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Mid-America CouncilLeadership Training Session

April 2014

Presented byWisconsin Department of Revenue

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Agenda

Streamlined Sales Tax Project Wisconsin Sales and Use Tax Sales and Use Tax Exemptions Law Changes and Updates Miscellaneous and Resources

Streamlined Sales Tax Project

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Streamlined Sales Tax Project

Streamlined Sales Tax Governing Board began in March 2000

23 full member states 1 associate member state

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Streamlined Sales Tax Project

Quill Corp. – U.S. Supreme Court Physical presence Existing system too complicated Congress has authority to require remote sellers to

collect tax

Simplify and modernize sales and use tax administration

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Streamlined Sales Tax Project

Wisconsin became full member on October 1, 2009 Legislation passed – 2009 Wisconsin Acts 2 and

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Streamlined Sales and Use Tax Agreement (SSUTA)

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Streamlined Sales Tax Project The key areas that are being made more

uniform include: Rate simplification Limiting the frequency of tax rate changes Simplifying registration systems Simplifying filing and paying of sales tax Uniform audit procedures Uniform definitions within tax bases Uniform rounding rules Uniform treatment of bad debts

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Streamlined Sales Tax Project Annual state recertification

Certificate of compliance Taxability matrix

States certify software providers Wisconsin rate and boundary database file Sales tax rate look-up

https://ww2.revenue.wi.gov/STRB/application

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Streamlined Sales Tax Project Streamlined Sales Tax Registration System

Must register in all Member States Sellers can indicate they do not have sales in a

particular state Can indicate states where a seller is already

registered All changes or updates to registration information

made in one place and sent to all states Different technology models

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Streamlined Sales Tax Project Federal legislation

Senate (S. 743) passes Marketplace Fairness Act of 2013 in May 2013

Judiciary Committee hearing on alternatives on the internet sales tax issue

Marketplace Fairness Act of 2013 Two different paths

Member States under the SSUTA Alternative path - minimum simplifications

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Streamlined Sales Tax Project Current Developments

Registration system More state disclosure

Best Practices Matrix – Vouchers Best Practices Matrix – Credits??

Prepared food toggle Marketplace Fairness Act Online taxability matrix

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Wisconsin Sales and Use Tax

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Seller's Permit

A retailer located outside Wisconsin who has “nexus” in Wisconsin and who makes taxable sales in Wisconsin is required to register.

A retailer without “nexus” may voluntarily register.

"Nexus" or "engaged in business" is defined in Tax 11.96 of the Wis. Adm. Code

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What is nexus? What creates nexus?

Nexus is a connection or a link to Wisconsin (i.e., a physical presence).

For sales and use tax purposes, common situations that create nexus for a business are:• Having any portion of your business physically located

in Wisconsin

• Leasing or renting tangible personal property located in Wisconsin

• Repairing or installing tangible personal property in Wisconsin

What creates nexus? (continued)

• Performing construction work in Wisconsin

• Performing taxable services in Wisconsin

• Delivering tangible personal property into Wisconsin in your own vehicle

• Having agents, salespeople, etc. in the state selling, taking orders, or making deliveries

• Participating in conventions and/or trade shows in Wisconsin

Note: Keep in mind that nexus requirements vary for different tax types.

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What creates nexus? (continued) Activities that by themselves do not create

nexus:• Advertising in newspapers and telephone books

• Sending catalogs into the state from outside the state

• Receiving mail or telephone orders and having the orders shipped into the state using mail or common carrier

• Attending educational seminars

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Where does the sale take place? Sourcing is the term used to indicate

where the sale takes place and which taxing jurisdictions (state and local) are entitled to impose a tax on the sale.

A sourcing hierarchy was developed and must be followed to determine the proper state and local jurisdiction to which a sale is sourced.

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Sourcing hierarchy

1. Seller’s Address –

Tax is charged based on the taxing jurisdiction of seller’s location, if that’s where possession transfers.

2. Delivery Address –

Tax is charged based on where the product is shipped to or the service is provided.

3. Billing Address –

Tax is charged based on the address that the seller has in their records for the customer.

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Sourcing hierarchy

4. Other Address –

Purchaser’s address obtained during the consummation of the sale (possibly on the payment instrument)

5. Location from which the item is shipped -

This is a catch-all provision … so seller always has a definite place to source a sale

Wisconsin Statutes 77.522

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Special Sourcing Rules

Leases, licenses, and rentals of TPP sec. 77.522(3)(a), Wis. Stats.

