Senate Bill No. 113
(By Senators Tomblin (Mr. President) and Sprouse
By Request of the Executive)
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[Introduced January 10, 2002; referred to the Committee
on Finance.]
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A BILL to amend article fifteen, chapter eleven of the code of
West Virginia, one thousand nine hundred thirty-one, as
amended, by adding thereto a new section, designated
section nine-b, relating generally to consumers sales and
service tax; adding new exemption from tax for purchases of
tangible personal property and services for direct use in
research and development purchased after the thirtieth day
of June, two thousand-two; and defining certain terms.
Be it enacted by the Legislature of West Virginia:
That article fifteen, chapter eleven of the code of West
Virginia, one thousand nine hundred thirty-one, as amended, be
amended by adding thereto a new section, designated section
nine-b, to read as follows:
ARTICLE 15. CONSUMERS SALES AND SERVICE TAX.
§11-15-9b. Exemption for purchases of tangible personal
property and services for direct use in research
and development.
(a) Sales of tangible personal property and services after
the thirtieth day of June, two thousand two, directly used or
consumed in the activity of research and development shall be
exempt from tax imposed by this article. Any person having a
right or claim to the exemption set forth in this section shall
first pay to the vendor the tax imposed by this article and then
apply to the tax commissioner for a refund or credit, or as
provided in section nine-d of this article, or give to the
vendor the person's West Virginia direct pay permit number.
(b) For purposes of this article:
(1) "Directly used or consumed in the activity of research
and development" means used or consumed in those activities or
operations which constitute an integral and essential part of
research and development, as contrasted with and distinguished
from those activities or operations which are simply incidental,
convenient or remote to the research and development.
(A) Uses of property or consumption of services which
constitute direct use or consumption in the activity of research
and development includes only:
(i) In the case of tangible personal property, physical incorporation of property into tangible personal property that
is the subject of, or directly used in, research and
development;
(ii) Causing a direct physical, chemical or other change
upon property that is the subject of, or directly used in,
research and development;
(iii) Transporting or storing property that is the subject
of, or directly used in, research and development;
(iv) Measuring or verifying a change in property that is the
subject of, or directly used in, research and development;
(v) Physically controlling or directing the physical
movement or operation of property that is the subject of, or
directly used in, research and development;
(vi) Directly and physically recording the flow of property
that is the subject of, or directly used in, research and
development;
(vii) Producing energy for property that is the subject of,
or directly used in, research and development;
(viii) Controlling or otherwise regulating atmospheric or
other environmental conditions required for research and
development;
(ix) Serving as an operating supply for property that is the
subject of, or directly used in, research and development;
(x) Maintenance or repair of property, including maintenance
equipment, that is directly used in research and development;
(xi) Storage, removal or transportation of economic or other
waste resulting from the activity of research and development;
(xii) Pollution control or environmental quality or
environmental protection activity directly relating to the
activity of research and development, and personnel, plant,
property or community safety or security activity directly
relating to the activity of research and development; or
(xiii) Otherwise being used as an integral and essential
part of research and development.
(B) Uses of property or services which do not constitute
direct use or consumption in the activity of research and
development include, but are not limited to:
(i) Heating and illumination of office buildings;
(ii) Janitorial or general cleaning activities;
(iii) Personal comfort of personnel;
(iv) Planning or scheduling of work or inventory control;
(v) Marketing, general management, supervision, finance,
training, accounting and administration; or
(vi) An activity or function incidental or convenient to
research and development, rather than an integral and essential part of these activities.
(2) "Research and development" means systematic scientific,
engineering or technological study and investigation in a field
of knowledge in the physical, computer or software sciences,
often involving the formulation of hypotheses and
experimentation, for the purpose of revealing new facts,
theories or principles, or increasing scientific knowledge,
which may reveal the basis for new or enhanced products,
equipment or manufacturing processes. Research and development
includes, but is not limited to, design, refinement and testing
of prototypes of new or improved products, or design, refinement
and testing of manufacturing processes before commercial sales
relating thereto have begun. For purposes of this section
commercial sales includes, but is not limited to, sales of
prototypes or sales for market testing.
(A) Research and development does not include:
(i) Market research;
(ii) Sales research;
(iii) Efficiency surveys;
(iv) Consumer surveys;
(v) Product market testing;
(vi) Product testing by product consumers or through
consumer surveys for evaluation of consumer product performance
or consumer product usability;
(vii) The ordinary testing or inspection of materials or
products for quality control (quality control testing);
(viii) Management studies;
(ix) Advertising;
(x) Promotions;
(xi) The acquisition of another's patent, model, production
or process or investigation or evaluation of the value or
investment potential related thereto;
(xii) Research in connection with literary, historical or
similar projects;
(xiii) Research in the social sciences, economics,
humanities or psychology and other nontechnical activities; and
(xiv) The providing of sales services or any other service,
whether technical service or nontechnical service.
(c) No provision of this section shall be interpreted to
alter, abrogate or impede application of the exemption for sales
of primary opinion research services set forth in section nine
of this article.
NOTE: The purpose of this bill is to provide an exemption
from the consumers sales and service tax for purchases of
tangible personal property and services after June 30, 2002,
that are directly used in research and development.
This section is new; therefore, strike-throughs and
underscoring have been omitted.