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Machinery and Equipment Sales/Use Tax Exemption

Effective October 1, 2004

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Definitions


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:

 

Process Overview/Responsibilities


To qualify for the M&E sales and use tax exemption, equipment must:

Principal Investigator and Departments:

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:

Purchasing:

Payables Administration:

Tax Office:

 

Procedure

Procedure – PAS

 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:

5.      If requisition is:

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:

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."

 

Procedure - Confirming Orders

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:

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."

 

Procedure - eProcurement 

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:

6.      If requisition is:

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:

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."

Procedure - Procurement Card

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 M&E Statements

Examples of acceptable statements detailing type of research and desired outcome:

Examples of unacceptable comments that would require additional information:

 

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:

 

Examples of Qualifying Equipment

Examples of University of Washington research and equipment which have qualified for the exemption:

 

Examples of Non-Qualifying Equipment

Examples of University of Washington research and equipment which have not qualified for the tax exemption:

 

Form Required


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.

 

Frequently Asked Questions

What object code should I use to order M&E equipment?
Please see M&E Tax Exemption Object Codes section above. 

Can I apply for the M&E Tax Exemption after a purchase has been paid?
No. The exemption as stated in the law is for "new purchases" only.  M&E Exemption must be requested and approved prior to purchase.  The University does not retroactively allow purchases to qualify.


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.
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).


My vendor is requesting a paper copy of the M & E exemption certificate. Where can I find one?
The first step is to let the vendor know that the exemption certificate is located on both the Purchase Order and the Check Remittance.  If they are not satisfied with that, please provide this letter to your vendor. The University generally does not provide paper certificates since all of the necessary information is included on the purchase order.


Can I purchase an M & E item using the ProCard?

No, because of compliance issues, M&E purchases cannot be purchased using the ProCard.

Regulations

State:

 

Contact

Equipment Inventory: 206-543-4663 or eio@u.washington.edu