Taking effect on January 1st, 2004, lawmakers resolved to cancel the sales tax exemption for contract research at colleges. Generally all research services performed by scientific institutions of the university for a contractor (third party sponsor) in return for payment are subject to sales taxes. Furthermore, all contract research and service projects are calculated at full cost starting on 01 July 2011.
Contract research includes, among other things, conducting experiments, research tasks, generating appraisals and findings reports, and clinical studies. Here an agreement between the contractor and the university is reached whereby the manner, scope, and timeframe for the service and compensation are established, or other stipulations are established, so that the contractor can expect a certain compensation. This compensation can consist of, for example, the transferring of research results for further commercial use, granting patent or copyrights, or the creation of other commercial exploitation possibilities. At the present time, there are no final estimations or general guidelines from the finance administration. Therefore it is advisable to check every case in light of the aforementioned criteria for whether taxable services exist.
The deciding points in the question of whether a service in field of research is subject to sales tax are in the contractual agreements of the parties. In these cases it is irrelevant whether the affected contract partners are organized under private or public law. Even between two public entities, services subject to sales tax can exist (e.g. the generation of appraisals for another agency). Another decisive factor might be whether the university's activities put it in competition with third parties, i.e. whenever private institutions outside of the university would be capable of running the same project. In such a case, tax exemption would no longer be justified, for it would give governmental institutions unfair competitive advantages over private institutions. As a basis for contractual regulations in research contracts, the university's Sample Contract should be used.
Cooperation and R&D contracts generally must be reviewed during the draft phase by Department B 1.2.
Because of this, only a very limited area of college research activities is exempt from sales tax. This is in close connection with the university's performance of duties under public law. Exemption from sales tax occurs when conducting research projects to which third parties make donations without expecting compensation. Third party donations are money, materials, or other such services from public or private donors which are awarded to the college, one of its institutions, or one of its members for general or specific scientific purposes without agreeing upon or expecting compensation. Publishing generic progress reports, scientific papers, usage lists, or even fulfilling the requirements of the third party financers are not considered compensation.