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BTLG Table of Contents > Sales and Use Tax Annotations > R > 477.0000 Research and Development > Annotation 477.0770

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R

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477.0000 Research and Development Contracts—Regulation 1501.1

Annotation 477.0770

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477.0770 Charges for Nonrecurring Engineering. Taxpayer, a manufacturer of semiconductor devices, designs circuit boards which it uses as a form of tooling to produce semiconductor devices for its customers. Taxpayer makes a separate charge designated as nonrecurring engineering (NRE) to cover the cost of design and manufacturing the circuit boards. Title to the circuit board and design file is retained by the taxpayer. When the customer never receives title to, or possession of, the tooling, the tooling charges are regarded as part of the manufacturer's cost of manufacturing the finished product, which costs are passed on to the customer. The semiconductor devices are not purchased for resale and, thus, the charge for engineering is part of gross receipts from the sale of the semiconductor devices. Tax applies to the charges for manufacturing this board whether or not they are separately stated (e.g., a charge for the board and tooling) or billed as a single lump sum. 6/25/97.