Tenn. Comp. R. & Regs. 1320-05-01-.128

Current through December 10, 2024

Section 1320-05-01-.128 - RESEARCH AND DEVELOPMENT

(1) The sales and use tax does not apply to machinery, apparatus, and equipment with all associated parts, appurtenances, and accessories for such machinery and equipment that is necessary to and primarily for research and development. The sales and use tax does not apply to repair parts and labor and installation of research and development machinery and equipment.

(2)

(a) "Research and development" must have one of the following as its ultimate goal:

1. Basic research in a scientific field of endeavor;

2. Advancing knowledge or technology in a scientific or technical field of endeavor;

3. The development of a new product, whether or not the new product is offered for sale;

4. The improvement of an existing product, whether or not the improved product is offered for sale;

5. The development of new uses of an existing product, whether or not a new use is offered as a rationale to purchase the product; or

6. The design and development of prototypes, whether or not a resulting product is offered for sale.

(b) "Research and development" does not include:

1. Ordinary testing or inspection of materials or products used for quality control, other than that occurring during the activities listed in subsection (2)(a) of this rule;

2. Market research;

3. Efficiency surveys;

4. Consumer surveys;

5. Advertising and promotions;

6. Management studies; or

7. Research in connection with literary, historical, social science, psychological, or other similar nontechnical activities.

(3) Persons who wish to make tax exempt purchases of research and development machinery shall apply to the Commissioner of Revenue for authority to make such purchases exempt from tax. The application shall give such information as the Commissioner may require.

(4) The research and development sales and use tax exemption authorization must be obtained prior to making such purchases exempt from the tax. However, if authority is not obtained prior to the purchase, the Commissioner may allow retroactive application of the authority upon a showing sufficient to the Commissioner that the failure to obtain authority resulted from:

(a) A major restructuring of the business or the business having gone through a change in ownership; or

(b) A death of a key person in the tax area of the organization; or

(c) The entity having been misled by state officials which indicated that authority to purchase research and development machinery was not required; or

(d) Any other grounds that the Commissioner finds satisfactory to allow retroactive application of this exemption.

(5) Persons who have obtained the research and development tax exemption authorization for research and development shall provide their vendors with a copy of the authorization or a fully completed Streamlined Sales Tax certificate of exemption, which must include the research and development exemption authorization number included on the certificate issued by the Commissioner.

(6) Persons are not required to be engaged in any business of fabricating or processing tangible personal property for resale to qualify for the tax exemption authorization for research and development machinery.

Tenn. Comp. R. & Regs. 1320-05-01-.128

New rule filed June 28, 2016; effective 9/26/2016.

Authority: T.C.A. §§ 67-1-102, 67-6-102, and 67-6-402.