Wisconsin Legislature: Tax 11.68(6)(bm)

(h) Fertilizer blending, feed milling, and grain drying operations. Under s. 77.54 (6) (bn), Stats., contractors and subcontractors may purchase without sales and use tax the items described in s. 77.54 (6) (am) 4. and 5., Stats., and used by the contractor or subcontractor in real property construction activities which satisfy the conditions described in s. 77.54 (6) (am) 4. and 5. and (bn), Stats., regarding a fertilizer blending, feed milling, or grain drying operation.

(i) Building materials for facilities owned by local governmental units and certain nonprofit organizations.

1. Under s. 77.54 (9m), Stats., contractors may purchase without sales or use tax building materials that the contractor, in fulfillment of a real property construction activity, transfers to a qualifying exempt entity if the materials become part of a facility in Wisconsin that is owned by the entity.

2. The following provisions apply to the exemption under s. 77.54 (9m), Stats.:

a. “Qualifying exempt entity” means an entity described in s. 77.54 (9a) (b), (c), (d), (em), and (f), and (fc), and (9g), Stats., a technical college district, the Board of Regents of the University of Wisconsin System, an institution, as defined in s. 36.05 (9), Stats., a college campus, as defined in s. 36.05 (6m), Stats., or the University of Wisconsin-Extension.

b. “Facility” means any building, shelter, parking lot, parking garage, athletic field, athletic park, storm sewer, water supply system, or sewerage and waste water treatment facility. “Facility” does not include highways, streets, roads, sidewalks or paths, regardless of whether located within a facility.

Examples: 1) Materials that become a component part of the road, curb, gutters, or sidewalk are not part of a facility, such as black top, cement, and road base materials.

2) Materials that become a component part of a storm sewer facility and the materials necessary to stabilize those items are part of the storm sewer facility, such as piping, fittings, gravel and other fill necessary to bury the storm sewer piping to protect it from the road. Any road base material used to bring the road to elevation, and the road surface itself, is not part of a facility.

3) Pipes, pipe liner material, manhole structures, manhole covers, manhole liners, and manhole coatings become a component part of the storm sewer facility.

c. A Wisconsin organization described under s. 77.54 (9a) (f), Stats., shall hold a Wisconsin Certificate of Exempt Status number. A non-Wisconsin organization described under s. 77.54 (9a) (f), Stats., and a state veterans organization described in s. 77.54 (9g), Stats., are not required to hold a Wisconsin Certificate of Exempt Status number.

d. A contractor’s purchase of building materials transferred to a county, city, village or town, a state governmental unit, or a federal governmental unit outside Wisconsin are not exempt.

e. A contractor’s purchase of building materials transferred to a person other than a qualifying entity is exempt if the person does not use the facility for any purpose other than to transfer it to the qualifying entity.

Example: Building materials for the construction of a parking ramp that will be owned and operated by a developer prior to transfer to a municipality, does not qualify for the exemption.

f. A subcontractor’s purchase of building materials is exempt if the materials are transferred to a qualifying entity and, upon completion of the facility, the materials become a part of the facility in Wisconsin that is owned by the qualifying entity, pursuant to a contract between a general contractor and the qualifying entity, and the general contractor does not use the facility for any purpose other than to transfer it to the entity.

g. The exemption applies to contracts entered into on or after January 1, 2016. The exemption does not apply to purchases of building materials after January 1, 2016, for a contract that was entered into prior to January 1, 2016, even if the change order relating to those materials was executed after January 1, 2016.

Note: The effective date is different for contracts with certain exempt qualifying entities. Contracts with certain title holding companies became effective September 1, 2017. Contracts with technical colleges, the UW System, and state veterans organization became effective July 1, 2018.

(j) Electronics and information technology manufacturing zone facilities. Under s. 77.54 (65), Stats., owners, lessees, contractors, subcontractors, or builders may purchase without sales or use tax building materials, supplies, equipment, and landscaping services if both of the following apply:

1. The property or landscaping service is acquired solely for or used solely in, the construction or development of a facility located in an electronics and information technology manufacturing zone designated under s. 238.396 (1m), Stats.

