Disregarded Entities (Sales and Use and Withholding Taxes)

  1. Is a single-owner entity that is disregarded as a separate entity for Wisconsin income and franchise tax purposes under Chapter 71 of the Wisconsin Statutes ("disregarded entity") also disregarded for Wisconsin sales and use tax purposes?
  2. How does the law affect transactions between the owner and the disregarded entity?
  3. What sections of the sales and use statutes apply?
  4. Does the owner or the disregarded entity report the sales of the disregarded entity?
  5. Are there any transitional provisions that apply for purchases prior to July 1, 2009?
  6. How are disregarded entities treated for withholding tax purposes?
  7. How do I register my business?
  8. What should I do if my business is not properly registered or if I change my business structure, relating to disregarded entities?
  9. Since an owner and its disregarded entity are considered a single entity for Wisconsin sales and use tax purposes, if a disregarded entity has nexus in Wisconsin, does the fact that the disregarded entity has nexus in Wisconsin create nexus for its owner and the owner's other disregarded entities?

  1. Is a single-owner entity that is disregarded as a separate entity for Wisconsin income and franchise tax purposes under Chapter 71 of the Wisconsin Statutes ("disregarded entity") also disregarded for Wisconsin sales and use tax purposes?

    A single-owner entity that is disregarded as a separate entity (i.e., the single-owner entity and its owner are treated as a single entity) for Wisconsin income and franchise tax purposes under Chapter 71 of the Wisconsin Statutes is also disregarded as a separate entity for purposes of Wisconsin sales and use taxes.

    Prior to July 1, 2009, a single-owner entity that was disregarded as a separate entity for Wisconsin income and franchise tax purposes was treated as an entity separate from its owner for Wisconsin sales and use tax purposes, except for reporting purposes.

  2. How does the law affect transactions between the owner and the disregarded entity?

    The owner and the disregarded entity are treated as a single entity for Wisconsin sales and use tax purposes. There cannot be transactions between the owner and the disregarded entity, because they are treated as a single entity.

  3. What sections of the sales and use tax statutes apply?

    Sections 77.51(10) and 77.61(19m)(a), Wis. Stats., make the sales and use tax treatment of disregarded entities consistent with the tax treatment for income and franchise tax purposes. Transitional provisions are also provided in sec. 77.61(19m)(b) and (c), Wis. Stats.

    An option to file separate returns is provided in sec. 77.58(3)(a), Wis. Stats.

  4. Does the owner or the disregarded entity report the sales of the disregarded entity?

    The owner reports the sales of the disregarded entity on the owner's sales and use tax return.

    The owner may, however, elect to file a separate electronic return for its disregarded entity. If the owner owns more than one disregarded entity and chooses to file a separate return for one of its disregarded entities, the owner must file separate returns for all of its disregarded entities.

    Prior to September 1, 2009, the owner is required to include the disregarded entity's information on the owner's return.

  5. Are there any transitional provisions that apply for purchases prior to July 1, 2009?

    The law includes the following transitional provisions to ensure that, solely due to this law change, the owner of a single-owner entity that is disregarded as a separate entity for Wisconsin income and franchise tax purposes will not incur a use tax liability on purchases made prior to the effective date of the law change or on real property contracts entered into prior to the effective date of the law change:

    • A single-owner entity that is disregarded as a separate entity for Wisconsin income and franchise tax purposes on July 1, 2009 shall be treated for Wisconsin sales and use tax purposes as an entity separate from its owner for the sale, lease, license, or rental of and the storage, use, or other consumption of tangible personal property purchased by the single-owner entity or its owner prior to July 1, 2009.
    • A single-owner entity that is disregarded as a separate entity for Wisconsin income and franchise tax purposes on July 1, 2009 shall be treated for Wisconsin sales and use tax purposes as an entity separate from its owner for purchases of building materials, if the materials are affixed and made a structural part of real estate, and the amount payable to the contractor is fixed without regard to the costs incurred in performing a written contract that was irrevocably entered into prior to July 1, 2009, or that resulted from the acceptance of a formal written bid accompanied by a bond or other performance guaranty that was irrevocably submitted before July 1, 2009.

    EXAMPLE 1 - Construction Company's Purchasing Entity: Contractor A is the single owner of a disregarded entity (LLC B). LLC B purchases and sells materials to Exempt Entity C, a federal governmental unit. Exempt Entity C hires Contractor A to install the materials that it purchases from LLC B. The materials become a part of real property when installed.

