Summary of, and comparison with, existing or proposed federal regulation
There is no existing or proposed federal regulation that is intended to address the activities to be regulated by the rule.
Comparison with rules in adjacent states
The department is not aware of a similar rule in an adjacent state.
Summary of factual data and analytical methodologies
The department has created this proposed rule order to comply with the statutory requirement to prescribe the manner in which a business will be certified for the sales and use tax exemptions for biotechnology under s.
77.54 (57), Stats. No other data was used in the preparation of this proposed rule order or this analysis.
Analysis and supporting documents used to determine effect on small business
As explained above, this rule is created to administer Wisconsin's sales and use tax laws. As the rule itself does not impose any significant financial or other compliance burden, the department has determined that it does not have a significant effect on small business.
Anticipated costs incurred by private sector
This rule does not have a significant fiscal effect on the private sector.
Effect on Small Business
This rule does not have a significant effect on small business.
Initial Regulatory Flexibility Analysis
This proposed rule order does not have a significant economic impact on a substantial number of small businesses.
Agency Contact Person
SECTION 1. Tax 11.07 is created to read:
Tax 11.07 Property used in qualified research and property used to raise research animals. (1)
General. Section
77.54 (57) (b), Stats., provides exemptions for the following:
(a) Machinery and equipment, including attachments, parts, and accessories, that are sold to persons who are engaged primarily in manufacturing or biotechnology in this state and are used exclusively and directly in qualified research.
(b) Tangible personal property or an item or property under s.
77.52 (1) (b) or
(c), Stats., that is sold to persons who are engaged primarily in manufacturing or biotechnology in this state, if the tangible personal property or item or property under s.
77.52 (1) (b) or
(c), Stats., is consumed or destroyed or loses its identity while being used exclusively and directly in qualified research.
(c) Machines and specific processing equipment, including accessories, attachments, and parts for the machines or equipment, that are used exclusively and directly in raising animals that are sold primarily to a biotechnology business, a public or private institution of higher education, or a governmental unit for exclusive and direct use by any such entity in qualified research or manufacturing.
(d) The items listed in s.
77.54 (3m) (a) to
(m), Stats., medicines, semen for artificial insemination, fuel, and electricity that are used exclusively and directly in raising animals that are sold primarily to a biotechnology business, a public or private institution of higher education, or a governmental unit for exclusive and direct use by any such entity in qualified research or manufacturing.
(2)
Definitions. For purposes of the exemptions in s.
77.54 (57) (b), Stats., and sub. (1), the following definitions apply:
(d) “In this state" has the meaning given in s.
77.51 (6), Stats.
(e) “Institution of higher education" means an accredited educational organization providing education after completion of high school, including undergraduate, graduate, and professional education.
(3) Exemptions for property used in qualified research. (a) In order for a person to claim the exemption described in sub. (1) (a) or (b), that person must be engaged primarily in manufacturing or biotechnology in this state. In addition, the exemption in sub. (1) (a) requires that the property be used exclusively and directly in qualified research and the exemption in sub. (1) (b) requires that the property or item is consumed, destroyed, or loses its identity while being used exclusively and directly in qualified research.
(b) The exemption in sub. (1) (b) includes fuel and electricity that is consumed, destroyed, or loses its identity while being used exclusively and directly in qualified research.
(c) For purposes of determining whether an activity is qualified research, the regulations under Treas. Reg. section 1.41-4 apply.
(d) The same activity may be biotechnology and manufacturing for purposes of determining whether the person is engaged primarily in manufacturing or biotechnology in this state. When a person's activities in this state include one or more activities in addition to manufacturing or biotechnology, the question of which activity, if any, is the primary activity is answered by a consistent application of a reasonable measure of activity.
Examples 1) Company A performs research and product development services at locations in Wisconsin for its customers. This is Company A's sole activity in Wisconsin. Company A, using the sales price of its services as the measure of activity, determines that more than 50% of the total sales price it receives for performing all research and product development services in Wisconsin is derived from biotechnology.
2) Company B performs research and product development services at locations outside of Wisconsin. Company B manufactures tangible personal property at a location in Wisconsin. This is Company B's sole activity in Wisconsin. The products manufactured in Wisconsin are used by Company B in performing its research and product development activities. For purposes of the exemptions in sub. (1) (a) and (b), Company B is engaged primarily in manufacturing in Wisconsin, as manufacturing is its only activity in Wisconsin.
(e) When property or an item purchased exempt under sub. (1) (a) or (b) is used more than 5% of its total use for purposes other than exclusive and direct use in qualified research, the purchaser becomes subject to Wisconsin use tax on the purchase price of the property or item, unless another exemption applies.
Examples 1) Company A is engaged primarily in manufacturing in Wisconsin. Company A purchases a machine that it will use directly in conducting qualified research at its manufacturing plant in Wisconsin, and purchases it exempt from Wisconsin sales tax claiming the exemption in sub. (1) (a). After completing the qualified research and having made no use of the machine other than direct use in qualified research, Company A begins using the machine exclusively and directly in its manufacturing operation, which is an exempt use under s.
