Upcoming CT DRS webinar: Select to register for the upcoming Income Tax Filing Overview Webinar on Wednesday, March 6, 2024 at 10:00 a.m. 

Ruling 97-7, Sales and Use Taxes / Biotechnology Exemption


A company (the "Company") provides pathology testing services to physicians and managed care organizations. The Company tests blood, tissue and other specimens furnished by the service recipients and prepares a comprehensive report which it provides to the service recipients. The Company’s services are used by physicians who are screening for cancer, forecasting the course of an existing cancer or testing for the recurrence of a previously treated cancer in a specific patient.


Whether the pathology testing services rendered by the Company are considered to be "biotechnology" within the meaning of Conn. Gen. Stat. §12-412(89), thus qualifying the Company to make exempt purchases under such statute.


Purchases of machinery, equipment, tools, materials, supplies and fuel used directly in the biotechnology industry are exempted by Conn. Gen. Stat. §12-412(89), which defines the term "biotechnology" as:

the application of technologies, such as recombinant DNA techniques, biochemistry, molecular and cellular biology, genetics and genetic engineering, biological cell fusion techniques, and new bioprocesses, using living organisms, or parts of organisms, to produce or modify products, to improve plants or animals, to develop microorganisms for specific uses, to identify targets for small molecule pharmaceutical development, to transform biological systems into useful processes and products or to develop microorganisms for specific uses.

(Emphasis added.) The highlighted verbs -- "to produce or modify," "to improve," "to develop," "to identify" and "to transform" -- indicate that the exemption was intended for activities that would lead towards progress in the area of biotechnology, as opposed to merely diagnosing illnesses in specific patients.

To the extent that the language of the exemption may be ambiguous, it is appropriate to review the intent of the General Assembly in enacting it. ("It is fundamental that statutory construction requires us to ascertain the intent of the legislature and to construe the statute in a manner that effectuates that intent." Petco Insulation Co. v. Crystal, 231 Conn. 315, 321, 649 A.2d 790 (1994).) The legislation enacting the exemption was part of an initiative to promote the "cluster-based development" of the biotechnology industry, as one of the "new industries of the future." 39 H.R. Proc., Pt. 14, 1996 Sess., pp. 4742-4744 (remarks of Rep. Merrill, who introduced the bill). According to Representative Merrill, "cluster-based development" is a "broad-based range of industries that interact together, both in terms of market, in terms of product development, in terms of research and development." Id. at p. 4744. The biotechnology "cluster" was chosen as one of the first industries to receive a legislative incentive, because Connecticut already possesses the "synergism" to attract biotechnology companies in its quality of life, its educational institutions and the pharmaceutical manufacturers already located here. Id. at pp. 4759-4760 (remarks of Rep. Ward). It appears from the legislative history, as well as the General Assembly’s choice of the types of activities listed in the statute, that the exemption was intended to exempt purchases made by companies that engage in biotechnology research and development focusing on producing products (whether or not such production will be done by the business engaging in the research and development).

It is well established that statutes which grant exemptions from sales and use taxes must be strictly construed against the taxpayer, and any ambiguities in such statutes must be resolved in favor of the Department. See, e.g., United Illuminating Co. v. Groppo, 220 Conn. 749, 752-3 (1992). The Department has long used a "true object" test to assist it in determining the proper application of sales and use taxes to a particular service. American Totalisator Co. v. Dubno, 210 Conn. 401, A.2d 414 (1989); Dine Out Tonight Club v. Dept. of Revenue Services, 210 Conn. 567, 556 A.2d 580 (1989); see also Ruling Nos. 96-2, 94-22. The Company’s services are directed at testing patient specimens for medical practitioners to assist them in making diagnoses of or forming a prognosis for their patients. Because the true object of the Company’s services is not to conduct research to discover or create new products or processes or to improve existing ones, it cannot be considered to be "biotechnology" as that term is defined in Conn. Gen. Stat. §12-412(89).


The medical testing services rendered by the Company are not activities included in the definition of "biotechnology industry" in Conn. Gen. Stat. §12-412(89) that would qualify the Company to make exempt purchases under such statute.


Issued December 31, 1997