2. The capital expenditures for the construction or development of the facility may be claimed as a credit under s. 71.07 (3wm) (bm) or 71.28 (3wm) (bm), Stats., as certified by the Wisconsin Economic Development Corporation.

(5) Classification of property after installation.

(a) Contractors shall determine whether a particular contract or transaction results in an improvement to real property or in the sale and installation of personal property. In determining whether personal property becomes a part of real property, the following criteria shall be considered:

1. Actual physical annexation to the real property.

2. Application or adaptation to the use or purpose to which the real property is devoted.

3. An intention on the part of the person making the annexation to make a permanent accession to the real property.

Note: See Dept. of Revenue vs. A. O. Smith Harvestore Products, Inc.(1976), 72 Wis. 2d 60, regarding determining whether personal property becomes a part of real property.

(b) Certain types of property that have a variety of functions may be personal property in some instances and additions to real property in others, including boilers, furnaces, stand-by generators, pumps, substations, and transformers. When this property is installed primarily to provide service to a building or structure and is essential to the use of the building or structure, it is a real property improvement. However, when similar property is installed in a manufacturing plant to perform a processing function, it may, as machinery, retain its status as personal property.

(6) Personal property which becomes a part of realty. A construction contractor is the consumer of tangible personal property and items and goods under s. 77.52 (1) (b) and (d), Stats., such as building materials, which is incorporated into or becomes a part of real property, and sales of this personal property to a contractor are subject to the tax. Personal property which becomes a part of real property includes the following:

(a) Boilers and furnaces for space heating.

(b) Built-in household items such as kitchen cabinets, dishwashers, fans, garbage disposals, central vacuum systems, and incinerators.

(bm) Casework, tables, counters, cabinets, lockers, sinks, athletic and gymnasium equipment attached to the structure in apartment buildings, convalescent homes, or other residential buildings.

(d) Personal property that is used to construct buildings, and structural and other improvements to buildings, including awnings, canopies, carpeting, foundations for machinery, floors, including computer room floors, partitions and movable walls attached in any way to realty, holding structures used in fertilizer blending, feed milling, or grain drying operations, underground wiring, general wiring and lighting facilities, roofs, stairways, stair lifts, sprinkler systems, storm doors and windows, door controls, air curtains, loading platforms, central air conditioning units, building elevators, sanitation and plumbing systems, and heating, cooling, and ventilation systems.

(e) Fixed or year-around wharves and docks.

(f) Personal property that is used to construct improvements to land. “Improvements to land,” as used in this section, include retaining walls, roads, walks, bridges, fencing, railway switch tracks, ponds, dams, ditches, wells, underground irrigation systems except systems sold to and for use by farmers, drainage, storm, and sanitary sewers, and water supply lines for drinking water, sanitary purposes, and fire protection.

(g) Residential water heaters, water softeners, intercoms, incinerators, and garage door opening equipment, except portable equipment.

(h) Personal property that is used to construct silos and the building portion of grain elevators.

(i) Swimming pools, wholly or partially underground.

(j) Storage tanks constructed on the site.

(k) Street and parking lot lighting.

(L) Truck platform scale foundations.

(m) Walk-in cold storage units becoming a component part of a building.

(7) Property which remains personal property and construction contract exemption.

(a) Property which remains personal property. Contractors shall obtain a seller’s permit and report for taxation the sales price received from the sale and installation of tangible personal property and items and goods under s. 77.52 (1) (b) and (d), Stats., which retains its character as personal property after installation, such as:

1. Furniture, radio and television sets and antennas, washers and dryers, portable lamps, home freezers, portable appliances, and window air conditioning units.

