61 Pa. Code § 41.9 - Research exemption
(a)
Generally. Section 201(c)(5) of the TRC (72 P. S. §
7201(c)(5)) exempts from tax
the purchase and use of tangible personal property and services to be used
directly in research having as its objective the production of a new or
improved product or utility service or method of producing a product or utility
service, but in either case not including market research or research having as
its objective the improvement of administrative efficiency. The exemption also
applies to taxpayers who undertake research under contract for exempt
purposes.
(b)
Research
operations. Research operations include inquiry, investigation,
experimentation and testing, and the analysis, critical study, compilation and
development of the results thereof. Generally, the immediate products of
research operations are information and knowledge even though incident thereto
a researcher produces a salable or usable product or prototype thereof. The
exemption provided with regard to research operations applies only to those
research operations which have for their ultimate purpose the production of a
new or improved product or utility service, or new or improved methods of
producing a product or utility service.
(c)
Direct use limitation.
The direct use limitation shall conform with the following:
(1) The exemption applies only to the
purchase and use of tangible personal property and otherwise taxable services
to be used directly in research operations as described in this section. In
determining whether particular property is used directly in research
operations, consideration shall be given to the following factors:
(i) The physical proximity of the property or
services to the research activities.
(ii) The proximity of the time of the use of
the property or services to the research.
(iii) The active, causal relationship between
the use of the property or services and the research development.
(2) In order to meet the direct
use test, it is essential that the taxpayer establish that such causal
relationship exists. The fact that property is essential to the conduct of the
research operations does not of itself mean that the property is used directly
in research. On the other hand, the fact that the research operations could be
successfully conducted in some manner which does not involve use of the
property or service in question is not conclusive that such property or service
is not used directly in the research operations.
(3) Examples of things purchased by a
research establishment which may be used directly in research operations are
testing specimens and samples and components thereof, scientific books and
periodicals pertaining to the matters which are the subject of the research in
question, analogue or digital computers used to make computations in research
operations, laboratory equipment and supplies, and equipment and supplies used
for the testing, recordation, analysis, interpretation and development of
mathematical, scientific, engineering and other research data. In the case of
pharmaceutical and biological research, use of live animals and animal feed,
bedding, surgical supplies and cages used in connection with animals is deemed
to be directly used in the research operations.
(d)
Predominant use test.
The exemption applies only to those things which are predominantly used
directly in research operations. Where property or services are utilized for
purposes to which the exemption applies and for purposes to which the exemption
is inapplicable, the predominant purpose shall determine whether the sales
transaction or use is covered by the exemption.
(e)
Other limitations on the
exemption. The exemption does not apply to the purchase or use of
property or services to be used indirectly in research operations nor is the
exemption applicable to the purchase or use of property or services to be used
in managerial activities, sales activities, or other nonoperational activities
of a research establishment or project. The exemption does not apply to the
purchase and use of vehicles required to be registered under the
75 Pa.C.S. §§
101-9909 (relating to the Vehicle Code), or
The Tractor Code. The exemption does not apply to the purchase or use of
maintenance tools, equipment, supplies, materials or services or to things
which otherwise are used in or become part of the maintenance facilities of the
research establishment or project. However, replacement and repair parts which
become part of equipment or machinery used directly in research operations are
exempt from tax. The exemption does not apply to things used in the
construction, reconstruction, remodeling, maintenance or repair of the real
estate of the research establishment or project, other than such things which
comprise machinery or equipment used directly in researching
operations.
Notes
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