SALT Report 3062 – The Wisconsin Department of Revenue updated its guidance for septic system installers to address the sales and use tax exemption that recently took effect. The publication discusses the application of tax to contracts that were entered into before October 1, 2013 and to contracts entered into on or after October 1, 2013.
Contracts Entered Into Prior to October 1, 2013
Under the provisions of Wisconsin Administrative Code 11.68(7)(b), “If a few items of tangible personal property, items, property, goods, or taxable services are minor in relation to the total amount of a contract and are sold as part of a contract that includes construction or real property improvement and no separate charge is made for the taxable items, the cost of all property, items, goods, and services to the construction contractor are subject to sales tax.”
Additionally, if a separate charge is made in any document provided to the customer, such as a contract, contract addendum, appendix, or payment request, the separate charge will also be subject to tax.
For purposes of this provision, “minor in relation to the total amount of a contract” is defined as 10% or less of the total contracted amount for all taxable property, items, goods, and services.
Contracts Entered Into On or After October 1, 2013
Wisconsin Statutes 77.54(60)(b) provides an exemption for the sale, storage, use, or consumption of certain taxable items sold by a contractor pursuant to a lump-sum contract, if the total sales price of all taxable items is less than 10% of the total amount charged in the lump sum contract.
In Wisconsin, a contractor is considered the consumer of all taxable items sold, and therefore they are required to pay sales or use tax on their purchases, unless the items are sold to an exempt entity. Specifically, section 77.54(60)(c), Wisconsin Statutes allows a contractor to purchase certain taxable items for resale, if the items will be sold to an exempt entity under a lump-sum contract. However, a contractor will be required to pay sales or use tax on any materials it purchases and incorporates into real property under a contract with any customer, including exempt entities.
For purposes of this exemption, a lump-sum contract is defined as “a contract to perform real property construction activities and to provide tangible personal property, items, or taxable services for which the contractor quotes the charge for labor, services of subcontractors, tangible personal property, items and taxable services as one price, including a contract for which the contractor itemizes the charges for labor, services of subcontractors, tangible personal property, items and taxable services as part of a schedule of values or similar document.”
The updated publication provides several examples that discuss the application of sales tax to situations that are specific to septic system installers.
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