Machinery and Equipment (M&E) Sales Tax Exemption

Effective October 1, 2004

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 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 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 used more than 50% annually on qualifying research; and
Have an acquisition cost of $1,000 or more.

Principal Investigator and Department should:

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:

PAS – Comments section of the order

eProcurement – In the item detail screen, it will ask:

Is this item Equipment? - Check the yes button
Is this M&E item? - Check the yes button and a box will appear for the M&E statement

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 will:

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.

Procurement Services will:

Place orders.

Work with vendor to ensure tax is not included on invoices with purchases qualifying for the M&E Tax Exemption.

Review tax exemption when paying the invoice.

Deduct the tax from payment to vendor where appropriate.

Tax Office will:

Assist Equipment Inventory in applying the M&E Tax Exemption.

Research unique purchases over $100,000.

Procedure

PAS

Confirming Orders

eProcurement

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.

M&E Statement Examples

This gives examples of both acceptable and unacceptable statements.

Qualifying Research Programs

This describes programs that will often qualify for the M&E Tax Exemption as well as those that do not qualify for the M&E Tax Exemption.

M&E Equipment Examples

This gives examples of equipment that has and has not qualified for the M&E Tax Exemption.

M&E Tax Exemption Object Codes

This lists and describes the various M&E Object Codes.

Forms

Required - None. Mandatory M&E purchase data is collected in PAS and eProcurement.

Optional - Some departments choose to collect supporting data related to M&E purchases. The format for this varies by department and is for internal use only.