Included on this page:
Machinery and Equipment Tax Exemption (M&E) - Equipment purchased for
certain University research and development activities may qualify for a sales
tax exemption allowed under
RCW 82.08.02565, known as the Machinery and Equipment Tax Exemption, or "M&E
Exemption." The exemption may be applied towards purchases of new fixtures,
equipment, and support facilities that are an integral and necessary part of
pilot scale manufacturing or used directly in University manufacturing or
research and development activities as defined in
RCW 82.63.010 (16) .
Note: Items with a total cost of $1,000 or more may qualify for this exemption. The M&E Tax Exemption, RCW 82.08.02565 does not tie the tax exemption to the University of Washington's capitalization threshold of $2,000.
Note: As of May 1, 2009, M&E purchases can no longer be made using the Procurement Card.
Research and Development - Activities performed to discover technological information, and technical and non-routine activities concerned with translating technological information into new or improved products, processes, techniques, formulas, inventions, or software. The term includes exploration of a new use for an existing drug, device, or biological product if the new use requires separate licensing by the federal food and drug administration under chapter 21, C.F.R., as amended. The term does not include adaptation or duplication of existing products where the products are not substantially improved by application of the technology, nor does the term include surveys and studies, social science and humanities research, market research or testing, quality control, sale promotion and service, computer software developed for internal use, and research in areas such as improved style, taste, and seasonal design.
Tangible University Property - Equipment with a useful life or more than one year with ownership/title to the University of Washington.
“Used directly” - To be considered "used directly" in a manufacturing operation or research and development operation, the machinery and equipment must:
Act upon or interact with an item of tangible University property;
Convey, transport, handle, or temporarily store an item of tangible University property at the manufacturing site;
Control, guide, measure, verify, align, regulate, or test tangible University property;
Provide physical support for or access to tangible University property;
Produce steam or mechanical power for, or lubricate machinery and equipment;
Produce another item of tangible University property for use in the manufacturing operation or research and development operation;
Be integral to research and development as defined in RCW 82.63.010.
Process Overview/Responsibilities
To qualify for the M&E sales and use tax exemption, equipment must:
Have a useful life of more than one year;
Be directly used more than 50% of its useful life on qualifying research;
Have an acquisition cost of $1,000 or more.
Principal Investigator and Departments:
Ensure that all criteria for the exemption are met. If an exemption is taken on an item that is later deemed by the Washington State Department of Revenue to not qualify, the department will ultimately be required to pay the tax along with penalties and fines.
Submit the purchase request using the correct object codes. The exemption will only be taken on items with:
Proper M&E object codes
A
sufficient M&E statement
detailing the type of research to be performed and the desired outcome.
The location of this comment varies by method of purchase. See below
for specific locations:
eProcurement – In the item detail screen, it will ask:
Procurement Card - The M&E sales and use tax exemption can no longer be taken. Please use PAS or eProcurement.
If the equipment qualifies for the exemption, exclude tax from your grant/contract proposal beginning November 1, 2004
Note: If during the useful life of the asset it is determined it will not be used 50% or more on qualifying research, the department will be required to pay the tax due.
Equipment Inventory:
Review and approve requisitions and M&E statement in comments section of PAS and eProcurement purchases.
Respond to vendor questions regarding allowable exceptions.
Assist department in applying the M&E Tax Exemption.
Purchasing:
Place orders.
Work with vendor to ensure tax is not included on invoices with purchases qualifying for the M&E Tax Exemption.
Payables Administration:
Review tax exemption when paying the invoice.
Deduct the tax from payment to vendor where appropriate.
Tax Office:
Assist Equipment Inventory in applying the M&E Tax Exemption.
Research unique purchases over $100,000.
1. Verify you have been given requisition entry access to Purchasing and Accounts Payable Administration System (PAS). If you do not have access, complete the Adminstrative Systems Access Form and route for approvals as indicated on the bottom of the form.