Leases, licenses, and rentals of motor vehicles, trailers, semitrailers, or aircraft that do not qualify as transportation equipment sec. 77.522(3)(b), Wis. Stats.

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Sales and Use Taxes

Rates

State tax – 5.0% County tax - 0.5% Baseball stadium district tax - 0.1% Football stadium district tax - 0.5% Local food and beverage tax - 0.5% Local expo basic room tax – 2.0% (7% additional room tax for

City of Milwaukee only) Premier resort area tax - 0.5% or 1.0% (Effective July 1, 2014,

Lake Delton and City of Wisconsin Dells increase to 1.25%)

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What is included in the sales price? “Sales price” includes the following charges:

• Retail price of the product or service

• Delivery charges

• Installation charges

• Taxes that are the obligation of the seller

• Tips or service charges added to the bill by the seller

• Services necessary to complete the sale (e.g. trip charges, fuel surcharge, reimbursed expenses, etc.)

• All items as required as a condition of the sale

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What is not included in the sales price?

“Sales price” does not include the following charges:• Credit allowed for TPP taken in trade (i.e. trade-in allowance)

• Interest

• Finance charges from the extension of credit

• Taxes legally imposed on the purchaser, if separately stated on the invoice

• Delivery charges for direct mail (if separately stated on the invoice to the purchaser)

• Discounts or coupons, unless reimbursed by a third party (e.g., manufacturer’s coupon)

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Sales and Use Taxes

Taxable Products: Tangible personal property (sec. 77.52(1)(a), Stats.) Certain coins or stamps (sec. 77.52(1)(b), Stats.) Certain leased tangible personal property affixed to real

property (sec. 77.52(1)(c), Stats.) Digital goods (sec. 77.52(1)(d), Stats.)

The four products, above, are referred to collectively as tangible personal property, and items, property, and goods.

Specified services

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Sales made over the Internet

Sellers who are registered or required to be registered to collect tax in Wisconsin and who make sales over the Internet, must charge sales tax on sales sourced to Wisconsin.

Wisconsin also imposes sales tax on internet access services.

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Sales and Use Taxes

Taxable Services (not all-inclusive): Repair or other service to tangible personal property Parking (for motor vehicles and aircraft) Admissions to amusement, athletic, recreational, and

entertainment events or facilities Landscaping Cable television

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Sales and Use Taxes

More Taxable Services (not all-inclusive): Boat docking and storage Providing rooms and lodging Photographic services, including videographic

services Laundry and dry cleaning services Telecommunications services Printing or imprinting services

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When is labor taxed?

Repair labor – taxable Fabrication labor – taxable Installation Labor – taxable Construction labor – not taxable if the labor is

used to make a real property improvement (exceptions apply)

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Nontaxable Service Providers Many service providers provide services that

are typically not subject to tax. Examples include:

banks accountants attorneys consulting firms health care providers

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Nontaxable Service Providers If they provide any taxable products or services, they

are required to register and collect the applicable taxes like any other business.

Examples include: Accountants who sell computer software and

install it on their client’s computer Banks that sell collector coin sets Hospitals that sell photocopies of medical records

Purchases of business assets and office supplies are taxable (unless an exemption applies).

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Tangible Personal Property Defined in sec. 77.51(20), Stats. "Tangible personal property" means personal

property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses, and includes electricity, gas, steam, water, and prewritten computer software, regardless of how it is delivered to the purchaser.

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Digital Goods

Items/products that may be transferred by: Uploading using the internet Streaming over the internet Emailing to the purchaser

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Digital Goods

If tangible form was exempt or not subject to tax, digital form is also not subject to tax

Sec. 77.54(50), Stats.

Example: Finished artwork consumed in manufacturing

brochures

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Online Training or Webinar

Live event Digital audiovisual work Tangible form is not taxable

Previously recorded Digital audiovisual work Tangible form subject to tax

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Digital Goods

Taxable digital goods include: Specified Digital Goods Digital Codes Additional Digital Goods

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Specified Digital Goods include

Digital audio works Recorded or live songs, reading of books,

ringtones Digital audiovisual works

Movies, motion pictures, music videos, live or recorded events

Digital books Novels, autobiographies, dictionaries, cookbooks,

textbooks

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Digital Codes

Codes used to access or obtain any specified digital good, or any additional digital goods that have been previously purchased & promotion cards/codes purchased by retailer or other business entity

