Stay up to date with sales tax: Join our mailing list!


Wisconsin has issued revised guidance on the sales and use tax treatment of computer hardware, software, and services to clarify that Software as a Service (SaaS) and Application Service Provider (ASP) services are not taxable unless the service provider is providing a taxable service in the transaction (e.g. telecommunications message service). To view common questions and answers on the sales and use tax treatment of the above, click here to visit the Wisconsin Department of Revenue’s webpage. (Common Questions—Sales and Use Tax Treatment—Computer Hardware, Software, Services, and Email, Wisconsin Department of Revenue, August 15, 2013)

(05/06/2014)

According to a Wisconsin Court of Appeals, an installer was liable for Wisconsin sales and use tax on materials that it installed for exempt entities that were purchased by the exempt entities from the installer’s sister company. Wisconsin law 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 use of the property. In this case, the materials were purchased by the installer from third parties using a resale certificate. The installer paid no sales tax on these purchases. The exempt entities issued one purchase order to the installer for installation services and another purchase order to the installer’s sister company for materials. The installer then used the materials in real property construction activities for the exempt entities. The installer recorded the installed materials as having been transferred from its inventory to its sister company, at the installer’s cost, as part of its journal entries. Neither the installer nor its sister company collected sales tax or remitted use tax on any of the transactions with the exempt entities. The Court of Appeals affirmed the decision of the Circuit Court, which upheld the decision of the Tax Appeals Commission. The Commission had found that the sister company did not qualify as the installer’s customer. The Commission also found that the installer-sister company-customer transactions lacked any economic substance or business purpose. As a result, the Commission determined that the materials installed for the exempt entities were subject to use tax by the installer as a contractor. (Sullivan Brothers, Inc. v. Wisconsin Department of Revenue, Court of Appeals of Wisconsin, District IV, No. 2013AP818, January 30, 2014)

(04/11/2014)

Representative Lamar Smith (Republican, Texas) has introduced a bill to bar multiple taxes on digital goods and services.  Smith had proposed an earlier bill which failed to pass.  This bill is a revised version of the earlier bill. The proposed bill – called the Digital Goods and Services Tax Fairness Act of 2013 – would only allow a state to tax sales of digital goods and services to customers with a tax address within that state. Additionally, states would be barred from imposing multiple taxes on digital goods. The bill defines digital goods as sounds, images, data and facts maintained in digital form. Internet access service is not included as a digital good in the bill. (H.R. 3724)

(01/28/2014)

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)

(05/23/2013)

The federal Marketplace Fairness Act of 2013 was introduced in the House of Representatives and the Senate on February 14, 2013.  If passed, the bill would authorize states that meet certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes.  Under the legislation, a state would be authorized to require a remote seller to collect sales and use taxes only if the remote seller has gross annual receipts in total remote sales in the United States of more than $1 million in the preceding calendar year.

 

Member states of the Streamlined Sales and Use Tax (SST) Agreement would be authorized to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that member state pursuant to the provisions of the SST Agreement. The SST Agreement would have to include certain minimum simplification requirements. An SST member state could begin to exercise authority under the Act beginning 90 days after the state publishes notice of its intent to exercise such authority, but no earlier than the first day of the calendar quarter that is at least 90 days after the date of the enactment of the Act.

 

States that are not members of the SST Agreement would be authorized, notwithstanding any other provision of law, to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to the state if the state implements certain minimum simplification requirements. The authority would begin no earlier than the first day of the calendar quarter that is at least six months after the state enacts legislation to exercise the authority granted by the Act.

 

To enforce collection requirements on remote sellers that do not meet the small seller exception, states that are not members of the SST Agreement would have to implement the minimum simplification requirements listed below. For SST member states to have collection authority, the requirements would have to be included in the SST Agreement.

 

-       A single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the state

-       A single audit of a remote seller for all state and local taxing jurisdictions within that state

-       A single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.

-       Each state would have to provide a uniform sales and use tax base among the state and the local taxing jurisdictions within the state.

-       Each state would have to source all interstate sales in compliance with the sourcing definition outlined below.

-       Each state would have to provide information indicating the taxability of products and services along with any product and service exemptions from sales and use tax in the state and a rates and boundary database. States would have to provide free software for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect state and local rate changes. States would also have to provide certification procedures for persons to be approved as certified software providers (CSPs). Such CSPs would have to be capable of calculating and filing sales and use taxes in all the states qualified under the Act.

-       Each state would have to relieve remote sellers from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of an error or omission made by a CSP.

-       Each state would have to relieve CSPs from liability to the state or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of misleading or inaccurate information provided by a remote seller.

-       Each state would have to relieve remote sellers and CSPs from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of incorrect information or software provided by the state.

-       Each state would have to provide remote sellers and CSPs with 90 days’ notice of a rate change by the state or any locality in the state and update the taxability and exemption information and rate and boundary databases, and would have to relieve any remote seller or CSP from liability for collecting sales and use taxes at the immediately preceding effective rate during the 90-day notice period if the required notice is not provided.

 

For non-SST member states, the location to which a remote sale is sourced would be the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery. When no delivery location is specified, the remote sale is sourced to the customer's address that is either known to the seller or, if not known, obtained by the seller during the transaction, including the address of the customer's payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made. SST member states would be required to comply with the sourcing provisions of the SST Agreement.

 

On March 22, 2013, the U.S. Senate voted 75-to-24 in favor of the concept of the Marketplace Fairness Act. The actual Marketplace Fairness Act was introduced in both chambers in February, but last week Senator Enzi, the sponsor of the Senate bill, offered an amendment to the 2014 Budget Resolution that would include insertion of the language of Marketplace Fairness in the budget. It was a largely symbolic tactic since the Budget Resolution itself will not become law, but by approving the amendment, the Senate has shown that there is broad, bipartisan support for the notion of requiring remote sellers to collect sales tax.

 

On May 6, 2013, the U.S. Senate passed the Marketplace Fairness Act with a 69-27 vote.

 

UPDATE: On September 18, 2013, Rep. Bob Goodlatte, the chairman of the House Judiciary Committee released a set of seven principles that he believes any internet sales tax bill should meet.  The seven principles outlined by Goodlatte are tax relief, tech neutrality, no regulation without representation, simplicity, tax competition, states’ rights, and privacy rights.  For more details on the principles, click here to see the House Judiciary Committee’s press release.

 

We are continuing to track the activities of these bills.  We are also involved in planning efforts involving states and businesses regarding the potential implementation consequences of passage.  Watch for updates in the Sales Tax Compass as well as through our Twitter account and LinkedIn updates. 

 

The text of the bill passed by the Senate can be viewed here.

 

For an update on this news item, visit Senate Introduces Marketplace Fairness Act of 2015.

 

(H.R. 684 and S. 336, as introduced in Congress on February 14, 2013; S.743, as passed by the U.S. Senate on May 6, 2013)

(09/20/2013)

Pages

Scroll to Top