2. Enter your purchase information into the requisition fields. If your purchase qualifies for the M&E Tax Exemption:
· Enter an M&E Statement in the Comment field describing the type of research the equipment will be used to be performed and the desired outcome.
· Answer “Yes” to the question “Used more than 50% on qualifying research? Y/N.” If the answer is no, the system will not allow you to proceed.
Using the proper M&E object codes associated with the exemption will automatically place the applicable items in a tax exemption status. The necessary certificate information the University of Washington is required to supply the vendor will print on the purchase order and on the check remittance. Failure to use the proper M&E object codes will generate tax on your orders. Once an order has been released to the buyer, the only way to change the object code is to cancel the current requisition and re-enter it with the correct code. Once an invoice has been paid, the exemption cannot be retroactively applied.
3. Encumber your purchase requisition and obtain departmental approval if necessary. Departments have the option to establish approval levels for PAS requisitions. Since responsibility for the use of the exemption rests with the department, this should be a consideration when establishing approval levels.
4. The requisition will automatically be routed to Equipment Inventory where it is reviewed:
For proper object coding;
To determine if the item appears to meet the prerequisites for the M&E Tax Exemption;
To determine if the item is capital equipment; and
If necessary, to determine if the item meets federal requirements. Some federal agencies require prior approval.
5. If requisition is:
Correct - Equipment Inventory will approve and forward it to Purchasing for buyer assignment.
Incorrect – Equipment Inventory will reject it back to the department for correction. Rejection reasons are available using Option 6 (Comments) of the PAS screen. Once the department makes adjustments and re-encumbers, the requisition will again be routed to Equipment Inventory for review.
Note: If M&E Tax Exemption object codes are used, but comments do not contain sufficient information regarding the type of research to be performed and the desired outcome, Equipment Inventory will reject the requisition back to the department for additional information. See Examples of M&E Statements.
6. If equipment is $2,000 or more:
Tag the item upon receipt
Enter the asset information into the OASIS System as a “T” status asset or submit information to Equipment Inventory on an orange card. Information required for OASIS entry:
UW Tag Number
Description
Manufacturer
Model
Serial Number
Custodian/User
Building
Wing (if applicable)
Room Number
Status (enter - T)
Requisition Number
Accountable Budget
Total Cost
Class Code
Date Received
Acquisition Method (defaults to PO for Purchase Order)
7. Once the payment has been made for the equipment, Equipment Inventory will record the expenditure information in the "T" status asset and approve the asset, changing the status to "A."
1. When placing your order, notify the vendor of the items being purchased that are tax exempt.
2. Prepare your purchase requisition using the associated M&E Tax Exempt object code.
3. The order will be flagged tax exempt based on the object code.
4. If the invoice received from the vendor includes sales tax, Accounts Payable will pay the invoice less the sales tax.
5. A notice will appear on the check remittance notifying the vendor the item purchased is tax exempt.
6. If equipment is $2,000 or more:
Tag the item upon receipt
Enter the asset information into the OASIS System as a “T” status asset or submit information to Equipment Inventory on an orange card. Information required for OASIS entry:
UW Tag Number
Description
Manufacturer
Model
Serial Number
Custodian/User
Building
Wing (if applicable)
Room Number
Status (enter - T)
Requisition Number
Accountable Budget
Total Cost
Class Code
Date Received
Acquisition Method (defaults to PO for Purchase Order)
7. Once the payment has been made for the equipment, Equipment Inventory will record the expenditure information in the "T" status asset and approve the asset, changing the status to "A."
1. Make your purchase following the regular eProcurement guidelines.
2. Check the yes box next to the question "Is this item Equipment?"
3. Check the yes box next to the question "Is this an M&E item?"
4. Enter your M&E Statement in the box that appears after you check the yes box. Please see the Machinery and Equipment Sales/Use Tax Exemption website for questions regarding M&E eligibility and proper M&E Statements.
