Wisconsin Contractor Liable for Tax on Materials Installed for Exempt Customers

Friday, February 7th, 2014

 
 
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Wisconsin
General

The Wisconsin Court of Appeals recently held that a contractor was liable for tax on materials it installed for its tax-exempt customers.

Wisconsin taxes sales of tangible personal property, including sales of materials to contractors who will install the materials for their customers as part of a construction contract. Wisconsin does not tax sales for resale. Under Wisconsin law, a contractor does not resell construction materials to its customers when it installs them. The contractor is the consumer of those materials and is responsible for tax on them.

The taxpayer bought construction materials tax free with resale certificates. When a tax-exempt customer wanted an installation, the customer would issue two separate purchase orders. One purchase order would go to a sister company for the materials. The second purchase order would go to the taxpayer for the installation. The taxpayer would later record the materials as having been transferred from it to its sister company for year-end journal entries. The taxpayer argued that it purchased the materials for resale to the sister company, that the sister company purchased the materials for resale to the exempt customer, and that the sale to the exempt customer was clearly not taxable.

The Court held that the taxpayer was liable for tax on the materials. The taxpayer's transfer to its sister company did not affect the "substance and reality" of the transactions. In substance, the taxpayer purchased materials and installed the materials for its customers. The facts that (1) it recorded the materials as transferred to its sister company and (2) it required a separate purchase order to its sister company for the materials did not change the substance of the transaction. The taxpayer was therefore liable for tax on the materials.

http://www.wicourts.gov/ca/opinion/DisplayDocument.html?content=html&seqNo=107543


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