shall obtain a "Purchaser's Statement to Seller for Animals Used in Qualified Research or Manufacturing," Form S-209, from each of its customers described in par. (a) (intro.) and keep the completed forms as a part of its records to document the number of animals that were raised by the seller and sold to biotechnology businesses, public or private institutions of higher education, and governmental units for exclusive and direct use in qualified research or manufacturing. When completing Form S-209, the purchaser of the animals is attesting to the number of animals purchased and the number of animals used exclusively and directly in qualified research or manufacturing. 2. A person is not required to obtain Form S-209 from its customers that are public or private institutions of higher learning and governmental units. For purposes of the exemption in par. (a), animals sold to such customers are deemed to be sold to such customers for exclusive and direct use in qualified research. Note: Form S-209 is available on the department's web site at www.revenue.wi.gov.
(4) CERTIFICATION OF BIOTECHNOLOGY BUSINESSES BY THE DEPARTMENT. (a) Except as provided in par. (am), in order to be considered a biotechnology business for purposes of the exemptions under sub. (3), a business shall first obtain certification from the department as prescribed in this subsection. (am) In lieu of Form S-209, a seller may accept a fully completed exemption certificate, Form S-211 or S-211E from a purchaser that is a biotechnology business indicating the percentage of the animals purchased from the seller that are for exclusive and direct use in qualified research or manufacturing. The seller of the animals may regard such animals claimed as exempt for exclusive and direct use in qualified research or manufacturing, subject to a request by the department that the seller obtain certifications described in par. (a) from the purchasers to verify the exemption. If the department determines that all of the animals raised by the seller are not sold primarily to biotechnology businesses, the department may invalidate the exemption and make an adjustment to reflect the correct tax. Example: Company A raises and sells animals exclusively to purchasers that are biotechnology businesses. Based on the Forms S-209 and the fully completed exemption certificates received by Company A, 60% of all the animals it sells are sold to biotechnology businesses for exclusive and direct use in qualified research or manufacturing. Company A is audited by the department. The department requests that certain purchasers of animals be certified by the department as biotechnology businesses for years relating to the audit. Some of these purchasers are not certified as biotechnology businesses by the department. As a result, only 45% of Company A's sales of animals are considered to be sold to biotechnology businesses for exclusive and direct use in qualified research or manufacturing. Since Company A does not sell more than 50% of the animals to biotechnology businesses, Company A does not qualify for the exemption under sub. (3) (a).
(b) A business seeking certification or renewal of a certification under this subsection shall apply with the department in the manner prescribed by the department. The department may require any business submitting an application under this paragraph to provide additional information, as determined by the department, prior to the department granting or denying the applicant's request for certification or renewal of a certification. Note: Information concerning the certification process is available on the department's web site at www.revenue.wi.gov.
Example: Additional information that may be requested by the department in processing an application includes documentation of the nature of the business' income and expenses.
(c) A business shall be certified by the department as a biotechnology business for the period described in par. (d) if, during that period, the business' activities are primarily biotechnology.(d) The certification period under par. (c) shall correspond to the business' tax year as determined for federal income tax purposes, including short years, subject to the following conditions: 1. If a business is certified by the department with respect to a previous tax year, the certification is valid only for the previous tax year.2. If a business is certified for a current tax year, the certification is valid until the expected end of the tax year unless, during such tax year the business' tax year terminates earlier than expected. When a tax year terminates earlier than expected, the certification is valid until the actual end of the tax year as determined for federal income tax purposes.(e) Notwithstanding any other provision in this subsection, the department may: 1. Revoke any certification granted under this subsection, but only upon information that either the business' application for certification contained a misstatement as to the business' gross income or expenses and deductions or the business no longer qualifies as a biotechnology business.2. Require any business seeking certification to be certified only with respect to its previous tax years. Note: Section Tax 11.20 interprets ss. 77.51(1c), (1d), and (10rn) and 77.54(57) and (57d), Stats.
Wis. Admin. Code Department of Revenue Tax 11.20
CR 12-015: cr. Register July 2012 No. 679, eff. 8-1-12; CR 14-006: cr. (1) (cg), (cr), am. (1) (h), r. and recr. (2) (a), am. (2) (b), (Example 2), (Example 3), (c), (d) (Example 1) to (Example 5), (e) 2. L. (Example), (3) (a) 2., (b) Register August 2014 No. 704, eff. 9-1-14; correction in (2) (d) (Examples) (1) made under s. 13.92(4) (b) 7, Stats., Register August 2014 No. 704.Amended by, correction in (2) (c) (note), (3) (b) (note) made under s. 35.17, Stats., Register March 2017 No. 735, eff. 4/1/2017.Amended by, correction in (2) (c) (Note), (3) (b) (Note) made under s. 13.92(4) (b) 7, Stats., Register April 2017 No. 736, eff. 5/1/2017Amended by, correction in (2) (d) (Examples) (1) made under s. 13.92(4) (b) 7, Stats., Register August 2014 No. 704; CR 19-113: renum. (3) (c) to (3) (c) 1. and am., cr. (3) (c) 2., am. (4) (a), cr. (4) (am), (Example) Register April 2020 No. 772, eff. 5/1/2020Amended by, CR 20-027: am. (3) (a) 2. Register July 2021 No. 787, eff. 8/1/2021The interpretations in s. Tax 11.20 are effective beginning January 1, 2012, pursuant to 2009 Wis. Act 28, except for the following amendments effective July 2, 2013, pursuant to 2013 Wis. Act 20: (a) "Qualified research" was amended to include research funded by one member of a combined group for another member of a combined group; (b) The exemption for property used in qualified research by persons engaged primarily in manufacturing in Wisconsin was amended to apply to property used in qualified research by a person engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats.; (c) The exemption for property used in qualified research was amended to include use by one member of a combined group who is conducting qualified research for another combined group member who is either engaged in manufacturing in Wisconsin at a building assessed under s. 70.995, Stats., or is primarily engaged in biotechnology; and (d) The change of the term "medicines" to "drugs."