5. The requisition will automatically be routed to Equipment Inventory where it is reviewed:
For proper object coding;
To determine if the item appears to meet the prerequisites for the M&E Tax Exemption;
To determine if the item is capital equipment; and
If necessary, to determine if the item meets federal requirements. Some federal agencies require prior approval.
6. If requisition is:
Correct - Equipment Inventory will approve it.
Incorrect – Equipment Inventory will reject it back to the department for correction. Once the department makes adjustments and re-submits, the requisition will again be routed to Equipment Inventory for review.
Note: If M&E Tax Exemption object codes are used, but comments do not contain sufficient information regarding the type of research to be performed and the desired outcome, Equipment Inventory will reject the requisition back to the department for additional information. See Examples of M&E Statements.
7. If equipment is $2,000 or more:
Tag the item upon receipt
Enter the asset information into the OASIS System as a “T” status asset or submit information to Equipment Inventory on an orange card. Information required for OASIS entry:
UW Tag Number
Description
Manufacturer
Model
Serial Number
Custodian/User
Building
Wing (if applicable)
Room Number
Status (enter - T)
Requisition Number
Accountable Budget
Total Cost
Class Code
Date Received
Acquisition Method (enter EP for eProcurement)
8. Once the payment has been made for the equipment, Equipment Inventory will record the expenditure information in the "T" status asset and approve the asset, changing the status to "A."
As of May 1, 2009, the M&E sales and use tax exemption can no longer be taken using the Procurement Card. Please use PAS or eProcurement for M&E purchases..
Examples of acceptable statements detailing type of research and desired outcome:
This equipment will be used during the creation of new software and electronic device technology focused on the areas of sound, video, 3-dimensional sound, sound projection and networked high bandwidth signal processing.
The equipment will be used in our lab for biophysical research to image biological species.
This equipment will be used in computational algorithm development for analysis, mining of micro array data, and technology development in high-throughput genomics.
This equipment will be used in research with a goal to reduce lead in city water supplies, corrosion in household water pipes, and develop systems to selectively remove radioactive isotopes from mixed waste.
This equipment will be used in research to design proteins that can carry out chemical reactions better than a naturally occurring protein or to carry out chemical reactions that are not done in nature because the protein does not exist. One example of this is designing proteins that will react with pesticides in a certain way in order to render the pesticide harmless.
This equipment will be used in research on the molecular basis of inherited bone marrow failure syndromes with a goal to elucidate the molecular pathogenesis of these disorders and improve diagnosis and treatment.
Examples of unacceptable comments that would require additional information:
This equipment will be used for basic research.
This equipment will be used for research only.
This equipment will be used for Biological research.
Research Programs that Typically Qualify
The programs described below often qualify for the M & E Tax Exemption:
Research Programs that Do Not Qualify
The research programs described below do not qualify for the M & E Tax Exemption:
Adaptation or duplication of existing products where the products are not substantially improved by application of the technology
Surveys and studies
Social science and humanities research
Market research or testing
Quality control
Sale promotion and services
Computer software developed for internal use
Research in areas such as improved style, taste, and seasonal design
Examples of Qualifying Equipment
Examples of University of Washington research and equipment which have qualified for the exemption:
DNA Engine Thermal Cycler - comparative sequence analysis to determine gene functions.
Cages - used to house research animals.
Nucleofactor - nuclear fusion research.
Computer System - used to automate analysis of tandem mass spectra of peptides acquired from proteomics experiments.
Ultrasound Machine - conducting research on the next generation medical ultrasound system and applications.
Examples of Non-Qualifying Equipment
Examples of University of Washington research and equipment which have not qualified for the tax exemption:
DNA Sequencer - clinical support/patient care.
Solvent Dispensers - student support.
Spectrometer - student support.
Computer System - used for other than analyzing research data, such as student dissertation research.
Inverted Microscope - used for classroom.
Clutch Assembly - repair of ship (05-41 regardless of cost).
Portable computers including laptops, notebooks, and tablets.
