General Overview

M&E Salaes Tax Exemption is a retail sales and use tax exemption for machinery and equipment used directly in a manufacturing or research and development operation. Sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving qualifying machinery and equipment are also exempt from sales tax.  At the UW, equipment purchased for certain University research and development activities may qualify for a sales tax exemption allowed under RCW 82.08.05656. 

Equipment purchased for certain University research and development activities may qualify for a sales tax exemption allowed under RCW 82.08.05656, known as the Machinery and Equipment Tax Exemption or "M&E Exemption."  The exemption may be applied towards purchases of fixtures, equipment, and support facilities that are an integral and necessary part of pilot scale manufacturing or used directly in University manufacturing or research and development activities as defined in RCW 82.63.010 (16).

Note:

  • Federally titled items purchased by the University also qualify for the exemption.
  • Add costs to existing pieces of M&E qualifying equipment can also qualify for the exemption, even if they are under $200.
  • Items with a total cost of $200 or more may qualify for this exemption. 
  • The M&E Exemption does not tie the tax exemption to the University of Washington's capitalization threshold of $5,000.

 

To qualify for the M&E Exemption, equipment must:

  • Have a useful life of greater than one year;
  • Be used more than 50% annually on qualifying research; and (Link to R&D...M&E Exemption in Glossary)
  • Have an acquisition cost of $200 or more

Non-equipment costs that can also qualify for the M&E Exemption include:

  • Ancillary costs (use the relevant 06-XX M&E object code)
  • Labor costs (use object code 03-65)
  • Repair and maintenance - this includes service/maintenance contracts, as well as preventative maintenance costs performed outside of any maintenance contract (use object code 03-65)
  • Replacement parts (use object code 05-41)

Non-equipment costs that do not qualify for the M&E Exemption include:

  • Warranties
  • Consumable supplies

Definitions

Best Practices for M&E Purchases

Since M&E purchases require pre-approval, the only systems in which M&E purchases are allowed are Ariba requisitions (including non-catalog orders), and BPOs (blanket purchase orders). 

The vendor must obtain the M&E DOR certificate up front by accepting the purchase order. In addition, the vendor should not allow an M&E purchase to be made without the certificate being presented up front. The Procurement Card, Non-PO Invoices, and eReimbursement are all "post purchase" payment methods and therefore pre-approval is not available.

Forms/Resources

Optional - Some departments choose to collect supporting data related to M&E purchases.  The format for this varies by department and is for internal use only.

Regulations

RCW 82.08.02565 Exemptions - Sales of machinery and equipment for manufacturing, research and development, or a testing operation - Labor and services for installation - Exemption certificate - Rules.

RCW 82.63.010 Definitions

WAC 458-20-13601 Manufacturers and processors for hire—Sales and use tax exemption for machinery and equipment.

Excise Tax Advisory 3127.2009 Manuracturers' Machinery and Equipment Exemption - Research and Development

WAC 450-20-257 Warranties, Service Contracts, & Tax Exempt Status

Updated 25 March 2021