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.
Research and Development -
Activities performed to discover technological information, and technical and nonroutine 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.
The programs defined below often qualify for the M & E Tax Exemption.
Advanced Computing - Technologies used in the design and development
of computing hardware and software, including innovations in designing the full
spectrum of hardware from hand-held calculators to super computers, and peripheral
equipment.
Advanced Materials - Materials with engineered properties created through
the development of specialized processing and synthesis technology, including
ceramics, high-added metals, electronic materials, composites, polymers and
biomaterials.
Biotechnology - The application of technologies, such as DNA techniques,
biochemistry, molecular, and cellular biology, genetics and genetic engineering,
cell fusion techniques, and new bioprocesses, using living organisms, or
parts of organisms, to produce or modify products, to improve plants or animals, to
develop microorganisms for specific uses, to identify targets for small molecule
pharmaceutical development, or to transform biological systems into useful processes
and products or to develop microorganisms for specific uses.
Electronic Device Technology - Technologies involving microelectronics;
semiconductors, electronic equipment and instrumentation; radio frequency, microwave
and millimeter electronics; optical and optic-electrical devises; and data and
digital communication and imaging devices.
Environmental Technology - Assessment and prevention of threats or
damage to human health or the environment, environmental cleanup, and the development
of alternative energy sources.
Research activities that do not qualify for the exemption
(non-qualifying research) include:
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
Equipment must have a useful life of more than one year;
Equipment must be directly used more than 50% of its useful life on
qualifying research;
Qualifying equipment must have an acquisition cost of $1,000 or
more.
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.
Tangible University Property - equipment with a useful life or
more than
one year with ownership/title to the University of Washington.
The sales and use tax exemption does not include:
Consumable items;
Hand-powered tools;
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.
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 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.
The Principal Investigator and their corresponding department must
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 PAS purchase request using the correct object codes. The
exemption
will only be taken on those items with the proper object codes
and where brief comments describe the qualifying research.
If the equipment qualifies for the exemption, exclude tax from your
grant/contract
proposal beginning November 1, 2004.
Identify the research activity the equipment will be used for.
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.
Respond to vendor questions.
Assist department in applying the M&E Tax Exemption.
Purchasing:
Place orders.
Work with vendor to ensure tax is not included on invoices
qualifying for
the M&E Tax Exemption.
Payables Administration:
Review tax exemption when paying the invoice.
Respond to vendor questions regarding allowable exceptions.
Deduct the tax from payment to vendor where appropriate.
Enter your purchase information into the requisition fields. If your purchase
qualifies for the M&E Tax Exemption, enter a comment in the comment
field describing the type of research the equipment will be used for. You will
be asked: Used more than 50% on qualifying research? Y/N. You must
answer
"yes" to proceed.
Using the proper object codes
associated with the exemption will
automatically place the order in a tax exemption status. The necessary
certificate
information we are required to supply the vendor will print on the
purchase
order and on the check remittance. Failure to use the proper object codes
will generate tax on your orders. Once an invoice has been paid, a certificate
cannot be issued.
Object codes for equipment purchases qualifying for the
M&E Tax Exemption:
06-12
Computing Equipment – M&E Tax Exempt (used
more than 50% on qualifying research and with a total cost of
$2,000 - $4,999) The amount expended for the purchase
of computing equipment including software, used more than 50% on qualifying
research, total cost of $2,000 - $4,999, with a useful
life of more than one year, considered a capital asset. Contact Equipment
Inventory at 543-4663 for more information. (See object code 09-05 and
09-08 for computer capital leases)
06-13
Computing Equipment - M&E Tax Exempt (used more than 50%
on qualifying research and a total cost of $5,000 or more)
The amount expended for the purchase of computing equipment including
software, used more than 50% on qualifying research, total cost $5,000
or more, with a useful life of more than one year, considered a capital
asset. Contact Equipment Inventory at 543-4663 for more information. (See
object code 09-05 and 09-08 for computer capital leases).
06-16
Computer
Cluster --M&E Tax Exempt (used more than 50% on
qualifying
research) ($2,000 or More, but Less Than $5,000). Not effective until
July 1, 2007.
The amount expended for the
purchase of a computer cluster used more than 50% on
qualifying
research that costs $2,000 or more, but less than $5,000, with a useful
life of more than one year, and that meets the criteria described in the
University’s Computer Cluster
Policy. Contact Equipment Inventory at 543-4663 for more information.
The amount expended for the purchase of a computer cluster used more than
50% on
qualifying research that costs $5,000 or more,
with a useful life of more than one year, and that meets the criteria
described in the University’s Computer Cluster Policy. Contact Equipment
Inventory at 543-4663 for more information.
06-92
Other Equipment – M&E Tax Exempt (Non-computing equipment
used more than 50% on qualifying research and with a total cost of
$2,000 - $4,999) The amount expended for the purchase of
non-computing
equipment, total cost of $2,000 - $4,999, used 50% or more
on qualifying
research, with a useful life of more than one year, considered a capital
asset and not included in object code 06-12 computing equipment.
Contact
the Equipment Inventory Office at 543-4663 for clarification. (See
object
code 09-04, for payments of principal on capital lease contracts entered
into by the University, except those covering computers)
06-93
Other Equipment – M&E Tax Exempt (Non-computing equipment
used more than 50% on qualifying research and with a total cost of $5,000
or more) The amount expended for the purchase of
non-computing
equipment, total cost of $5,000 or more, used 50% or more on qualifying
research, with a useful life of more than one year, considered a capital
asset and not included in object code 06-13 computing equipment.
