(2017 Wisconsin Act 59)
Wisconsin’s construction sales tax law is cumbersome and complicated. At the heart of the confusion is the determination of which entity – contractor, subcontractor or customer – pays the applicable sales tax.
In 2013, state lawmakers tried to address this problem by creating a new sales and use tax exemption for property, items and services sold by a contractor as part of a lump sum contract for real property construction activities if the total sales price attributable to the taxable products is less than 10% of the total contract price.
A lump sum contract is defined as a contract for which the contractor quotes the charge for the labor and services of subcontractors and the taxable products and services as one price
The contractor is the consumer of such taxable products and is liable for sales and use tax on its purchase of these products.
This tax code change cleared up some of the confusion, but contractors and subcontractors were still struggling to comply with Wisconsin’s construction sales tax law.
2017 Wisconsin Act 59 expands the exemption for lump sum contracts to apply to all construction contracts involving real property construction activities if the total sales price of the taxable is less than 10% of the total contract price. Furthermore, if the prime contractor qualifies for the exemption, the exemption also applies to all subcontracts entered into with respect to the real property construction activities. If the exemption applies to the subcontract, the subcontractor owes sales tax on its purchase of the materials.
Please refer to enclosed April, 2018 DOR guidance for further details.