Sales tax on invoices in Wisconsin

Wisconsin treats a contractor doing real property construction as the consumer of its materials: it pays tax on them and charges no sales tax for that work. Repairs to the items Wisconsin’s statute lists, such as furnaces and water heaters, and landscaping and lawn maintenance are taxable, though.

Real property construction: the contractor is the consumer

Under Wis. Admin. Code Tax 11.68, contractors are consumers of the property they use in real property construction activities, such as altering, repairing or improving real property, so a supplier’s sale of building materials to them is taxable. Those activities affix property to real property with the intent of making a permanent accession to it. Affixing property that remains tangible personal property after it’s affixed isn’t one of them.

The Department of Revenue’s contractor guide, Publication 207, puts the result plainly: a contractor’s charges for improvements to real estate aren’t subject to sales tax on either materials or labor. In its example, a contractor installing a furnace in a customer’s residence pays tax on the furnace, and its charge for the labor and materials to install it isn’t taxable. Selling lumber or roofing materials without installation, by contrast, makes the contractor a retailer who charges tax, unless an exemption applies.

Publication 207 also describes Wisconsin’s construction contract exemption. For contracts entered into, extended, modified or renewed on or after December 1, 2017, a prime contractor’s or subcontractor’s sales of products as part of a construction contract, lump sum or time and materials, are exempt if the products are less than 10% of the total contract price, that is, if more than 90% of the price relates to real property construction activities. The contractor is then the consumer of the materials and pays tax on them. Taxable services such as landscaping don’t count as real property construction when you work out that threshold, so they fall in the under-10% share.

Registration: seller’s permit or consumer’s use tax certificate

Publication 207 says anyone making taxable sales in Wisconsin needs a seller’s permit, and that making taxable sales without one is a misdemeanor. A contractor that doesn’t need a seller’s permit but regularly owes use tax because it buys without tax should apply for a consumer’s use tax certificate; a contractor from another state whose only Wisconsin activity is real property construction must get one.

Repairs to the listed items are taxable, even in a home

Wis. Stat. §77.52(2)(ag) lists 31 items that keep their character as tangible personal property for repair purposes, however they’re fastened to or built into real property. They include furnaces, boilers, heaters, air conditioners, humidifiers, water heaters, water pumps, water conditioners and softeners, dishwashers, garbage disposal units, carpeting and rugs, bathroom fixtures, sinks, awnings and blinds.

• Repair, service or maintenance is taxable. The tax applies to repairing, servicing, altering, cleaning, painting, inspecting or maintaining a listed item, even when related work is an addition to or a capital improvement of real property. (Routine janitorial contracts are treated differently; see below.)
• Original installation or complete replacement isn’t taxed when it is a real property construction activity.
• Publication 207’s example: a $100 repair to a furnace in a customer’s residence, made up of $25 for parts, $50 to install them and $25 for travel, is taxable in full. Replacing a motor on a furnace is a taxable repair too.

Publication 207’s chart separates “install” (first-time installation or replacing an existing item) from “repair” (repairing, servicing, cleaning or maintaining an existing listed item). Where the item counts as personal property, the contractor charges sales tax on the entire amount billed, labor and materials included.

For electricians, the publication treats general electrical wiring and general overhead lighting as building components. Installing, altering, repairing or servicing fixtures that serve a business function in commercial establishments, such as replacing a defective ballast in an office lamp, is taxable; the same work in residences may be a realty improvement and not taxable, though repairing an item on the statute’s list stays taxable in a home.

Tax line on a Wisconsin invoice

• Real property construction: no sales tax. Publication 207 says a contractor performing a real property construction activity isn’t permitted to collect sales tax from its customers on its sales price for that work.
• Mixed jobs: segregate the charges. Publication 207 says a contractor can be a retailer and a consumer on the same job, as when it wires a new warehouse (real property) and installs conveyors in it (a taxable retail sale). Its invoice should keep taxable labor and materials apart from nontaxable charges for real property work, with overhead and other passed-on costs allocated to the charges they relate to. Unless the construction contract exemption above covers the contract, tax is due on the taxable items even if the contract doesn’t state them separately.
• Extra charges on a taxable job: Publication 207 counts separately stated fuel surcharges, service call, truck, emergency service and mileage charges as part of the taxable sales price.
• Retail sales: Publication 201 says a retailer may pass the tax on, computing it by straight mathematical computation on a receipt that separately itemizes it, or include it in the price if customers are told, for example by a receipt or a conspicuously posted sign stating “Prices Include Sales Tax.”

Publication 207 says that if you charge sales tax by mistake on a real property construction activity, you must refund it to your customer with any related interest. You may reduce the refund by the tax you should have paid on the materials, and any amount you don’t refund must go to the Department.

Landscaping and lawn maintenance are taxable

Wisconsin taxes only certain services, and Wis. Stat. §77.52(2)(a)20 includes landscaping and lawn maintenance: landscape planning and counseling, lawn and garden services such as planting, mowing, spraying and fertilizing, and shrub and tree services.

Publication 207 adds that these services are taxable whoever performs them, construction contractors included, even when they involve realty improvements: its example taxes the whole $1,000 charge for selling and laying sod. Constructing land improvements such as walls, walks, fences, retaining walls, ponds and nonfarm underground irrigation systems is real property construction instead. On a job that combines excavating and landscaping, only the landscaping is taxable, unless the construction contract exemption above covers the whole contract.

Janitorial work: the Department’s 2014 article

In its Sales and Use Tax Report of September 2014, the Department said routine and repetitive janitorial services, meaning a variety of cleaning services in a building, to both personal and real property, under one contract, aren’t taxable, even though they include vacuuming carpets and cleaning bathroom fixtures. A service performed for a customer only once isn’t routine and repetitive. Specialized or non-repetitive cleaning is taxable for tangible personal property and not taxable for real property. A single charge for both should be reasonably allocated; without an allocation, the whole charge is taxable unless the Department determines another method more accurately reflects the tax.

County and city tax

Counties that have adopted the county tax add 0.5%, except Milwaukee County at 0.9%, and the city of Milwaukee, the only municipality with its own sales and use tax, adds 2%. A registered retailer, wherever it’s located, collects county and city tax on taxable sales sourced to a county or city that has adopted one. Construction materials bought where there’s no county or city tax and later used to improve real property in a county or city that has one owe its use tax, unless an exemption applies.