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Additional Digital Goods Greeting Cards Finished Artwork Periodicals Video or Electronic Games Newspaper or other news or information

products

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Finished Artwork

Drawings Paintings Designs Photographs Lettering

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Digital Goods

Examples of generally taxable digital goods (i.e., they are one of the specific digital goods that are subject to tax)

PowerPoint presentation Brochure designs Copies of construction plans and specifications Designing, creating, and distributing e-newsletters

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Digital Goods Examples of nontaxable digital goods (i.e., they

are not one of the specific digital goods that are subject to tax)

Blank legal forms Viewing a live educational seminar via webinar Access to a web site that allows the user to search a

database that returns personal information about a person

Web hosting services

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Digital Goods

References: Publication 235: Advertising Companies Publication 240: Digital Goods Common Questions – Computer, Hardware, and

Software

What is use tax?

Self-assessed and paid directly to the state.

Applies when you purchase taxable items or

services for your own use without paying sales tax.

Is the complement to sales tax - it reduces unfair competition for all businesses.

Most audit assessments are for use tax!!

What is the basis for use tax?

Use tax is based on: your purchase price of taxable purchases, including any taxable miscellaneous charges.

This is true whether you buy items: for your own business use without paying sales

tax, take them out of inventory and use them in a

taxable manner or donate them to a charitable organization.

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Consumer Use Tax

A business that does not make retail sales subject to Wisconsin sales or use tax is required to register for a consumer’s use tax certificate if it regularly makes purchases that are subject to Wisconsin use tax. (Examples: materials consumed by contractors).

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Credit for Taxes Paid to Other States

Wisconsin allows a credit for the amount of sales tax owed in another state (tax must be legally due and owed), up to the amount of tax due in Wisconsin on that same purchase.

Example - A Janesville business buys and picks up office supplies in Rockford. The office supply store charges the appropriate 8.25% Illinois sales tax. The business brings the supplies back to Janesville for use. A credit is given for the 8.25% IL tax paid to offset the 5.5% WI tax. Thus no Wisconsin or Rock county use tax is due.

Note: Wisconsin business CANNOT get a refund on the additional 1.375% IL tax.

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Sales and Use Tax Exemptions

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Sales and Use Tax Exemptions

Product based exemption

The product itself is exempt (e.g., most food purchased from a grocery store, such as milk, eggs, fresh fruit).

No exemption certificate required

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Sales and Use Tax Exemptions

Use based exemption

The product is used in an exempt manner (e.g., farm machinery).

An exemption certificate is required

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Sales and Use Tax Exemptions

Entity based exemption

The buyer or seller is exempt from tax (e.g., sale by the federal government, or sale to a nonprofit organization holding a CES number). An exemption certificate or copy of their

Wisconsin CES number

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Government Agencies Wisconsin state and local governmental agencies do not have

to pay sales or use tax on their purchases of taxable goods and services.

Examples of exempt governmental units in Wisconsin: Federal governmental agencies Federally recognized American Indian Tribe or Band in Wisconsin Wisconsin governmental agencies Local governmental agencies from Wisconsin

Note: State and local government agencies from other states are taxable in Wisconsin.

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Non-profit Organizations Non-profit organizations that can obtain exempt

status for sales and use tax are: Charitable organizations (e.g. hospitals, nursing

homes, ambulance services and outpatient surgical centers organized under 501(c)(3) )

Religious organizations (e.g. churches, synagogues, mosques, etc.)

Educational organizations (e.g. scouts and youth groups)

Note: Many people assume that if an organization has obtained federal nonprofit status that they automatically qualify for a sales tax exemption. This is not the case – it is not an automatic exemption.

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Sales and Use Tax Exemptions

Sec. 77.54(5)(a), Stats. Motor vehicles purchased by non-residents Only use is to remove from this state Includes: aircraft, truck bodies

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Sales and Use Tax Exemptions

Sec. 77.53(17), Stats. Excluded from use tax Personal property brought into WI by a non-

resident while temporarily in WI Does not include property used in a trade or

business Examples: Camping supplies, snowmobiles,

strollers, cameras, cell phones

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Sales and Use Tax Exemptions

Sec. 77.53(18), Stats. Excluded from use tax if changing domicile Household goods when moving to WI Must be purchased 90 days or more prior to bringing

property into WI Includes (personal use): aircraft, motor vehicles,

boats, snowmobiles, mobile and manufactured homes, RVs, trailers, semitrailers, and ATVs

