How Is Use Tax Computed On Items Previously Purchased Using an Exemption Certificate?

NOTE: This Article Has Been Replaced by a Revised Article Dated July 7, 2014. See the new article...

It is not uncommon for a purchaser to buy an item without tax (e.g., purchasing an item without tax for resale by presenting the vendor with a fully completed exemption certificate) and then later use that item in a taxable manner. Effective October 1, 2009, when a taxable use is made of such an item, use tax is owed based on the original purchase price of the item. (Section 77.57, Wis. Stats. (2007-08), as amended by 2009 Wis. Act 2)

Under prior law, if the first taxable use occurred more than six months after the purchase, the purchaser was allowed to measure use tax by (1) the fair market value of the item at the time that first taxable use occurred, or (2) the purchase price.

Example 1: Computer Store A buys and sells computers. A laptop computer was purchased without tax for resale on January 1, 2008 for $550. On November 1, 2009, Computer Store A took the laptop out of inventory and gave it away as a promotional item (i.e., taxable use). The fair market value of the laptop at the time that the first taxable use occurred was $300. Since the first taxable use occurred after October 1, 2009, Company A's use tax liability is based on its purchase price of $550.

Example 2: Same as Example 1, except that Computer Store A took the laptop out of inventory and gave it away as a promotional item (i.e., taxable use) on September 1, 2009. The fair market value of the laptop at the time that the first taxable use occurred was $300. Since the first taxable use occurred more than six months after Company A purchased the laptop and the first taxable use occurred before October 1, 2009, Company A may choose to measure its use tax liability by its purchase price of $550 or by the laptop's fair market value of $300.

Page last updated May 27, 2010