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

RCW 82.08.02565
in effect
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(1)(a) The tax levied by RCW 82.08.020 does not apply to sales to a manufacturer or processor for hire of machinery and equipment used directly in a manufacturing operation or research and development operation, to sales to a person engaged in testing for a manufacturer or processor for hire of machinery and equipment used directly in a testing operation, or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the machinery and equipment. (b) Except as provided in (c) of this subsection, sellers making tax-exempt sales under this section must obtain from the purchaser an exemption certificate in a form and manner prescribed by the department by rule. The seller must retain a copy of the certificate for the seller's files. (c)(i) The exemption under this section is in the form of a remittance for a gas distribution business, as defined in RCW 82.16.010 , claiming the exemption for machinery and equipment used for the production of compressed natural gas or liquefied natural gas for use as a transportation fuel. (ii) A gas distribution business claiming an exemption from state and local tax in the form of a remittance under this section must pay the tax under RCW 82.08.020 and all applicable local sales taxes. Beginning July 1, 2017, the gas distribution business may then apply to the department for remittance of state and local sales and use taxes. A gas distribution business may not apply for a remittance more frequently than once a quarter. The gas distribution business must specify the amount of exempted tax claimed and the qualifying purchases for which the exemption is claimed. The gas distribution business must retain, in adequate detail, records to enable the department to determine whether the business is entitled to an exemption under this section, including: Invoices; proof of tax paid; and documents describing the machinery and equipment. (iii) The department must determine eligibility under this section based on the information provided by the gas distribution business, which is subject to audit verification by the department. The department must on a quarterly basis remit exempted amounts to qualifying businesses who submitted applications during the previous quarter. (iv) Beginning July 1, 2028, a gas distribution business may not apply for a refund under this section or RCW 82.12.02565 . (2) For purposes of this section and RCW 82.12.02565 : (a) "Machinery and equipment" means industrial fixtures, devices, and support facilities, and tangible personal property that becomes an ingredient or component thereof, including repair parts and replacement parts. "Machinery and equipment" includes pollution control equipment installed and used in a manufacturing operation, testing operation, or research and development operation to prevent air pollution, water pollution, or contamination that might otherwise result from the manufacturing operation, testing operation, or research and development operation. "Machinery and equipment" also includes digital goods. (b) "Machinery and equipment" does not include: (i) Hand-powered tools; (ii) Property with a useful life of less than one year; (iii) Buildings, other than machinery and equipment that is permanently affixed to or becomes a physical part of a building; and (iv) Building fixtures that are not integral to the manufacturing operation, testing operation, or research and development operation that are permanently affixed to and become a physical part of a building, such as utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical. (c) Machinery and equipment is "used directly" in a manufacturing operation, testing operation, or research and development operation if the machinery and equipment: (i) Acts upon or interacts with an item of tangible personal property; (ii) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing site or testing site; (iii) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property at the site or away from the site; (iv) Provides physical support for or access to tangible personal property; (v) Produces power for, or lubricates machinery and equipment; (vi) Produces another item of tangible personal property for use in the manufacturing operation, testing operation, or research and development operation; (vii) Places tangible personal property in the container, package, or wrapping in which the tangible personal property is normally sold or transported; or (viii) Is integral to research and development as defined in RCW 82.63.010 . (d) "Manufacturer" means a person that qualifies as a manufacturer under RCW 82.04.110 . "Manufacturer" also includes a person that: (i) Prints newspapers or other materials; or (ii) Is engaged in the development of prewritten computer software that is not transferred to purchasers by means of tangible storage media. (e) "Manufacturing" means only those activities that come within the definition of "to manufacture" in RCW 82.04.120 and are taxed as manufacturing or processing for hire under chapter 82.04 RCW, or would be taxed as such if such activity were conducted in this state or if not for an exemption or deduction. "Manufacturing" also includes printing newspapers or other materials. An activity is not taxed as manufacturing or processing for hire under chapter 82.04 RCW if the activity is within the purview of chapter 82.16 RCW. (f) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. A manufacturing operation begins at the point where the raw materials enter the manufacturing site and ends at the point where the processed material leaves the manufacturing site. With respect to the production of class A or exceptional quality biosolids by a wastewater treatment facility, the