2. Communication equipment, including intercoms, pneumatic tube systems, roof mounted antennas, CATV wiring, and music and sound equipment in business, industrial, or commercial buildings, schools, and hospitals, but not in apartment buildings, convalescent homes, or other residential buildings.

3. Casework, tables, counters, cabinets, lockers, sinks, athletic and gymnasium equipment, and related easily movable property attached to the structure in schools, laboratories, and hospitals, except if attached to the structure in the bathrooms of such facilities.

4. Machinery, including safety attachments, equipment, tools, appliances, process piping and wiring, and grain handling equipment and grain elevator legs used exclusively by manufacturers, industrial processors, and others performing a processing function with the items.

5. Office, bank, and savings and loan association furniture and equipment, including office machines, safe deposit boxes, drive-up and walk-up windows, night depository equipment, remote TV auto teller systems, camera security equipment except when used to monitor for unauthorized entry to a building or room in a building, and vault doors.

6. Personal property used to carry on a trade or business, including fixtures and equipment installed in stores, taverns, night clubs, restaurants, ice arenas, bowling centers, hotels and motels, barber and beauty shops, figure salons, theaters, and gasoline service stations. Underground storage tanks at gasoline service stations are real property.

7. Shades, curtains, drapes, venetian blinds, and associated hardware.

7m. Satellite dish systems installed on residential and commercial buildings, but not satellite dish systems that are installed by permanently affixing the satellite dish to a concrete foundation in apartment buildings, convalescent homes, or other residential buildings.

8. Radio, television, and cable television station equipment, but not broadcasting towers installed on their owner’s land.

9. Except as provided in ss. 77.51 (12m) (b) 7. and (15b) (b) 7. and 77.54 (31), Stats., mobile homes, as defined in s. 101.91 (10), Stats., and manufactured homes, as defined in s. 101.91 (11) and (12), Stats., located in a mobile home park on land owned by a person other than the mobile home or manufactured home owner. Exemptions are provided by s. 77.51 (12m) (b) 7. and (15b) (b) 7., Stats., for 35% of the total amount for which a new manufactured home, as defined in s. 101.91 (11), Stats., is sold. No credit may be allowed for trade-ins and the exemption does not apply to a lease or rental. The exemption provided in s. 77.54 (31), Stats., applies to the sale of, but not the lease or rental of, used mobile homes as defined in s. 101.91 (10), Stats., and used manufactured homes as defined in s. 101.91 (12), Stats.

10. Advertising signs, except their underground concrete foundations. A foundation is underground even though a portion of the foundation extends above the grade.

11. Buildings and standing timber sold for removal.

12. Utility transmission and distribution lines installed above ground on land owned by others as provided in s. Tax 11.86 (1), and oil and gas pipeline pumping station equipment.

13. Commercial and industrial incinerators which do not become an integral part of the building.

14. Seating in auditoriums and theaters, and theater stage lights and projection equipment.

15. Stop and go lights, railroad signs and signals, and street identification signs.

(b) Construction Contract Exemption.

1. In this paragraph:

a. “Construction contract” has the meaning given in s. 77.54 (60) (d) 1., Stats., and includes both fixed price contracts and time and materials contracts.

b. “Prime contractor” has the meaning given in s. 77.54 (60) (d) 2., Stats.

c. “Products” as defined in s. 77.51 (11d), Stats., includes property, goods, and services.

d. “Subcontractor” has the meaning given in s. 77.54 (60) (d) 3., Stats.

2. The sales price of products sold by a prime contractor as a part of a construction contract is not taxable if more than 90 percent of the total amount of the construction contract relates to real property construction activities. The calculation is made without regard for exemptions that may be claimed by the customer (e.g., manufacturing, farming). Change orders and additional work billed are included in this calculation. Except as provided in subd. 6., the prime contractor is the consumer of the products and shall pay tax on its purchase of the taxable products.

