Exemption for United States Flags and Wisconsin State Flags

Statutes: Sections 77.51(1f) and 77.52(20)(a), Wis. Stats., as created by 2009 Wis. Act 2; Section 77.54(46), Wis. Stats. (2007-08), as amended by 2009 Wis. Act 2

Wisconsin Administrative Code: Section Tax 11.985, Wis. Adm. Code (May 2010 Register)

Note: This tax release supersedes the tax release titled "Exemption for United States Flags and Wisconsin State Flags," which was published in Wisconsin Tax Bulletin 127 (October 2001), beginning on page 28.

Background: Section 77.54(46), Wis. Stats. (2007-08), as amended by 2009 Wis. Act 2, provides an exemption from Wisconsin sales and use taxes for the sales price from the sale of and the storage, use, or other consumption of the U.S. flag or the Wisconsin state flag. The exemption does not apply to a representation of the U.S. flag or the Wisconsin state flag.

Section 77.52(20)(a), Wis. Stats., as created by 2009 Wis. Act 2, provides that the entire sales price of a bundled transaction is subject to Wisconsin sales or use tax, except as follows:

When a retailer is able to identify (by reasonable and verifiable standards from the retailer's books and records that are kept in the ordinary course of its business) the portion of the sales price that is attributable to products that are not subject to the tax, the retailer may choose to tax only the portion attributable to the taxable products. Exception: This option does not apply to a bundled transaction that contains food and food ingredients, drugs, durable medical equipment, mobility-enhancing equipment, prosthetic devices, or medical supplies.

A "bundled transaction" is the retail sale of two or more products, not including real property and services to real property, if the products are distinct and identifiable and sold for one nonitemized price.* "Products" includes tangible personal property; items, property, and goods under sec. 77.52(1)(b) to (d), Wis. Stats., as created by 2009 Wis. Act 2; and services.

*Certain exceptions apply. These exceptions are listed in sec. Tax 11.985, Wis. Adm. Code, "Bundled transactions," along with definitions of "distinct and identifiable product" and "one nonitemized price."

Question: What is covered by the exemption for flags?

Answer: The exemption applies to sales of the United States flag or the Wisconsin state flag. A flag, for purposes of this exemption, is considered to include the staff to which the flag is permanently mounted when sold by the retailer.

Example: Retailer A sells hand-held U.S. flags permanently mounted with staples to a wood or plastic staff. The sale of the flag (i.e., the fabric and staff to which the fabric is mounted) is exempt from Wisconsin sales or use tax.

This exemption does not apply to:

A sale of a "flag kit" sold as a single unit, which includes a United States flag or Wisconsin state flag and related accessories, such as a mounting bracket, a flagpole, a cord, and instructions on the display of the flag, is a "bundled transaction" if the taxable products included in the "flag kit" are more than 10% of the seller's purchase price or sales price, but not a combination of both. The entire sales price of a bundled transaction is subject to tax. However, if the taxable products included in the "flag kit" (i.e., mounting bracket, flagpole, cord, and instructions on the display of the flag) are 10% or less of the seller's purchase price or sales price, but not a combination of both, then the "flag kit" is not taxable.

Exception: The retailer may, at its option, collect and remit tax only on the taxable portion of the sale if the retailer can identify, by reasonable and verifiable standards from its books and records that are kept in the ordinary course of its business, the portion of the sales prices that is attributable to products that are not subject to tax.

Prior to October 1, 2009, a "flag kit," sold as a single unit, was exempt from tax if the "flag kit" included a United States flag or Wisconsin state flag and related accessories, such as a mounting bracket, a flagpole, a cord, and instructions on the display of the flag and was sold as one product (e.g., all items were enclosed in a package with a single Universal Product Code (UPC)). A "flag kit" did not include flag-related accessories that are available for sale individually, even if such items were sold in a single transaction along with a U.S. flag or Wisconsin state flag.

For additional information about bundled transactions, please see Part X.C., page 40, of Publication 201, Wisconsin Sales and Use Tax Information.

Last updated November 8, 2010