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Exemption Certificates All sales of taxable products are considered

taxable, until the contrary is established. Authorized exemption certificates

Form S-211 Form S-211-SST Certificate of Exempt Status Direct Pay Permit issued by Wisconsin Uniform Sales and Use Tax Certificate (Multi-

jurisdictional Tax Certificate)

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Exemption Certificates

Seller is relieved of liability for the tax if the seller obtains and retains: Fully completed exemption certificate Prior to or within 90 days after the date of the sale Indicating that the purchaser will use the property

or service in a manner that is exempt from Wisconsin sales and use tax.

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Exemption Certificates

In the case of an audit: Allow 120 days once requested by WI DOR to

substantiate a claimed exemption Seller must accept exemption certificate in good

faith

Is the business still operating?

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Law Changes and Updates

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2013 & 2014 Sales and Use Tax Law Changes

Advertising and promotion direct mail exemption (eff. 7/1/13)

Services that result in advertising and promotional direct mail (eff. 7/1/13)

Laundry, dry cleaning, pressing, and dyeing services through self-service machines exemption (eff. 10/1/13)

Lump sum contracts (eff. 10/1/13) Other recent law changes – articles to be published

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2013 & 2014 Sales and Use Tax Law Changes

Exemption certificate received after sales tax paid Effective July 2, 2013 Retailer receiving fully completed exemption

certificate from purchaser after reporting sale as taxable may claim deduction on sales tax return for items covered by exemption certificate

Previously had to file amended return

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2013 & 2014 Sales and Use Tax Law Changes

Exemption certificate deduction - cont’d Requirements:

Retailer paid tax to DOR Exemption certificate received by retailer

in same taxable year as sale covered by exemption certificate, and

Retailer returned tax to buyer

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2013 & 2014 Sales and Use Tax Law Changes

Exemption certificate deduction - cont’d The deduction is claimed on return filed for period

in which retailer receives exemption certificate. May result in negative “taxable sales” on sales tax

return

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2013 & 2014 Sales and Use Tax Law Changes

Sales/Use Filing Frequency Changes Tax years beginning on or after January 1, 2014

Monthly – tax due in calendar quarter is more than $1,200 (previously $600)

Quarterly – tax due annually more than $600 but less than $1,200 quarterly

Annual – tax due $600 or less annually (rule change pending)

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2013 & 2014 Sales and Use Tax Law Changes

Sales/Use Filing Frequency Changes Letters notifying affected taxpayers went out in

November Taxpayers can elect to keep more frequent filing

frequency through My Tax Account after receiving letter

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2013 & 2014 Sales and Use Tax Law Updates

Take and bake pizza (March Sales and Use Tax Report)

Motor vehicles sales by Wisconsin retailers that hold a Wisconsin seller's permit

No exemption for nonresidents for non-motorized campers

Revenue from federal law to reduce Wisconsin individual income tax

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Miscellaneous and Resources

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Refund Interest Reduction

All DOR-paid refund interest amounts shifted from 9% to 3% on July 2, 2013, regardless of tax type, filing date or taxable period

12% interest rate on assessments (18% if delinquent) is unchanged

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My Tax Account (MTA)

MTA is an online filing and payment system that allows you to:

File and amend returns Make payments Receive payment and return confirmations Monitor your business tax accounts at any

time

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My Tax Account Webinars

Watch for announcements on: Regular monthly MTA webinars for new

businesses Webinars for persons with third-party access

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Delinquent Tax Issues

File Returns Even if Tax Can’t Be Paid My Tax Account can be used to file past due

returns

Sales and Use Tax ResourcesKeep on top of changes!

Go to DOR web site at www.revenue.wi.gov

Sales and Use Tax Reports (quarterly) Wisconsin Tax Bulletins Publications

Publication 201 for general sales and use tax info

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DOR ResourcesElectronic Mailing Lists

List Servs Sales & Use Tax Tax Professionals Wisconsin Economic Outlook Withholding Tax

Subscribe at: http://www.revenue.wi.gov/html/lists.html

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DOR ResourcesPractitioner Assistance

Email: dortaxpractitioners@revenue.wi.gov

Phone:

608-261-5199

**Do Not Share This Information**

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DOR Resources Speaker Information

David Steines715-247-4919David.steines@revenue.wi.gov