manufacturing operation begins at the point where class B biosolids undergo additional processing to achieve class A or exceptional quality standards. Notwithstanding anything to the contrary in this section, the term also includes that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the preparation of food products on the premises of a person selling food products at retail. (g) "Cogeneration" means the simultaneous generation of electrical energy and low-grade heat from the same fuel. (h) "Research and development operation" means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire. (i) "Testing" means activities performed to establish or determine the properties, qualities, and limitations of tangible personal property. (j) "Testing operation" means the testing of tangible personal property for a manufacturer or processor for hire. A testing operation begins at the point where the tangible personal property enters the testing site and ends at the point where the tangible personal property leaves the testing site. The term also includes the testing of tangible personal property for use in that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the testing of tangible personal property for use in the production of electricity by a light and power business as defined in RCW 82.16.010 or the preparation of food products on the premises of a person selling food products at retail. (3) This section does not apply (a) to sales of machinery and equipment used directly in the manufacturing, research and development, or testing of cannabis, useable cannabis, or cannabis-infused products, or (b) to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving such machinery and equipment. (4) The exemptions in this section do not apply to an ineligible person. For purposes of this subsection, the following definitions apply: (a) "Affiliated group" means a group of two or more entities that are either: (i) Affiliated as defined in RCW 82.32.655 ; or (ii) Permitted to file a consolidated return for federal income tax purposes. (b) "Ineligible person" means all members of an affiliated group if all of the following apply: (i) At least one member of the affiliated group was registered with the department to do business in Washington state on or before July 1, 1981; (ii) As of August 1, 2015, the combined employment in this state of the affiliated group exceeds forty thousand full-time and part-time employees, based on data reported to the employment security department by the affiliated group; and (iii) The business activities of the affiliated group primarily include development, sales, and licensing of computer software and services. (1)(a) The tax levied by RCW 82.08.020 does not apply to sales to a manufacturer or processor for hire of machinery and equipment used directly in a manufacturing operation or research and development operation, to sales to a person engaged in testing for a manufacturer or processor for hire of machinery and equipment used directly in a testing operation, or to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving the machinery and equipment. (b) Except as provided in (c) of this subsection, sellers making tax-exempt sales under this section must obtain from the purchaser an exemption certificate in a form and manner prescribed by the department by rule. The seller must retain a copy of the certificate for the seller's files. (c)(i) The exemption under this section is in the form of a remittance for a gas distribution business, as defined in RCW 82.16.010 , claiming the exemption for machinery and equipment used for the production of compressed natural gas or liquefied natural gas for use as a transportation fuel. (ii) A gas distribution business claiming an exemption from state and local tax in the form of a remittance under this section must pay the tax under RCW 82.08.020 and all applicable local sales taxes. Beginning July 1, 2017, the gas distribution business may then apply to the department for remittance of state and local sales and use taxes. A gas distribution business may not apply for a remittance more frequently than once a quarter. The gas distribution business must specify the amount of exempted tax claimed and the qualifying purchases for which the exemption is claimed. The gas distribution business must retain, in adequate detail, records to enable the department to determine whether the business is entitled to an exemption under this section, including: Invoices; proof of tax paid; and documents describing the machinery and equipment. (iii) The department must determine eligibility under this section based on the information provided by the gas distribution business, which is subject to audit verification by the department. The department must on a quarterly basis remit exempted amounts to qualifying businesses who submitted applications during the previous quarter. (iv) Beginning July 1, 2028, a gas distribution business may not apply for a refund under this section or RCW 82.12.02565 . (2) For purposes of this section and RCW 82.12.02565 : (a) "Machinery and equipment" means industrial fixtures, devices, and support facilities, and tangible personal property that becomes an ingredient or component thereof, including repair parts and replacement parts. "Machinery and equipment" includes pollution control equipment installed and used in a manufacturing operation, testing operation, or research and development operation to prevent air pollution, water pollution, or contamination that might otherwise result from the manufacturing operation, testing operation, or research and development operation. "Machinery and equipment" also includes digital goods. (b) "Machinery and equipment" does not include: (i) Hand-powered tools; (ii) Property with a useful life of less than one