1. (1) The sale of tangible personal property purchased for use or consumption directly and predominantly in research and development in the experimental or laboratory sense is exempt from the sales and use tax.
2. (2) The exemption does not extend to installation and repair services for such property.
3. (3) An exemption is allowed for the sale of gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam service of whatever nature for use or consumption directly or exclusively in research and development in the experimental or laboratory sense.

4. (4) An Exempt Use Certificate (form ST-121) is used to make purchases eligible for this exemption, without payment of sales tax. (See section 532.4[e] of this Title.)

   (b) Research and development.

5. (1) Research and development, in the experimental or laboratory sense, means research which has as its ultimate goal:

   1. (i) basic research in a scientific or technical field of endeavor;
   2. (ii) advancing the technology in a scientific or technical field of endeavor;
   3. (iii) the development of new products;
   4. (iv) the improvement of existing products; and
   5. (v) the development of new uses for existing products.

6. (2) Research and development in the experimental or laboratory sense does not include:

   1. (i) testing or inspection of materials or products for quality control (for machinery and equipment used for quality control in the production of products for sale, see section 528.13 of this Part);
   2. (ii) efficiency surveys;
   3. (iii) management studies;
   4. (iv) consumer surveys, advertising and promotions; and

   5. (v) research in connection with literary, historical or similar projects.

      (c) Directly, predominantly, exclusively.

7. (1) Direct use in research and development means actual use in the research and development operation. Tangible personal property for direct use would broadly include materials worked on, and machinery, equipment and supplies used to perform the actual research and development work. Usage in activities collateral to the actual research and development process is not deemed to be used directly in research and development.
8. (2) Tangible personal property is used predominantly in research and development if over 50 percent of the time it is used directly in such function.

9. (3) Tangible personal property is exempt only if it meets the tests of direct and predominant use. Example 1: Example 2: Example 3: Example 4: Example 5: Example 6:

   1. (i) Gas, electricity, refrigeration and steam and gas, electric, refrigeration and steam service is used exclusively in research and development if 100 percent of its use is in such function.
   2. (ii) Because gas, electricity, refrigeration and steam when purchased by the user is normally received in bulk or in a continuous flow and a portion thereof is used for purposes which would make the exemption inapplicable to such purchases, the user may claim a refund or credit for the tax paid on the portion used or consumed directly and exclusively in research and development.

   3. (iii) The user must maintain adequate records with respect to the allocation of gas, electricity, refrigeration and steam used directly and exclusively in research and development from that used for nonexempt purposes, the user must, when claiming a refund or credit, submit an engineering survey or the formulae used in arriving at the amounts used in an exempt manner. Example 7:

      Example 7:

      A biological laboratory that develops new vaccines has an autoclave to sterilize instruments and a refrigerator for storage of the vaccine, both run by electricity. It receives one electric bill, which covers general lighting and the electricity required for the autoclave and refrigerator. It may obtain a refund of the portion of the tax applicable to the charge for electricity required to run the autoclave and refrigerator.

   Example 1:

   Test tubes, flasks, reagents, microscopes and slides purchased by a chemical manufacturer for its research laboratory for developing new pesticides are exempt from sales tax.

   Example 2:

   Laboratory tables for use in a research laboratory are exempt, but desks and chairs used by clerical personnel are not used directly in research.

   Example 3:

   A company constructs apparatus in its own machine shop, for use only in its research department in experiments on the strength of different alloys. It purchases the materials from which the apparatus is constructed, and special tools and dies needed to construct the apparatus from its suppliers. The materials may be purchased without payment of tax, as directly and predominantly used in research. The special tools and dies are not exempt, as they are not used directly and predominantly in research.

   Example 4:

   An aircraft manufacturer assembles two airplanes, which it uses for function and reliability tests prior to manufacturing this type of airplane for sale. The parts, equipment, instrumentation and fuel used on the airplanes during the testing phase are exempt as they are used directly and predominantly in research and development.

   Example 5:

   Technical books and journals purchased for a research and development laboratory, for use in doing background research are exempt.

   Example 6:

   Paper on which research and development test results are recorded is exempt, but paper for in-house printing of a summary of research and development findings so that decisions may be made as to the marketability of the new products is taxable as the decisionmaking activity is administrative.

   (4)

Tax Law, §§ 1115(a)(10) and 1115(b)(ii)

(a) Exemption.