Financial Institutions Entitled to Exemption When Making Payments on Behalf of Exempt Entity

Tuesday, August 5th, 2014

A city in Wisconisn.

The Wisconsin Department of Revenue recently released a ruling that a financial institution's payments on behalf of an exempt entity were exempt.

The taxpayer was a financial institution that provided construction financing services to exempt entities. As part of these services, customers would send purchase orders directly to building material suppliers. The financial institution would pay the suppliers for the materials on behalf of the customers using the customers' funds.

The Department ruled that the financial institutions' payments on behalf of its exempt customers were not subject to tax. The exempt customers could make exempt purchases of construction materials. It did not matter that the financial institutions made the payments on the purchases. There were, however, two requirements to make these payments exempt. First, the exempt customer had to issue the purchase order in its own name. Second, the customer and the financial institution had to issue a joint notice to the supplier that the financial institution was making payment on behalf of the exempt customer using the customer's funds.

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