Sales and Use Tax Exemption Created for Manufactured and Modular Homes Used in Real Property Construction Activity Outside Wisconsin Effective September 1, 2011

This article explains the proper Wisconsin sales and use tax treatment of sales of manufactured and modular homes that will be used in real property construction activities outside Wisconsin, effective September 1, 2011 and thereafter.

Section 77.54(5)(am), Wis. Stats., as created by 2011 Wis. Act 32, effective September 1, 2011, creates an exemption from Wisconsin sales and use tax for "Modular homes, as defined in s. 101.71 (6), and manufactured homes, as defined in s. 101.91 (2), that are used in real property construction activities outside this state."

"Modular home" is defined as follows in sec. 101.71(6), Wis. Stats. (2009-10):

"(a) 'Modular home' means any structure or component thereof which is intended for use as a dwelling and:

1. Is of closed construction and fabricated or assembled on-site or off-site in manufacturing facilities for installation, connection, or assembly and installation, at the building site; or

2. Is a building of open construction which is made or assembled in manufacturing facilities away from the building site for installation, connection, or assembly and installation, on the building site and for which certification is sought by the manufacturer.

(b) 'Modular home' does not mean any manufactured home under s. 101.91 or any building of open construction which is not subject to par. (a) 2."

"Manufactured home" is defined as follows in sec. 101.91(2), Wis. Stats. (2009-10), to mean any of the following:

"(am) A structure that is designed to be used as a dwelling with or without a permanent foundation and that is certified by the federal department of housing and urban development as complying with the standards established under 42 USC 5401 to 5425.

(c) A mobile home, unless a mobile home is specifically excluded under the applicable statute."

Effective September 1, 2011 and thereafter, a manufactured or modular home dealer who purchases a manufactured or modular home in Wisconsin and who subsequently uses that manufactured or modular home in a real property construction activity outside Wisconsin, may purchase that manufactured or modular home without Wisconsin sales or use tax.

Example 1 - Dealer A purchases a modular home from Manufacturer B on September 2, 2011. Dealer A takes possession of the modular home in Wisconsin. Dealer A sells the modular home to Customer C, who is located in Minnesota. Dealer A installs the modular home in Minnesota in a real property construction activity. Dealer A does not owe Wisconsin sales or use tax on its purchase of the modular home from Manufacturer B since Dealer A (1) purchased the modular home on or after September 1, 2011, and (2) used the modular home in a real property construction activity outside Wisconsin.

Prior to September 1, 2011, the sale of a manufactured or modular home to a dealer in Wisconsin who used the manufactured or modular home in a real property construction activity was subject to Wisconsin sales and use tax, regardless of whether the real property construction activity occurred in or outside Wisconsin.

Example 2 - Dealer B purchased a modular home from Manufacturer C on June 15, 2011. Dealer B took possession of the modular home in Wisconsin. Dealer B sold the modular home to Customer D, who is located in Minnesota. Dealer B installed the modular home in Minnesota in a real property construction activity for Customer D on July 1, 2011. Since Dealer B purchased the modular home in Wisconsin prior to September 1, 2011 and used the modular home in a real property construction activity outside Wisconsin prior to September 1, 2011, Dealer B was required to pay Wisconsin sales or use tax on its purchase of the modular home from Manufacturer C.

Transitional Rules: If a manufactured or modular home is purchased or stored in Wisconsin by a dealer prior to September 1, 2011 for use in a real property construction activity, the dealer is liable for Wisconsin sales or use tax on its purchase of that manufactured or modular home if the dealer knows, prior to September 1, 2011, that the dealer is going to use the manufactured or modular home in a real property construction activity. The Wisconsin sales or use tax applies in this situation, even if the dealer uses the manufactured or modular home in a real property construction activity outside Wisconsin on or after September 1, 2011.

However, if a manufactured or modular home dealer (a) purchases a manufactured or modular home prior to September 1, 2011, (b) holds it for sale, lease, or rental as tangible personal property, (c) makes no use of the manufactured or modular home other than retention, demonstration, or display while holding it for sale, lease or rental in the regular course of the dealer's operations, and then (d) uses it in a real property construction activity outside Wisconsin on or after September 1, 2011, the dealer is not liable for Wisconsin use tax on its purchase of that manufactured or modular home if the dealer does not know, prior to September 1, 2011, that the dealer is going to use the manufactured or modular home in a real property construction activity.

Example 3 - Dealer X purchases a modular home from Manufacturer Y on July 15, 2011. Dealer X took possession of the modular home in Wisconsin. On September 10, 2011, Dealer X sells the modular home to Customer Z, who is located in Minnesota. Dealer X will install the modular home in Minnesota in a real property construction activity on September 25, 2011. Although Dealer X purchased the modular home in Wisconsin prior to September 1, 2011, if (a) Dealer X held it for sale, lease, or rental as tangible personal property, (b) made no use of the manufactured or modular home other than retention, demonstration, or display while holding it for sale, lease or rental in the regular course of the dealer's operations and (c) did not know until after September 1, 2011 that it would be using the modular home in a real property construction activity outside Wisconsin, Dealer X is not required to pay Wisconsin sales or use tax on its purchase of the modular home from Manufacturer Y.

Example 4 - Dealer P purchases a modular home from Manufacturer Q on July 15, 2011. Dealer P takes possession of the modular home in Wisconsin on August 1, 2011. Dealer P sells the modular home to Customer R, who is located in Minnesota and enters into a contract with Customer R on August 22, 2011 to install the modular home in Minnesota in a real property construction activity by September 25, 2011. Although Dealer P installs the modular home in a real property construction activity on or after September 1, 2011, since Dealer P knew prior to September 1, 2011 that it would be using the modular home in a real property construction activity (Dealer P knew on August 22, 2011 that it would be using the modular home in a real property construction activity based on the contract Dealer P entered into with Customer R), Dealer P owes Wisconsin sales or use tax on its purchase of the modular home from Manufacturer Q.

Example 5 - Dealer J, located in Wisconsin, enters into a real property construction contract with Customer K on August 15, 2011. The contract provides that Dealer J will furnish and install a modular home for Customer K in Minnesota. Dealer J does not have the modular home that Customer K wants in stock and therefore orders the modular home from Manufacturer L on August 15, 2011. Manufacturer L delivers the modular home to Dealer J's Wisconsin location on September 10, 2011. Dealer J then takes the modular home to Customer K's location in Minnesota and installs it in a real property construction activity on September 30, 2011. Although Dealer J knows prior to September 1, 2011 that Dealer J will use the modular home in a real property construction based on the contract Dealer J entered into with Customer K, since (a) Dealer J does not store, use, or otherwise consume the modular home in Wisconsin prior to September 1, 2011 (i.e., the sale to Dealer J does not occur until Dealer L receives possession of the modular home on September 10, 2011), and (b) Dealer J uses the modular home in a real property construction activity outside Wisconsin on or after September 1, 2011, Dealer J is not liable for Wisconsin sales or use tax on its purchase of the modular home from Manufacturer L.

Last updated July 27, 2011