Blogging Beyond the Numbers
Wisconsin is a great place for manufacturers to do business. Why? Wisconsin manufacturers can take advantage of generous property tax exclusions, income tax credits, and save money on their sales & use tax exposure. In a competitive market, Wisconsin holds its own when competing with other states for sales & use tax purposes.
Let’s talk sales tax first
If the manufacturer is selling tangible personal property or taxable services, they are responsible for obtaining a seller’s permit. They also pay the sales tax on the portion of their sales price which is from taxable retail sales. Retail sales include, but are not limited to, meals to employees or visitors, used equipment or scrap materials, other manufacturers or distributors who have not supplied the seller with a valid exemption certificate and online retail sales (“ecommerce”) to end users. Sales of materials to contractors who use the materials in real property construction activities are also taxable sales at retail. The seller must charge the tax on these sales unless the contractor involved provides the seller a properly completed exemption certificate claiming a valid exemption from tax.
It’s not all bad news
A sale by a Wisconsin manufacturer which is shipped to a location outside the state is not subject to Wisconsin sales tax. Manufacturers should keep records and bills of lading showing that delivery is made outside Wisconsin or is properly sourced to a location outside of the state. If a seller knows that the taxable product or service is intended for storage, use or consumption in Wisconsin, the seller is required to collect the sales or use tax on that product or service. Keep in mind, with a properly completed exemption certificate on file, manufacturers can sell to other manufacturers and distributors claiming a valid exemption from tax. On the sales tax side, these are pretty standard rules compared to other states.
To qualify as a Wisconsin manufacturer, the production by machinery of a new article or property with a different form, use and name from the existing materials is required.
That brings us to the generous Wisconsin use tax benefit
Use tax is the sales tax due on the taxable items or services purchased for use in the business.
Wisconsin exempts the sale of and the storage, use, or other consumption of machines and specific processing equipment and repair parts or replacements exclusively and directly used by a manufacturer in manufacturing tangible personal property. This means that all the manufacturing machines and specific processing equipment purchased for storage, use or consumption in the state is exempt from sales & use tax. Many states do not have a manufacturing exemption or only allow a reduced rate on manufacturing purchases. For a manufacturer wanting to open or expand business, Wisconsin allows that investment of manufacturing machines and equipment without tax. Depending on the local jurisdiction, that’s a use tax savings between 5% and 5.6%.
Manufacturing does not include storing raw materials or finished units of tangible personal property, research or development (R&D), delivery to or from the plant, or repairing or maintaining plant facilities. However, qualified R&D performed in Wisconsin, with certain restrictions, get the use tax exemption on tangible personal property. To ensure compliance with the R&D restriction, be sure to discuss with Wegner CPAs’ tax professionals.
Here are the takeaways
Although not the norm, Wisconsin manufacturers can make taxable sales. Just because there’s a nice exemption for manufacturers on qualified purchases, all manufacturers owe use tax on their nonqualified items. The key is educating your team on the rules, good accounting records, and having a valid seller’s permit to report any taxable sales and taxable use purchases. This reduces the risk of a big assessment when an audit occurs.
For more information, contact Cam Brawley, Director of State and Local Tax at Wegner CPAs.