77.54 (6) (a), Stats. Company A does not owe Wisconsin use tax on its purchase of the machine.
2) Company B is engaged primarily in manufacturing in Wisconsin. Company B purchases a machine that it will use exclusively and directly at its manufacturing plant in conducting qualified research as well as using the machine for more than 5% of its total use in conducting research and development projects that do not meet the definition of qualified research. Company B's purchase of the machine is taxable.
3)
Company C is engaged primarily in manufacturing in Wisconsin. Company C develops a new product in an activity that is qualified research. During the qualified research, Company C purchased a variety of raw materials that were used exclusively and directly and destroyed in qualified research in determining what raw materials were needed to produce the new product. Once the qualified research is concluded, Company C consumes some of the raw materials in further research and development of the new product that is not qualified research. Company C's purchases of the raw materials used exclusively and directly and destroyed in qualified research are exempt under sub. (1) (b). Company C's purchases of raw materials it uses in further research and development of the new product that is not qualified research are taxable. Research and development are not manufacturing and the raw materials used in further research and development of the new product that is not qualified research do not qualify for exemption under s.
77.54 (2) or
(6) (a), Stats.
(4) Exemptions for raising animals used in qualified research or manufacturing. (a) This subsection explains how a person qualifies for the exemptions under sub. (1) (c) and (d), the information certain purchasers of the animals are required to furnish to a seller of such animals, and the documentation to be kept by the seller to verify the seller qualifies for the exemptions.
(b) The exemptions in sub. (1) (c) and (d) apply to property purchased and used exclusively and directly in raising animals only when more than 50% of all the animals raised by the seller of the animals are sold to one of the following organizations for exclusive and direct use by such organization in qualified research or manufacturing:
1. A biotechnology business certified by the department as described in sub. (5).
2. A public or private institution of higher education as defined in sub. (2) (e).
3. A government agency.
(c) The person claiming an exemption under sub. (1) (c) or (d), shall obtain and retain information furnished to it by the organizations described in par. (b), attesting to the number of animals purchased and the number of animals used by the organization exclusively and directly in qualified research or manufacturing. Purchaser's Statement to Seller for Animals used in Qualified Research or Manufacturing, Form S-209, may be used by the purchaser for this purpose.
Examples: 1) Company A raises various animals for sale for use in research. Company A sells more than 50% of its animals to biotechnology businesses for exclusive and direct use in qualified research. 100% of the feed Company A purchases for exclusive and direct use in raising its animals is exempt.
2) Company T raises various animals for sale for use in research. Company A uses cages to raise some of these animals. The cages have a life expectancy of 5 years. Company T's purchases of cages are exempt only if more than 50% of all the animals raised by Company T are sold to organizations described in par. (a) for exclusive and direct use by such an organization in qualified research or manufacturing.
3) Company K raises various animals for sale for use in research. Company K does not sell more than 50% of its animals to organizations described in par. (a) for exclusive and direct use by such an organization in qualified research or manufacturing. Company K does not qualify for the exemptions in sub. (1) (c) and (d).
(5) Certification of biotechnology business by the department. (a) For purposes of the exemptions in sub. (1) (c) and (d), the department is required to certify a business as a biotechnology business. This subsection outlines the rules and procedures for a person to be certified as a biotechnology business by the department.
(b) A business is a biotechnology business when all of the following conditions are satisfied:
1. The business is engaged primarily in biotechnology. A business is engaged primarily in biotechnology for the period described in par. (c) when more than 50% of the business' activities during that period are devoted to the application of biotechnologies.
2. The business has received notice from the department that the business has been certified, with respect to a prescribed period determined under par. (c), that the business is a biotechnology business.
(c) The certification period under par. (b) 2. shall correspond to the business' tax year as determined for federal income tax purposes, including short years, subject to the following conditions:
1. If a business is certified by the department with respect to a previous tax year, the certification is valid for the previous tax year.
2. If a business is certified for a current tax year, the certification is valid until the expected end of the tax year unless, during such tax year the business' tax year terminates earlier than expected. When a tax year terminates earlier than expected, the certification is valid until the actual end of the tax year as determined for federal income tax purposes.
(d) A business may apply for certification with a form and in the manner prescribed by the department.
(e) Notwithstanding any other provision in this subsection, the department may:
1. Revoke any certification granted with respect to a period under par. (c) (1) or (2), but only upon information that either the business' application for certification contained a misstatement as to the business' gross income or expenses and deductions or the business no longer qualifies as a biotechnology business.
2. Require any business seeking certification as a biotechnology business to submit additional information, as determined by the department, prior to the department granting or denying the applicant's request for certification.
3. Require any business seeking certification to be certified only with respect to its previous tax years, until the department determines otherwise.
