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.
- Company A, located in State B, purchases materials for $1,000 from Supplier S who is also located in State B.
- Company A stores the materials in State B before they are transported to Wisconsin in Company A's trucks for use in a job for Customer C in Wisconsin.
- Company A is required to pay State B's 6% sales or use tax ($60) on its cost of the materials because the materials are stored in State B then used in a construction job, which under State B's law is considered a real property construction activity.
- Under Wisconsin law, the construction job is considered a sale and installation of tangible personal property (not a real property construction activity).
- Company A is liable for the 5% Wisconsin state tax ($100) imposed on its retail selling price ($2,000) of the materials and installation, to Customer C located in Wisconsin.
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?
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.
Last updated April 11, 2011