In a recent sales/use tax case Massachusetts high court held company did not need to produce the final product in order for it to qualify for the state's research and development manufacturing exemption.
Onex Communications Corp. v. Commissioner, Mass. (7/30/10). The Massachusetts Supreme Judicial Court affirmed that a microchip company’s purchased items constituted exempt materials, machinery and replacement parts used directly and exclusively in research and development (R&D), because the company qualified as a “manufacturing corporation.” Under the facts, the company’s engineers drafted intricate electronically-stored “blueprints” to direct the:
Physical construction of an innovative communications microchip from raw silicon, and Embedding of the software into the hardware.
The department argued that the company was not a “manufacturing corporation” during the audit period, because at the end of that period it had not achieved creation of its microchip “finished product.”
The Court agreed with Appellate Tax Board and Court of Appeals that such a “finished product” limitation does not exist under the R&D exemption statute and that a “manufacturing corporation” need only be engaged in activities that are essential and integral to the total manufacturing process to qualify.
