The Arvada Municipal Code defines Research and Development as the research of new or experimental technologies, or the development of new or experimental materials, product components or manufacturing processes. Research and development equipment is:
- Equipment used permanently and exclusively in the research of new or experimental technologies
- Equipment used exclusively and directly in the development of new or experimental materials, products, product components or manufacturing processes
- Research and development equipment does not include research and development product prototypes.
Research and development equipment that is sold or leased when the purchase price of each piece of equipment is $100.00 or more and the aggregate purchase price for all such pieces of equipment is over $1,000.00 annually is exempt for sales and use tax. For purposes of determining purchase price, each piece of equipment shall be considered separately.
The research and development equipment exemption does not extend to a proto-type that is manufactured. The researcher or taxpayer that is building a proto-type owes use tax on the materials, parts and supplies used in the production of the proto-type. If proto-types are later put into inventory and later sold, it is also subject to sales tax when sold.
Example
ABC Manufacturing hired R & D Specialist to produce a proto-type of their new product, the “Super Vac.” ABC removes parts from their inventory and orders special parts to give to R & D Specialist for the production of the new Super Vac. If the proto-type remains only that a proto-type, then sales and/or use tax is due on the parts used to build the proto-type. However, once the Super Vac proto-type has been perfected and ABC starts manufacturing the Super Vac then they are no longer proto-types, but manufactured goods for resale.
*This information is a summary in layman's terms of the relevant Arvada tax law for this subject, industry, or business segment. It is not intended for legal purposes to be substituted for the full text of the Arvada tax code. However, the tax guide shall be used in conjunction with the Arvada tax code (chapter 98) in determining tax liability.