year; (iii) Buildings, other than machinery and equipment that is permanently affixed to or becomes a physical part of a building; and (iv) Building fixtures that are not integral to the manufacturing operation, testing operation, or research and development operation that are permanently affixed to and become a physical part of a building, such as utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical. (c) Machinery and equipment is "used directly" in a manufacturing operation, testing operation, or research and development operation if the machinery and equipment: (i) Acts upon or interacts with an item of tangible personal property; (ii) Conveys, transports, handles, or temporarily stores an item of tangible personal property at the manufacturing site or testing site; (iii) Controls, guides, measures, verifies, aligns, regulates, or tests tangible personal property at the site or away from the site; (iv) Provides physical support for or access to tangible personal property; (v) Produces power for, or lubricates machinery and equipment; (vi) Produces another item of tangible personal property for use in the manufacturing operation, testing operation, or research and development operation; (vii) Places tangible personal property in the container, package, or wrapping in which the tangible personal property is normally sold or transported; or (viii) Is integral to research and development as defined in RCW 82.63.010 . (d) "Manufacturer" means a person that qualifies as a manufacturer under RCW 82.04.110 . "Manufacturer" also includes a person that: (i) Prints newspapers or other materials; or (ii) Is engaged in the development of prewritten computer software that is not transferred to purchasers by means of tangible storage media. (e) "Manufacturing" means only those activities that come within the definition of "to manufacture" in RCW 82.04.120 and are taxed as manufacturing or processing for hire under chapter 82.04 RCW, or would be taxed as such if such activity were conducted in this state or if not for an exemption or deduction. "Manufacturing" also includes printing newspapers or other materials. An activity is not taxed as manufacturing or processing for hire under chapter 82.04 RCW if the activity is within the purview of chapter 82.16 RCW. (f) "Manufacturing operation" means the manufacturing of articles, substances, or commodities for sale as tangible personal property. A manufacturing operation begins at the point where the raw materials enter the manufacturing site and ends at the point where the processed material leaves the manufacturing site. With respect to the production of class A or exceptional quality biosolids by a wastewater treatment facility, the manufacturing operation begins at the point where class B biosolids undergo additional processing to achieve class A or exceptional quality standards. Notwithstanding anything to the contrary in this section, the term also includes that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the preparation of food products on the premises of a person selling food products at retail. (g) "Cogeneration" means the simultaneous generation of electrical energy and low-grade heat from the same fuel. (h) "Research and development operation" means engaging in research and development as defined in RCW 82.63.010 by a manufacturer or processor for hire. (i) "Testing" means activities performed to establish or determine the properties, qualities, and limitations of tangible personal property. (j) "Testing operation" means the testing of tangible personal property for a manufacturer or processor for hire. A testing operation begins at the point where the tangible personal property enters the testing site and ends at the point where the tangible personal property leaves the testing site. The term also includes the testing of tangible personal property for use in that portion of a cogeneration project that is used to generate power for consumption within the manufacturing site of which the cogeneration project is an integral part. The term does not include the testing of tangible personal property for use in the production of electricity by a light and power business as defined in RCW 82.16.010 or the preparation of food products on the premises of a person selling food products at retail. (3) This section does not apply (a) to sales of machinery and equipment used directly in the manufacturing, research and development, or testing of cannabis, useable cannabis, or cannabis-infused products, or (b) to sales of or charges made for labor and services rendered in respect to installing, repairing, cleaning, altering, or improving such machinery and equipment. (4) The exemptions in this section do not apply to an ineligible person. For purposes of this subsection, the following definitions apply: (a) "Affiliated group" means a group of two or more entities that are either: (i) Affiliated as defined in RCW 82.32.655 ; or (ii) Permitted to file a consolidated return for federal income tax purposes. (b) "Ineligible person" means all members of an affiliated group if all of the following apply: (i) At least one member of the affiliated group was registered with the department to do business in Washington state on or before July 1, 1981; (ii) As of August 1, 2015, the combined employment in this state of the affiliated group exceeds forty thousand full-time and part-time employees, based on data reported to the employment security department by the affiliated group; and (iii) The business activities of the affiliated group primarily include development, sales, and licensing of computer software and services.
Source: WA Statutes (Official Site)URL: https://app.leg.wa.gov/RCW/default.aspx?cite=82.08&full=trueFetched: 6/29/2026

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