Tax Type
Retail Sales and Use Tax
Description
Manufacturing, Research and developmentt
Topic
Taxability of Persons and Transactions
Date Issued
04-07-1997
April 7, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This is in response to your letter in which you seek correction of a sales and use tax assessment issued to the *********** (the "Taxpayer") for the period March 1992 through June 1995. Effective July 1, 1995, the Taxpayer is exempt from the sales and use tax on its purchases of tangible personal property pursuant to Code of Virginia § 58.1-609.4(19).
FACTS
The Taxpayer is a nonprofit research, educational and communications organization exempt from taxation under Section 501(c)(3) of the Internal Revenue Code and organized exclusively to promote highway safety. The only issue under protest is tangible personal property purchased by the Taxpayer exclusively for use at its Vehicle Research Center (the "Center").
The Center is a testing facility which allows research into automobile crash dynamics. In effect, the Center can stage an array of automobile crashes at various speeds. These crashes include, for example, collisions between two vehicles, side impact collisions, and collisions into a fixed barrier. The purchases at issue in this activity include: (1) the actual propulsion system, impact barriers, and instrumentation to control and monitor the propulsion; (2) instrumentation for recording data, including film and photos used to record crash tests and crash test results; (3) anthropomorphic dummies; (4) calibration equipment (which may be used, for example, to measure crash forces on the head, chest, legs and necks of the dummies); and (5) computer equipment used to analyze crash data.
You protest the assessment of tangible personal property used at the Center and contend that such property is used in exempt basic research as set out in Code of Virginia § 58.1-609.3(5).
DETERMINATION
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- Code of Virginia § 58.1-609.3(5) provides an exemption from the tax for:
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- Tangible personal property purchased for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense.
The department has explained this exemption in 23 VAC 10-210-3070 through 3074. These regulations define "basic research" to mean "a systematic study or search in a scientific or technical field of endeavor with the ultimate goal of advancing knowledge or technology in that field." The term "experimental sense" means that work is conducted "through tests, trials, tentative procedures, or policies adopted under controlled conditions...." Finally, the term "laboratory sense" means that:
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- Work is conducted in a place equipped for experimental study in a science and providing an opportunity for experimentation, observation, or practice in a field of basic scientific or traditional physical science research.
The crash tests conducted by the Taxpayer are designed to replicate real life motor vehicle accidents. Through these tests, the causes, extent, and diversity of human trauma which occurs in automobile accidents can be determined. The tests also study the behavior of automobile design characteristics in crashes. I find that the Taxpayer's investigations into the medical and engineering characteristics of car crashes constitute a systematic study in a scientific or technical field with the goal of advancing knowledge, and is therefore "basic research." I also find that the controlled nature of the tests ensures that the research is conducted in the experimental or laboratory sense.
Accordingly, to the extent that tangible personal property is used directly and exclusively at the Center, such property is exempt from the tax. The audit will therefore be returned to the audit staff so that the assessment may be revised in accordance with this determination.
In the meantime, please contact **** in my Office of Tax Policy at ****** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11465I
Rulings of the Tax Commissioner