DRS: SN 97(2), Exemptions from Sales and Use Taxes for Items Used Directly in the Biotechnology Industry

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

This Special Notice has been superseded by PS 98(8)

SN 97(2)

Exemptions from Sales and Use Taxes for Items
Used Directly in the Biotechnology Industry
 


 

PURPOSE: The purpose of this Special Notice is to describe the exemption from sales and use taxes under Conn. Gen. Stat. 12-412(89) for sales and purchases of machinery, equipment, tools, materials, supplies and fuel used directly in the biotechnology industry.

 


EFFECTIVE DATE: Effective for sales occurring on and after July 1, 1996.

 


STATUTORY AUTHORITY: Conn. Gen. Stat. 12-412(89) (added by 1996 Conn. Pub. Acts 252, 5).

 

DEFINITIONS: The following definitions will apply for purposes of the exemption under Conn. Gen. Stat. 12-412(89):

 

1. Biotechnology is defined as the application of technologies, such as recombinant DNA techniques, biochemistry, molecular and cellular biology, genetics and genetic engineering, biological cell fusion techniques, and new bioprocesses, using living organisms, or parts of organisms, to produce or modify products, to improve plants or animals, to develop microorganisms for specific uses, to identify targets for small molecule pharmaceutical development, to transform biological systems into useful processes and products or to develop microorganisms for specific uses.

 

2. Machinery means the basic machine itself, including all of its component parts and contrivances such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery, including, but not limited to, computers and data processing equipment.

 

Because prewritten (or "canned") software used on a machine eligible for the biotechnology exemption is considered equipment or a device used or required to control, regulate or operate the machinery, its purchase qualifies for this exemption, whether or not such software is purchased in the same transaction with the machinery on which it is used. The cost of services rendered in connection with either the creation of custom software or the customization of software, when such software is purchased with the machinery on which it is to be used which is exempted under the biotechnology exemption, is part of the sales price and gross receipts under Conn. Gen. Stat. 12-407(8) and (9); as such, the cost of such software will be included within this exemption. However, because this exemption applies only to tangible personal property and not to services, charges for computer and data processing services rendered in connection with the purchase of custom or customized software in a transaction separate from the purchase of the machinery on which such software is to be used, or in connection with later purchases of custom or customized software, will be subject to tax as a service enumerated in Conn. Gen. Stat. 12-407(2)(i)(A).

 

3. Equipment means a device separate from machinery but essential to the application of technologies in biotechnology. Some examples of items considered to be equipment are microscopes, sterilizers and laboratory furniture. Equipment may be considered "essential" if the process cannot proceed without that equipment. The fact that equipment is required by law, such as screens or railings required for safety, or by practical necessity, such as ceiling lights, does not of itself render equipment essential.

 

4. Materials and supplies are items that become ingredient or component parts of an end product resulting from, or items that are used or consumed in, the application of technologies in biotechnology. Some examples of items considered to be materials or supplies are chemicals, drugs, gases, disposable items (such as plastic pipettes and tubes, filters, and needles) laboratory animals and animal care supplies. The term also includes items of personal apparel needed to preserve the safety of the employees or to maintain a level of purity required for such activities to take place. Some examples of apparel are disposable garments and goggles.

 

5. Tools include tools that are used or consumed in the application of technologies in biotechnology. Examples of items considered to be tools include reusable glass items, such as test tubes and beakers, and medical or surgical instruments, such as syringes, scalpels, clamps or probes.

 

6. Fuel is a substance that is generally regarded as such, such as coal, gas or oil, that is used or consumed in the application of technologies in biotechnology. Electricity is not considered to be a fuel.

 


 

USED DIRECTLY IN the BIOTECHNOLOGY INDUSTRY: In determining whether items are used directly in the biotechnology industry, the commissioner will examine the facts and circumstances of each case, using the following principles as guidelines:

 

1. Machinery, equipment, tools, materials, supplies or fuel that directly transform, or have a direct effect upon, the form, composition or character of raw materials to which technologies are being applied in biotechnology are used directly in the biotechnology industry.

 

2. Machinery, equipment, tools, materials, supplies or fuel, other than items described in subdivision (1), that are used predominantly in connection with or to perform an activity occurring during the application of technologies in biotechnology are used directly in the biotechnology industry.

 

3. Machinery, equipment, tools, materials, supplies or fuel, other than items described in subdivisions (1) and (2), that are used predominantly to control or monitor an activity occurring during the application of technologies in biotechnology, or predominantly to design a product as well as to control or monitor an activity occurring during such application of technologies, are used directly in the biotechnology industry.

 

4. Machinery, equipment, tools, materials, supplies or fuel used predominantly during the application of technologies in biotechnology to test or measure materials and products to which such technologies are being applied are items used directly in the biotechnology industry.

 


 

ITEMS THAT DO NOT QUALIFY FOR the BIOTECHNOLOGY EXEMPTION: The exemption for purchases of machinery, equipment, tools, materials, supplies and fuel does not apply to such items used primarily in administration, general management, sales or any other activity which does not constitute the application of technologies in biotechnology. The biotechnology exemption also does not apply to repair or replacement parts for machinery, equipment or tools, the purchase of which is exempt from sales and use taxes under Conn. Gen. Stat. 12-412(89).

 

The services of maintaining or repairing machinery, equipment or tools, including adjustment and calibration, are taxable as repair or maintenance services to tangible personal property under Conn. Gen. Stat. 12-407(2)(i)(EE). Providers of such services must collect tax on their charges and may not purchase their machinery, equipment, tools, materials, supplies or fuel exempt from tax under Conn. Gen. Stat. 12-412(89).

 


 

CERTIFICATE OF EXEMPTION: CERT-129, Exemption for Items Used Directly in the Biotechnology Industry, must be presented to the seller by the purchaser of machinery, equipment, tools, materials, supplies or fuel on the purchase of which the biotechnology exemption is claimed. Acceptance of this certificate in good faith by the seller from a purchaser engaged in the application of technologies in biotechnology will relieve the seller of the burden of proving that the property purchased is subject to the biotechnology exemption. If the purchaser makes any use of the property other than the use stated on the certificate, the property will become subject to tax at the time of such use based upon the full purchase price.

 


 

EFFECT ON OTHER DOCUMENTS: None affected.

 


EFFECT OF THIS DOCUMENT: A Special Notice is a document that, in response to newly enacted or amended Connecticut or federal laws or in response to newly released judicial decisions, announces a new Department position, policy or practice affecting the tax liability of taxpayers.

 


FOR FURTHER INFORMATION: To order forms, and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24 hours a day by choosing Option 3 on your touch tone telephone.

 

Electronic Delivery Options: You can also obtain tax forms and publications 24 hours a day from our Web home page at http://www.ct.gov/drs. Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-5911 during business hours.

 


SN 97(2)
Issued: 5/14/97
Sales and use taxes