Projectors.
Printers.
Consumable items.
Hand-powered tools.
Items used in patient care.
Property with a useful life of less than one year.
Building fixtures that are not integral to the research operation that are permanently affixed to and become a physical part of a building. This includes utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical.
M&E Tax Exemption Object Codes
05-41 Non-capitalized Equipment, M&E Tax Exempt ($1,000 or more but less than $2,000)
Research equipment that costs between $1,000 and $1,999 that is used at least 50% of its useful (depreciable) life for qualifying research and development projects based on the University's M&E Tax Exemption policy. Specific items not eligible for M&E Tax Exemption include laptops, notebooks, and cameras. Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
06-12 Computing Equipment – M&E Tax Exempt ($2,000 or more but less than $5,000)
Research computing equipment including software that costs $2,000 or more but less than $5,000 that is used at least 50% of its useful (depreciable) life for qualifying research and development projects based on the University’s M&E Tax Exemption policy. Eligible items include servers, monitors, laboratory computers, etc. These items are capital assets and must be tagged and inventoried. Specific items not eligible for M&E Tax Exemption include laptop or notebook computers. For computer clusters use object code 06-14, 06-15, 06-16, or 06-17 and for computer capital leases use object code 09-05 or 09-08. Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
06-13 Computing Equipment – M&E Tax Exempt ($5,000 or more)
Research computing equipment including software that costs $5,000 or more that is used at least 50% of its useful (depreciable) life for qualifying research and development projects based on the University’s M&E Tax Exemption policy. Eligible items include servers, monitors, laboratory computers, etc. These items are capital assets and must be tagged and inventoried. Specific items not eligible for M&E Tax Exemption include laptop or notebook computers. For computer clusters use object code 06-14, 06-15, 06-16, or 06-17 and for computer capital leases use object code 09-05 or 09-08. Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
06-16 Computer Cluster - M&E Tax Exempt ($2,000 or more but less than $5,000)
Tax exempt computer cluster to be used 50% or more of the useful (depreciable) life for qualifying research and development and costing $2,000 or more but less than $5,000. The purchase must meet the criteria as described in the University's Computer Cluster Policy and includes the requirement that the cluster cannot be broken apart for four years. A cluster purchase is considered one asset and must be tagged and inventoried. For computer capital leases use object code 09-05 or 09-08 Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
06-17 Computer Cluster - M&E Tax Exempt ($5,000 or more)
Tax exempt computer cluster to be used 50% or more of the useful (depreciable) life for qualifying research and development and costing $5,000 or more. The purchase must meet the criteria as described in the University's Computer Cluster Policy and includes the requirement that the cluster cannot be broken apart for four years. A cluster purchase is considered one asset and must be tagged and inventoried. For computer capital leases use object code 09-05 or 09-08 Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
06-92 Other Equipment (Non-computing) - M&E Tax Exempt ($2,000 or more but less than $5,000)
Tax exempt non-computing equipment used 50% or more of the useful (depreciable) life for qualifying research and development and costing $2,000 or more but less than $5,000. These items are capital assets must be tagged and inventoried. This category includes laboratory equipment, medical equipment, audio-visual equipment, vehicles, etc. Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
06-93 Other Equipment (Non-computing) - M&E Tax Exempt ($5,000 or more)
Tax exempt non-computing equipment used 50% or more of the useful (depreciable) life for qualifying research and development and costing $5,000 or more. These items are capital assets must be tagged and inventoried. This category includes laboratory equipment, medical equipment, audio-visual equipment, vehicles, etc. Contact Equipment Inventory at 543-4663 or eio@u.washington.edu for more information.
What object code should I use to order M&E equipment?
Machinery and equipment must have a useful life of more than one year;
Machinery and equipment must be directly used more than 50% if its useful life on qualifying research;
Qualifying equipment must have an acquisition cost of more than $1,000.
State:
Equipment Inventory: 206-543-4663 or eio@u.washington.edu