    Contract Entered Into Prior to July 1, 2009 - LLC B may purchase the materials without tax for resale. LLC B's sale of the materials to Exempt Entity C are not taxable. Contractor A's charge for installing the materials is not taxable.

    Transitional Provisions - Same as "Contract Entered Into Prior to July 1, 2009" if the amount payable to Contractor A and LLC B is fixed without regard to the costs incurred in performing a written contract that was irrevocably entered into prior to July 1, 2009 or that resulted from the acceptance of a formal written bid accompanied by a bond or other performance guaranty that was irrevocably submitted before July 1, 2009.

    Contracts Entered Into July 1, 2009 and Thereafter - Contractor A and LLC B are treated as a single entity for Wisconsin sales and use tax purposes; therefore, the purchase by LLC B of materials that are used by Contractor A in a real property construction activity are subject to tax. A person who performs a real property construction activity is the consumer of the materials that it uses and is liable for Wisconsin sales or use taxes on the purchase of such materials.

    EXAMPLE 2 - Transportation Company: Retailer X is the single owner of a disregarded entity (LLC Y). LLC Y is a contract transportation entity that hauls Retailer X's goods for hire. LLC Y purchased a semitrailer which it uses exclusively to transport Retailer X's goods.

    Semitrailer Purchased Prior to July 1, 2009 - LLC Y's purchase of the semitrailer is exempt from tax under the common and contract carrier exemption. LLC Y's purchase of parts and service to the semitrailer are also exempt from tax. LLC Y's charge to Retailer X for transporting its goods is not taxable (i.e., transportation services are not taxable).

    Transitional Provisions - Same as "Semitrailer Purchased Prior to July 1, 2009" for transactions relating to the semitrailer (and any other property) that was purchased prior to July 1, 2009, including parts and service purchased after July 1, 2009 for the semitrailer.

    Semitrailers Purchased July 1, 2009 or Thereafter - Retailer X and LLC Y are treated as a single entity for Wisconsin sales and use tax purposes; therefore, LLC Y's purchase of the semitrailer does not qualify for the common and contract carrier exemption, since it is not hauling goods for others for hire. LLC Y's purchase of parts and service for the semitrailer are taxable.

    EXAMPLE 3 - Leasing Company: Company G is the single owner of a disregarded entity (LLC H). LLC H's only business activity is to lease its aircraft to Company G and others.

    Aircraft Purchased Prior to July 1, 2009 - LLC H may purchase the aircraft without tax for resale. LLC H's purchase of parts and service to the aircraft are also exempt from tax. LLC H's charges to Company G and others for leasing its aircraft are taxable.

    Transitional Provisions - Same as "Aircraft Purchased Prior to July 1, 2009" for transactions relating to the aircraft that was purchased prior to July 1, 2009, including parts and service purchased after July 1, 2009 for the aircraft.

    Aircraft Purchased July 1, 2009 or Thereafter - Company G and LLC H are treated as a single entity for Wisconsin sales and use tax purposes; therefore, LLC H's purchase of the aircraft does not qualify for resale, since LLC H is not solely leasing the aircraft to others. LLC H's purchase of parts and service for the aircraft are taxable.

    EXAMPLE 4 - Disregarded Entity’s Business Assets Transferred to Owner: Company O is the single owner of a disregarded entity (LLC P). LLC P purchased assets (e.g., office equipment, furniture) for use in LLC P’s business activities. At a later date, Company O purchased one-half of LLC P’s business assets.

    Business Assets Purchased by LLC P Prior to July 1, 2009 - LLC P's purchase of the business assets was subject to tax. LLC P’s sale of the business assets to Company O is subject to tax, because Company O and LLC P are treated as separate entities for Wisconsin sales and use tax purposes for transactions involving assets that were purchased prior to July 1, 2009.

    Transitional Provisions (Business Assets Purchased Prior to July 1, 2009 and Sold July 1, 2009 or Thereafter) - Same as "Business Assets Purchased by LLC P Prior to July 1, 2009."

    Business Assets Purchased by LLC P July 1, 2009 or Thereafter - Company O and LLC P are treated as a single entity for Wisconsin sales and use tax purposes. LLC P's (i.e., Company O’s) purchase of the business assets is subject to tax. Although LLC P can transfer business assets to Company O, this transfer is not considered a sale of business assets from LLC P to Company O, because they are treated as a single entity.

