Installer Liable for Tax on Materials Installed for Exempt Entities in Wisconsin

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)

Posted on April 11, 2014