Construction Contractors - Credit for Taxes Paid to Other States – Wisconsin Treats Transaction as Sale and Installation of Tangible Personal Property But Other State Treats Transaction as Real Property Construction Activity

Section 77.53(16), Wis. Stats. (2009-10), provides in part that "If the purchase, rental or lease of tangible personal property, or items, property, or goods under s. 77.52(1)(b), (c), or (d), or service subject to the tax imposed by this section was subject to a sales tax by another state in which the purchase was made, the amount of sales tax paid the other state shall be applied as a credit against and deducted from the tax, to the extent thereof, imposed by this section..."

For purposes of the example below, only the 5% Wisconsin state use tax is being considered. However, the same tax treatment would apply for county and stadium sales and use tax purposes as well.

Facts:

Question

May State B's 6% state sales or use tax ($60) paid on the purchase of the materials by Company A be claimed as a credit by Company A against the 5% Wisconsin state sales tax ($100) imposed on the sale and installation of these materials by Company A?

Answer

Yes. State B's 6% state sales or use tax ($60) imposed on the purchase of the materials by Company A may be claimed by Company A as a credit against the 5% Wisconsin state sales tax ($100) imposed on Company A's sale and installation of the materials.

Company A should charge Customer C the 5% Wisconsin sales tax on the entire $2,000 and Company A may claim a deduction of $1,200 ($60 tax paid to State B divided by 5% Wisconsin tax rate = $1,200) on its Wisconsin sales and use tax return for the tax Company A paid to State B on its purchase of the materials.

Page last updated April 11, 2011