    EXAMPLE 5 - Disregarded Entity’s Business Assets Transferred to Unrelated Company: Company L is the single owner of a disregarded entity (LLC M). LLC M purchased assets (e.g., office equipment, furniture) for use in LLC M’s business activities. At a later date, Company N, an unrelated entity, purchased 100% of Company L’s interest in LLC M. LLC M then sells one-half of its business assets to Company N.

    Business Assets Purchased by LLC M Prior to July 1, 2009 - LLC M's purchase of the business assets was subject to tax. LLC M’s sale of the business assets to Company N is subject to tax.

    Transitional Provisions (Business Assets Purchased Prior to July 1, 2009 and Sold July 1, 2009 or Thereafter) -Same as "Business Assets Purchased by LLC M Prior to July 1, 2009."

    Business Assets Purchased and Sold by LLC M July 1, 2009 or Thereafter - Company L and LLC M are treated as a single entity for Wisconsin sales and use tax purposes. LLC M's (i.e., Company L’s) purchase of the business assets is subject to tax. Since Company N is now the single-member owner of LLC M, Company N and LLC M are considered to be a single entity. Although LLC M can transfer business assets to Company N, this transfer is not considered a sale of business assets from LLC M to Company N, because they are treated as a single entity.

  6. How are disregarded entities treated for withholding tax purposes?

    A disregarded entity is automatically considered an "employer" for purposes of federal withholding taxes. Wisconsin follows this treatment (sec. 71.63(3)(c), Wis. Stats.). Thus, a single-owner entity that is disregarded as a separate entity under IRC sec. 7701 is an "employer" for Wisconsin withholding tax purposes. As an "employer," a disregarded entity must obtain a Wisconsin employer identification number. To obtain a Wisconsin employer identification number, the entity must file Form BTR-101, Application for Business Tax Registration.

    For wages paid on or after January 1, 2009, the disregarded entity had the option to elect to be treated as an "employer" for federal withholding tax purposes. If the disregarded entity elected to be treated as an "employer" for federal withholding purposes, the disregarded entity was treated as an "employer" for Wisconsin withholding tax purposes. If the disregarded entity did not elect to be treated as an "employer" for federal withholding tax purposes, the disregarded entity's Wisconsin employer withholding taxes were reported and paid under the owner's Wisconsin employer identification number.

  7. How do I register my business?

    The Department of Revenue's online Business Tax Process Registration provides registration and filing options for disregarded entities. Additionally, Form BTR-101, Application for Business Tax Registration, is currently being revised to allow registrants additional registration options. If you are registering one or more disregarded entities, you may want to include a cover letter explaining your business structure with your Form BTR-101 or you may call (608) 266-2776 for assistance in registering your business.

  8. What should I do if my business is not properly registered or if I change my business structure, relating to disregarded entities?

    Owners of disregarded entities that hold or are required to hold a seller's permit should contact one of the Department of Revenue's customer service representatives at (608) 266-2776 or by email if any of the following apply:

    1. The owner and one or more disregarded entity have the same business location. (Seller's permits issued to a disregarded entity that has the same business location as its owner must be inactivated.)
    2. The owner elects to file a separate electronic sales and use tax return for the disregarded entity.
    3. The owner and/or one or more of its disregarded entities are currently improperly registered (e.g., have different 15-digit account identification numbers).

    If you contact the department, be sure to include the following information:

    √ Tax account number. Include the business name and address if you have more than one location.
    √ Federal employer identification number (FEIN).
    √ Effective date of change.
    √ Explanation of change.
  9. Since an owner and its disregarded entity are considered a single entity for Wisconsin sales and use tax purposes, if a disregarded entity has nexus in Wisconsin, does the fact that the disregarded entity has nexus in Wisconsin create nexus for its owner and the owner’s other disregarded entities?

    While the disregarded entity and its owner are treated as a single entity, Wisconsin will not impute the nexus status of the owner or disregarded entity upon the other solely because of the application of sec. 77.61(19m)(a), Wis. Stats.

    Section 77.61(19m)(a), Wis. Stats., provides that a single-owner entity that is disregarded as a separate entity (i.e., the single-owner entity and its owner are treated as a single entity) for Wisconsin income and franchise tax purposes under Chapter 71 of the Wisconsin Statutes is also disregarded as a separate entity for purposes of Wisconsin sales and use taxes.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
P.O. Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2776
Fax: (608) 267-1030
Email Additional Questions

Last updated December 23, 2013