Contact
the Equipment Inventory Office at 543-4663 for clarification. (See
object
code 09-04, for payments of principal on capital lease contracts entered
into by the University, except those covering computers)
05-41
Non capitalized Equipment – M&E Tax Exempt (used more
than 50% on qualifying research with a total cost of more than
$1,000 - $1,999) Nonexpendable items with a total cost
of more
than $1,000 - $1,999, used 50% or more on qualifying
research
with a useful life of more than one year. Contact Equipment Inventory
Office at 543-4663 for more information.
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.
The requisition will automatically be routed to Equipment Inventory for
review. Equipment Inventory reviews the requisition for proper object coding,
to determine if the item meets the prerequisites for the M&E Tax Exemption
and to determine if the item being purchased is capital equipment and meets
federal requirements; some federal agencies require prior approval.
Examples of good/complete comments:
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.
Computational algorithm development for analysis, mining of micro array
data and technology development in high-throughput genomics.
Examples of comments that would require additional information:
It will be used for basic research.
This equipment will be used for research only.
The item will be used for Biological research.
For items $2,000 or more: once equipment is received, it must be
tagged and
entered into OASIS as a “T” status asset. Information should include:
UW Tag Number
Description
Manufacturer
Model
Serial Number
Custodian/User
Building
Wing
Room Number
Status (enter - T)
Requisition Number
Accountable Budget
Total Cost
Class Code
Date Received
Acquisition Method (enter - PO for Purchase Order)
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."
When placing your order, notify the vendor the item being purchased is
tax exempt.
Prepare your purchase requisition using the associated M&E Tax Exempt
object code.
The order will be flagged tax exempt based on the object code.
If the invoice received from the vendor includes sales tax, Accounts Payable will pay the invoice less the sales tax.
A notice will appear on the check remittance notifying the vendor
the item purchased is tax exempt. The notice will read: "Tax exempt
item, RCW
82.08.02565, Reg#178019988."
Challenges in applying the M&E Sales/Use Tax Exemption to Procurement card
purchases:
M&E Sales/Use Tax Exemption certificate must be present at the
time of purchase.
Procurement card may be used for multiple purchasing options:
in-person transactions, internet and phone transactions, mail in orders,
etc.
Vendor's acceptance/system not able to accommodate the tax
exemption.
Controls for using the exemption on qualified research
purchases.
Procedures for applying the M&E Sales/Use Tax Exemption to Procurement
card purchases:
Place your order or make your purchases using the Procurement card
as you currently do.
Complete the attached form
for orders that qualify for the M&E
Sales/Use Tax Exemption.
Attached a copy of the invoice to the completed form and forward
the information to Equipment Inventory, Box Number 354615.
Equipment Inventory will review the information provided.
If it is determine the item qualifies for the exemption; Equipment
Inventory will prepare a journal voucher issuing a sale tax credit to your
budget. A copy of the journal voucher will be forwarded to your
department for your records.
Equipment Inventory will issue an M&E Sales/Use Tax Exemption
certificate to the vendor for their records.
Equipment Inventory will maintain a copy of the form, invoice,
certificate, and journal voucher.
NOTE:
Using the new M&E Sales/Use Tax Exemption object codes (05-41, 06-12,
06-13, 06-92, and 06-93) during your reconciliation to PaymentNet will not
exempt the item from sales tax. The tax has already been added by the
vendor during the sales transaction (point-of-sale).
Form Required
Manufacturer's Sales and Use Tax Exemption Certificate - Issued by
Equipment
Inventory only. If the vendor did not receive a purchase order with the necessary
statement included, this certificate may be issued as additional backup for
the vendor. The remittance advice accompanying the check to the vendor
will also include a statement regarding the exemption.
Common Questions
What object code should I use to order equipment?
05-10 - Sensitive items with a total cost under $2,000 including
tax and
freight.
05-40 - equipment with a total cost less than $2,000 including tax and freight.
05-41 - non-capitalized equipment, M&E Tax Exempt, with a total
cost of more than $1,000 - $1,999 including freight and used more than 50%
on
qualifying research.
06-10 - Computing equipment with a total cost of $2,000 - $4,999
including tax
and freight.
06-11 - Computing equipment with a total cost of $5,000 or more
including
tax and freight.
06-12 - Computing equipment, M&E Tax Exempt, with a total cost of
$2,000 - $4,999 including freight and
used more than 50% on qualifying research.
06-13 - Computing equipment, M&E Tax Exempt, with a total cost of
more than $5,000 including freight and used
more than 50% on qualifying research.
06-90 - All other equipment with a total cost of $2,000 - $4,999
including tax
and freight.
06-91 - All other equipment with a total cost of $5,000 or more
including
tax and freight.
06-92 - All other equipment other than computing equipment, M&E
Tax Exempt, with a total cost of $2,000 - $4999 including freight and used
more than 50% on
qualifying research.
06-93 - All other equipment other than computing equipment, M&E Tax
Exempt, with a
total cost of more
than $5,000 including freight used more than 50% on qualifying
research.
06-96 - Equipment passed through to an external agency without University's
intervening use.
Can I apply for the M&E Tax Exemptions after a purchase has
been
paid?
No. The exemption as stated in the law is for "new
purchases" only.
What is the threshold for equipment purchased under the M&E
Tax
Exemption?
The threshold for the M&E Tax Exemption is $1,000; we are not required under
the RCW to use the University of Washington's capitalization threshold of
$2,000.
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.
I forgot to use the M&E Tax Exemption object code until after
it was released to the Buyer. Can I still claim the exemption?
Yes. The department will need to cancel the current
purchase requisition and re-enter a new purchase requisition using the
correct object codes(s).