3. The sales price of products sold by a subcontractor to a prime contractor, or to another subcontractor for eventual sale to the prime contractor, as part of the subcontractor’s construction contract is not taxable if either of the following apply:

a. The total sales price related to the subcontractor’s real property construction activities is more than 90 percent of the total amount of the construction contract.

b. The subcontractor received a fully completed exemption certificate from the prime contractor, or another subcontractor, claiming that the products are sold by the prime contractor or the other subcontractor as part of a construction contract that is exempt under s. 77.54 (60), Stats.

a. A subcontractor is liable for tax on its purchases of materials it uses in real property construction activities.

b. Except as provided in subd. 6., a subcontractor is liable for tax on its purchase of taxable products sold as part of a construction contract in which subd. 3. a. or b. applies.

5. The prime contractor shall make a determination at the start of the construction contract whether it provides the subcontractor with an exemption certificate claiming resale or the construction contract exemption in s. 77.54 (60), Stats., but not both. The prime contractor is liable for tax on its purchases of materials it uses in real property construction activities. The liability for tax on products not used in real property construction activities depends, in part, on whether the prime contractor gives an exemption certificate for its purchases, as follows:

a. If the prime contractor does not give the subcontractor an exemption certificate or gives an exemption certificate claiming resale, and the contract qualifies for exemption under s. 77.54 (60), Stats., the prime contractor is liable for tax on its purchase price of the taxable products purchased from the subcontractor.

b. If the prime contractor does not give the subcontractor an exemption certificate or gives an exemption certificate claiming the exemption under s. 77.54 (60), Stats., and the contract does not qualify for the exemption, the prime contractor is liable for sales or use tax on the sales price of the taxable products sold. The prime contractor may collect the tax from its customer.

c. If the subcontractor receives an exemption certificate from the prime contractor claiming resale, and the prime contractor’s contract qualifies for exemption under s. 77.54 (60), Stats., the subcontractor is not liable for tax on its purchase price of the materials sold as products to the prime contractor as a part of the construction contract. Rather, the prime contractor is liable for the tax on its purchase price of the taxable products and services purchased from the subcontractor.

d. If the subcontractor receives an exemption certificate from the prime contractor claiming the exemption under s. 77.54 (60), Stats., and the contract does not qualify for the exemption, the subcontractor may claim a refund of any tax paid on the purchase of materials sold as products to the prime contractor as a part of the construction contract. The claim for refund shall substantiate that the prime contractor’s contract did not qualify for the construction contract exemption, that the tax on sales to the prime contractor were reported to the department by the subcontractor or the prime contractor, and that the prime contractor’s purchases qualified for the resale exemption. The subcontractor may not claim a refund of tax on its purchase of materials used in real property construction activities.

e. If the subcontractor does not receive an exemption certificate from the prime contractor, the subcontractor is not liable for tax on its purchase price of materials sold as products to the prime contractor. The subcontractor’s sale of taxable products and services to the prime contractor is taxable.

Examples: 1) A refrigerator and drapes are included in the construction contract to build a new house. No separate charge is made for the refrigerator and drapes, which are taxable products. Based on a reasonable allocation, the sales price of the real property construction activities is more than 90 percent of the total amount of the construction contract. Therefore, the prime contractor’s sale to its customer of the refrigerator and drapes is not subject to tax. The prime contractor shall pay sales or use tax on its purchase of the refrigerator and drapes, in addition to the products consumed in the real property construction activities.

2) Landscaping services are included in a construction contract to build a building. Based on a reasonable allocation, the sales price for the construction of the building is 80 percent of the total amount of the construction contract. Since the total sales price to construct the building is not more than 90 percent of the total amount of the construction contract, the prime contractor is required to make an allocation between the taxable landscaping services and the other nontaxable charges included in the contract. The prime contractor is required to charge Wisconsin sales tax on the sales price of the landscaping services.

3) Landscaping services are included in a construction contract to build a building. Based on a reasonable allocation, the sales price for the construction of the building is 95 percent of the total amount of the construction contract. Since the total sales price to construct the building is more than 90 percent of the total amount of the construction contract, the prime contractor’s sale is not taxable. The prime contractor is the consumer of the products and shall pay sales or use tax on its purchases of taxable products, including landscaping materials.