ADMINISTRATIVE RULES
FISCAL ESTIMATE
AND ECONOMIC IMPACT ANALYSIS
|
Type of Estimate and Analysis
|
X Original Updated Corrected
|
Administrative Rule Chapter, Title and Number
|
Section Tax 11.07 – Property used in qualified research and property used to raise research animals
|
Subject
|
Sales and use tax exemptions for biotechnology
|
Fund Sources Affected
|
Chapter 20 , Stats. Appropriations Affected
|
GPR FED PRO PRS SEG SEG-S
|
|
Fiscal Effect of Implementing the Rule
|
X No Fiscal Effect
Indeterminate
|
Increase Existing Revenues
Decrease Existing Revenues
|
Increase Costs
Could Absorb Within Agency's Budget
Decrease Costs
|
The Rule Will Impact the Following (Check All That Apply)
|
State's Economy
Local Government Units
|
Specific Businesses/Sectors
Public Utility Rate Payers
|
Would Implementation and Compliance Costs Be Greater Than $20 million?
Yes X No
|
Policy Problem Addressed by the Rule
|
The rule does not create or revise policy, other than to reflect a statutory change.
|
Summary of Rule's Economic and Fiscal Impact on Specific Businesses, Business Sectors, Public Utility Rate Payers, Local Governmental Units and the State's Economy as a Whole (Include Implementation and Compliance Costs Expected to be Incurred)
|
As indicated in the attached fiscal estimate, the fiscal effect of creating sales and use tax exemptions for biotechnology was reflected under general fund condition statements subsequent to 2009 Wisconsin Act 28. The rule itself does not create any further economic or fiscal impact or implementation and compliance costs beyond the statutes it interprets.
No comments concerning the economic effect of the rule were submitted in response to the department's solicitation.
|
Benefits of Implementing the Rule and Alternative(s) to Implementing the Rule
|
Clarifications and guidance provided by administrative rules may lower the compliance costs for businesses, local governmental units, and individuals.
If the rule is not implemented, Chapter Tax 11 will be incomplete in that it will not reflect current law.
|
Long Range Implications of Implementing the Rule
|
No long-range implications are anticipated.
|
Compare With Approaches Being Used by Federal Government
|
N/A
|
Compare With Approaches Being Used by Neighboring States (Illinois, Iowa, Michigan and Minnesota)
|
N/A
|
Assumptions used in arriving at fiscal estimate
2009 Wisconsin Act 28, the 2009-11 biennial budget bill, created an exemption (under s.77.54 (57)) for: certain tangible personal property sold to persons who are engaged primarily in manufacturing or biotechnology in this state and are used exclusively and directly in qualified research; and certain tangible personal property used exclusively and directly in raising animals that are sold primarily to a biotechnology business, a public or private institution of higher education, or a governmental unit for exclusive and direct use by any such entity in qualified research or manufacturing.
The effective date of the exemption is January 1, 2012.
The proposed rule modifies TAX 11 to reflect the law changes, establish certification criteria for biotechnology businesses, improve clarity, and add examples to illustrate the tax treatment of certain items under the exemptions under s.77.54 (57).
The proposed rule includes:
•
Criteria used by the department to certify a business as a “biotechnology business".
•
Definitions for “biotechnology products" and “biotechnology services".
•
Clarification that “engaged primarily in manufacturing or biotechnology in this state" means more than 50% of a person's activity in Wisconsin is manufacturing or biotechnology.
•
Examples to clarify the tax treatment of certain items under the exemption.
The fiscal effect of the exemptions under s.77.54 (57) has already been reflected under general fund condition statements subsequent to
2009 Act 28 (where the annual sales tax loss of the exemptions was estimated at $10 million annually). Since the fiscal impact of the statutory change has already been reflected, the proposed rule has no fiscal effect.
Notice of Hearing
Safety and Professional Services
Safety, Buildings, and Environment, Part II
Chs.
SPS 326-
360
NOTICE IS HEREBY GIVEN that pursuant to sections
101.02 (1) and
101.17, Stats., the Department of Safety and Professional Services will hold a public hearing on proposed rules under Chapter
SPS 333, relating to Passenger Ropeways.
Hearing Information
The public hearing will be held as follows:
Date: Tuesday, February 28, 2012
Time: 10:00 A.M.
Location: 1400 East Washington Avenue
Room 121C
Madison, WI 53703
This hearing is held in an accessible facility. If you have special needs or circumstances that may make communication or accessibility difficult at the hearing, please call (608) 266-8741 or (608) 264-8777 (TTY) at least 10 days before the hearing date. Accommodations such as interpreters, English translators, or materials in audio tape format will, to the fullest extent possible, be made available upon a request from a person with a disability.
Appearances at the Hearing and Submittal of Written Comments
Interested persons are invited to appear at the hearing and present comments on the proposed rules. Persons making oral presentations are requested to submit their comments in writing. Persons submitting comments will not receive individual responses. The hearing record on this proposed rulemaking will remain open until
March 2, 2012 to permit submittal of written comments from persons who are unable to attend the hearing or who wish to supplement testimony offered at the hearing. Written comments should be submitted to James Quast, at the Department of Safety and Professional Services, P.O. Box 2689, Madison, WI 53701-2689, or Email at
jim.quast@wisconsin.gov.
The small business regulatory coordinator for the Department of Safety and Professional Services is Greg Gasper, who may be contacted at telephone (608) 266-8608, or Email at
greg.gasper@wisconsin.gov.
Copies of Proposed Rule
