Wis. Admin. Code § Tax 11.20 — Property used in qualified research and property used to raise research animals

Tax 11.20(1) (1) Definitions. In this section:

Tax 11.20(1)(a) (a) “Animals” include bacteria, viruses, and other microorganisms.

Tax 11.20(1)(b) (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.

Tax 11.20(1)(c) (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.

Tax 11.20(1)(cg) (cg) “Building” has the meaning given in s. 70.111 (10) (a) 1. , Stats.

Tax 11.20(1)(cr) (cr) “Combined group” has the meaning given in s. 71.255 (1) (a) , Stats.

Tax 11.20(1)(d) (d) “Institution of higher education” means an accredited educational organization providing education after completion of high school, including undergraduate, graduate, and professional education.

Tax 11.20(1)(e) (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.

Tax 11.20(1)(f) (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.

Tax 11.20(1)(g) (g) “Primarily” means more than 50 percent.

Tax 11.20(1)(h) (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.

Tax 11.20(1)(i) (i) “Used exclusively” means used to the exclusion of all other uses except for other use not exceeding 5% of total use.

Tax 11.20(2) (2) Exemptions for property and items used in qualified research.

Tax 11.20(2)(a) (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:

Tax 11.20(2)(a)1. 1. A person engaged in manufacturing in this state at a building assessed under s. 70.995 , Stats.

Tax 11.20(2)(a)2. 2. A person engaged primarily in biotechnology in this state.

Tax 11.20(2)(a)3. 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.

Tax 11.20(2)(b) (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.

Tax 11.20(2)(c) (c) For purposes of determining whether an activity is qualified research under par. (a) , the regulations under Treas. Reg. section 1.41-4 apply, except that qualified research that is funded by a member of a combined group for another member of a combined group shall remain qualified research for purposes of this subsection.

Tax 11.20(2)(d) (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.

Tax 11.20(2)(e) (e)

Tax 11.20(2)(e)1. 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:

Tax 11.20(2)(e)1.a. a. The activity or activities in which the property or item is used.

Tax 11.20(2)(e)1.b. b. The manner in which the property or item is used in each activity.

Tax 11.20(2)(e)1.c. c. The activity or activities in which the property or item is used constitute qualified research.

Tax 11.20(2)(e)2. 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:

Tax 11.20(2)(e)2.a. a. Materials explaining the research activities conducted, including brochures, pamphlets, press releases, and other similar documents.

Tax 11.20(2)(e)2.b. b. Submissions to management, the board of directors, review committees, or other similar groups regarding the research projects, activities, and the expenditures.

Tax 11.20(2)(e)2.c. c. Documents prepared by, or on behalf of, internal audit, including quarterly and annual reports that refer in any manner to the research activities.

Tax 11.20(2)(e)2.d. d. Minutes, notes, or other similar recordings from budget, board of director, managerial or other similar meetings concerning the research activities.

Tax 11.20(2)(e)2.e. e. Project authorizations, budgets, or work orders that initiate a research project.

Tax 11.20(2)(e)2.f. f. Position and department descriptions of employees identified as providing qualified research.

Tax 11.20(2)(e)2.g. g. The internal authorization policies for approving a research project.

Tax 11.20(2)(e)2.h. h. Patent applications.

Tax 11.20(2)(e)2.i. i. Project summaries and/or project reports and project meeting minutes.

Tax 11.20(2)(e)2.j. j. Prototype and process testing reports, field and lab verification data/summary data.

Tax 11.20(2)(e)2.k. k. Papers, treaties, or other published documents regarding the taxpayer’s research.

Tax 11.20(2)(e)2.L. 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.

Tax 11.20(2)(e)3. 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.

Tax 11.20(3) (3) Exemptions for raising animals used in qualified research or manufacturing.

Tax 11.20(3)(a) (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:

Tax 11.20(3)(a)1. 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.

Tax 11.20(3)(a)2. 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.

Tax 11.20(3)(b) (b) For purposes of determining whether an activity is qualified research under par. (a) , the regulations under Treas. Reg. section 1.41-4 apply, except that qualified research that is funded by a member of a combined group for another member of a combined group shall remain qualified research for purposes of this subsection.