A Wisconsin Circuit Court has affirmed a Wisconsin Tax Appeals Commission decision holding that ceiling tiles and related construction materials sold to exempt entities by an installer’s wholly owned subsidiary were subject to Wisconsin sales and use tax. Generally, contractors are deemed the consumer of property it will incorporate into real property. Sales tax should be paid to the provider or if tax was not paid, use tax is due at the time the materials are incorporated into real property. Wisconsin allows contractors to use resale exemption certificates only for property that the contractor has sound reason to believe it will sell to customers for whom it will not perform real property construction activities involving the property. The installer transferred tiles and related materials to its subsidiary. The materials were then transferred by the subsidiary to exempt entities that provided an exemption certificate to the subsidiary. The exempt entities issued one purchase order to the installer for installation services and another purchase order to the subsidiary for materials. The installer used the materials that the exempt entities purchased from the subsidiary in real property construction activities for the entities. The materials which were originally purchased by the installer using a resale certificate were transferred from the installer to the subsidiary through journal entries at the end of each year, and tax was not collected on any of the transfers involving exempt entities. The commission found that the installer’s wholly owned subsidiary did not qualify as its customer. The commission also stated that the installer’s imposition of a wholly owned intermediary to create a customer was not a sound reason to believe it would sell to customers for whom it would not perform real property construction activities. The transactions failed the substance and realities test for the following reasons: there was little or no substance to the subsidiary; the transactions between the installer and the subsidiary were at cost, indicating that they were pass-through transactions; the journal entries were made at the end of the year instead of at the same time as the transactions between the installer and subsidiary; amended returns were filed after an audit was initiated; and the transactions could be described as indirect. Previous case law also supported the position that the subsidiary did not insulate the installer from the tax and that the supplier, as installer of the materials, owed tax regardless of any intervening entity. (Sullivan Brothers, Inc. v. Wisconsin Department of Revenue, Wisconsin Circuit Court, No. 12 CV 3663, February 22, 2013)