Wisconsin exemption for contractors

Wisconsin’s recently enacted budget bill created an exemption that supports current practices of contractors in the state.

The exemption is for taxable products and services sold by a contractor as part of a lump sum contract, if the total sales price of all such taxable products is less than ten percent of the total amount of the lump sum contract. The contractor generally is considered the consumer of such taxable products and must pay the sales and use tax on such products. This exemption is effective October 1, 2013, and first applicable to contracts entered into on October 1, 2013.

Historically, contractors were not breaking up taxable services in lump sum contracts and, therefore, not charging tax on those services. This was in conflict with the Wisconsin Department of Revenue’s position that a contractor should assess sales tax to the customer for the portion of the contract that contributes to tangible personal property improvements. For example, a contractor with a lump sum contract to build a building and develop the related landscaping was required to break out the cost for the landscaping and charge the customer sales tax.

For purposes of this exemption, “lump sum contract” means a contract to perform real property construction activities and provide tangible personal property, other taxable items or services, and for which the contractor quotes the charge for labor, services of subcontractors, tangible personal property, and other taxable items and services as one price. The term includes a contract for which the contractor itemizes those charges as part of a schedule of values or similar document.

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