701—230.17 (423) Exemption for the sale of property directly and primarily used in research and development of new products or processes of processing if the sale occurs as part of a contract entered into on or after July 1, 2016. The sales price of computers, machinery, and equipment, including replacement parts, and materials used to construct or self-construct computers, machinery, and equipment is exempt from sales and use tax when the property is directly and primarily used in research and development of new products or processes of processing. For sales occurring as part of a contract entered into prior to July 1, 2016, see rule 701—18.58(422,423).
	   230.17(1) Required elements. To qualify for exemption under this rule, the purchaser must prove the property is:
	      a.    	 Computers, machinery, or equipment, including replacement parts, or materials used to construct or self-construct computers, machinery, and equipment (see subrule 230.14(2));
	      b.    	 Directly used (see subrules 230.15(2) and 230.17(3));
	      c.    	 Primarily used (see subrule 230.15(2)); and
	      d.    	 Used in research and development (see subrule 230.17(2)) of:
	       (1)  	 New products; or
	       (2)  	 Processes of processing.
	   230.17(2) “Research and development” means experimental or laboratory activity that has as its ultimate goal the development of new products or processes of processing.
	   230.17(3) Property is used “directly” in research and development only if it is used in actual experimental or laboratory activity that qualifies as research and development under this rule.
	   230.17(4) Example of property directly and primarily used in research and development of new products or processes of processing. A hybrid seed producer maintains a research and development laboratory for use in developing new varieties of corn seed. The hybrid seed producer purchases the following items for use in its research and development laboratory: a laboratory computer for processing data related to the genetic structure of various corn plants, an electron microscope for examining the structure of corn plant genes, a steam cleaner for cleaning rugs in the laboratory offices, and a desktop computer for use by the laboratory receptionist. The laboratory computer and the microscope are “directly” used in the research in which the laboratory is engaged; the steam cleaner and the receptionist’s computer are not directly used in research. Therefore, the sales prices of the laboratory computer and the microscope are exempt from sales and use tax. The sales prices of the steam cleaner and the receptionist’s computer are not exempt from tax under this rule.
This rule is intended to implement Iowa Code section 423.3(47)“a”(3).
[ARC 2349C, IAB 1/6/16, effective 2/10/16]