Washington R&D Sales & Use Tax Exemption (M&E)
Washington Department of Revenue
Full sales tax exemption
Sales tax exemption on R&D equipment for manufacturers
Washington has no state income tax, so there is no income-based R&D tax credit. The primary R&D tax incentive is a full sales and use tax exemption on machinery and equipment (M&E) used directly in qualifying R&D operations — covering purchases, installation, and repair. Available to manufacturers and processors for hire conducting R&D in Washington. The prior B&O (business and occupation) tax credit for R&D spending (RCW 82.04.4452) expired January 1, 2015 and has not been reinstated.
- Funding type
- Tax Credit
- Level
- State
- Amount
- Full Washington state and local sales and use tax exemption (combined rate typically 8.5–10.5% depending on county) on purchases, installation, repair, and improvement of machinery and equipment used directly in a qualifying R&D operation. No dollar cap. The exemption applies at point of sale — no refund or credit mechanism needed.
- Realistic amount
- A Washington biotech manufacturer purchasing $500,000 in lab equipment for qualified R&D operations avoids approximately…
- Deadline
- Rolling — exemption claimed at point of sale with a sales tax exemption certificate
- Status
- active
- States
- WA
- Payment model
- tax offset
Who qualifies
- Must be a manufacturer or processor for hire — standalone research companies, SaaS/software-only firms, and professional services firms do not qualify
- R&D operations must use the equipment 'directly' — equipment used in qualified research and development as defined in RCW 82.63.010 (technological discovery or translation of technological information into new or improved products, processes, formulas, inventions, or software)
- R&D must occur within Washington state
- Explicit exclusion: large software companies with an affiliated group member registered in Washington before July 1, 1981, combined state employment exceeding 40,000, and primary business activities in computer software development/sales/licensing are ineligible
- Cannabis manufacturing and R&D are explicitly excluded
- Equipment must be 'used directly' in the R&D operation — administrative, sales, and general facilities equipment does not qualify
- Labor and services for installing, repairing, cleaning, altering, or improving qualifying M&E are also exempt
What it covers
Eligible expenses
- Machinery and equipment used directly in qualifying R&D operations conducted by a manufacturer or processor for hire
- Installation labor and services for qualifying R&D machinery
- Repair, cleaning, altering, and improvement services for qualifying R&D machinery
- Specialized lab instruments, testing equipment, and analytical apparatus used in R&D
- Fabrication equipment used to produce R&D prototypes or test components
Ineligible expenses
- R&D equipment purchased by non-manufacturers (consulting firms, standalone research institutions, SaaS/software-only companies)
- General office furniture, standard computers, and administrative equipment
- Equipment for R&D conducted outside Washington state
- Cannabis manufacturing and testing equipment
- Equipment for large affiliated software companies meeting all three disqualification criteria
- Construction materials and real property improvements (buildings, facility improvements are not M&E)
How to apply
-
1
Confirm manufacturer or processor-for-hire status
Verify the business qualifies as a 'manufacturer' or 'processor for hire' under Washington law. This means the business physically transforms tangible personal property or conducts qualifying R&D as part of a manufacturing operation. Pure software/SaaS companies, consulting firms, and standalone research institutes typically do not qualify. Check that no disqualifying affiliates exist (pre-1981 registration + 40,000 WA employees).
~2 hrs
-
2
Identify qualifying equipment purchases
Catalog planned and existing machinery and equipment purchases that are used directly in the R&D operation. 'Directly' means the equipment has an integral and necessary part in the research process — lab instruments, testing apparatus, specialized fabrication equipment, and R&D-specific computers qualify. Office furniture, general computing infrastructure, and shared facilities typically do not.
~3 hrs
-
3
Obtain and complete exemption certificate
Complete a Washington Reseller Permit or the relevant exemption documentation before making each qualifying purchase. Present the certificate to the seller at point of sale so sales tax is not charged. Washington does not use a separate M&E exemption form — buyers use the standard exemption documentation and cite RCW 82.08.02565 as the authority.
~1 hrs
-
4
Maintain use documentation
Keep records demonstrating the equipment is used in qualifying R&D operations: R&D project records, equipment location logs, and maintenance records showing the equipment remains in qualifying use. The WA DOR can audit exemption claims up to 5 years after the close of the tax year.
~2 hrs
Industry & certifications
NAICS codes: 325412, 541714, 541715, 336411, 334413, 334516, 336992
WA's B&O R&D credit expired Jan 1 2015 and was never replaced. The M&E exemption remains but requires manufacturer status — pure software/SaaS companies don't qualify despite WA being a major tech hub.
Deadline & timing
This is not a credit applied for annually — it is a sales tax exemption claimed at the time of purchase by providing the seller with a completed Reseller Permit or exemption certificate. Buyers must retain documentation showing the equipment qualifies as R&D machinery used by a manufacturer or processor for hire. The Washington DOR may audit claimed exemptions; retain purchase records and evidence of qualifying R&D use for 5 years.
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Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.