4) Same facts as Example 3, except the prime contractor hires a subcontractor to provide the landscaping services and to install a retaining wall. The prime contractor’s sale is not taxable. The prime contractor may provide its subcontractor with a fully completed exemption certificate claiming the exemption under s. 77.54 (60), Stats. The subcontractor is performing real property construction activities when installing the retaining wall and providing products when performing landscaping services. The landscaping subcontractor should not charge the prime contractor tax on its sale. The landscaping subcontractor is the consumer of the products consumed in the landscaping service and retaining wall installation as part of its construction contract with the prime contractor and shall pay sales or use tax on its purchases of taxable products, including landscaping materials.

5) Same facts as Example 4, except the prime contractor does not provide the subcontractor with an exemption certificate claiming the exemption under s. 77.54 (60), Stats. The subcontractor’s sales price of the real property construction activities of the construction contract is 80 percent of the subcontractor’s total contract price so the construction contract exemption does not apply to the subcontractor’s contract with the prime contractor. The landscaping subcontractor is the consumer of and shall pay sales or use tax on its purchases of taxable products used in the retaining wall installation. The subcontractor is a retailer and shall charge sales tax to the prime contractor on the taxable landscaping services that make up 20 percent of the construction contract.

6) A subcontractor enters into a construction contract with a prime contractor to install a parking lot and provide landscaping. The prime contractor’s contract with its customer does not meet the construction contract exemption criteria. The subcontractor is performing real property construction activities when installing the parking lot and providing products when performing landscaping services. The subcontractor’s sales price of the real property construction activities of the construction contract with the prime contractor is more than 90 percent of the subcontractor’s total contract price so the construction contract exemption applies to the subcontractor’s contract with the prime contractor. The subcontractor does not charge the prime contractor sales tax. The subcontractor shall pay sales or use tax on its purchases of taxable products, including landscaping materials.

6. If the construction contract is entered into with an entity that is exempt from taxation under s. 77.54 (9a), Stats., the following apply:

a. The prime contractor is the consumer of all products used by the prime contractor in real property construction activities, but the prime contractor may purchase without tax, for resale, products that are sold by the prime contractor to the entity as part of the construction contract and that are not consumed by the prime contractor in real property construction activities.

b. A subcontractor of the prime contractor is the consumer of all products used by the subcontractor in real property construction activities, but the subcontractor may purchase without tax, for resale, products that are sold by the subcontractor to the prime contractor or another subcontractor, as part of the subcontractor’s construction contract under subd. 3., for resale to the entity and that are not consumed by the subcontractor in real property construction activities.

(8) Property, items, and goods purchased by a person who performs both real property construction activities and sells tangible personal property or items, property, or goods under s. 77.52 (1) (b), (c), or (d), Stats., at retail, when destination of property, item, or good purchased is unknown at time of purchase. Section 77.51 (2), Stats., provides in part that a contractor engaged primarily in real property construction activities may use resale certificates only with respect to purchases of tangible personal property or items or goods under s. 77.52 (1) (b) or (d), Stats., which the contractor has sound reason to believe the contractor will sell to customers for whom the contractor will not perform real property construction activities involving the use of such tangible personal property or items or goods under s. 77.52 (1) (b) or (d), Stats. However, some construction contractors who also sell construction supplies at retail do not know when they purchase these supplies whether they will be consumed in construction contracts or resold to others. In these instances, a construction contractor may do one of the following at the time of making purchases:

(a) Give an exemption certificate claiming resale to suppliers and purchase the property, item, or good without tax. If the contractor later resells the property, item, or good, the contractor shall report the sales and collect and remit the tax on the sales price to customers. If the property, item, or good is used in fulfillment of a construction contract, the contractor shall pay a use tax on its purchase price.