Tax 11.88 NoteNote: Section Tax 11.88 interprets ss. 77.51 (2), (7i), (7j), (11d), (12m) (b) 7., (13), (14) (n) 7., and (15b) (b) 7., (17) (g), 77.52 (2) (a) 1., 77.523, 77.53 (17) and (18), 77.54 (7), (31), and (36), 77.61 (1) (a) and (c), 101.91 (2), (10), (11), and (12), 218.10 (1g), (7), and (9), and 340.01 (29) and (48r), Stats. Tax 11.88 NoteNote: The interpretations in s. Tax 11.88 are effective under the general sales and use tax law on and after September 1, 1969, except: (a) Nonretailer sales of mobile homes became taxable effective August 1, 1977, pursuant to Chapter 29, Laws of 1977; (b) Nonretailer sales of mobile homes exceeding 45 feet in length became exempt effective July 1, 1978, pursuant to Chapter 418, Laws of 1977; (c) Rental of a mobile home that is personal property for lodging for a continuous period of one month or more became exempt effective July 1, 1984, pursuant to 1983 Wis. Act 341, clarified effective April 1, 1986, pursuant to 1985 Wis. Act 149; (d) Gross receipts from a used mobile home became exempt effective January 1, 1987, pursuant to 1985 Wis. Act 29; (e) Thirty−five percent of the gross receipts from the sale of new mobile homes became exempt January 1, 1987, pursuant to 1985 Wis. Act 29; (f) The exemption from use tax of mobile homes purchased 90 or more days before moving to Wisconsin became effective August 1, 1987, pursuant to 1987 Wis. Act 27; (g) The exemption for transfers to in-laws became effective August 15, 1991, pursuant to 1991 Wis. Act 39; (h) The exemption for certain new mobile homes transported in two unattached sections became effective October 1, 1991, pursuant to 1991 Wis. Act 39; (i) The changes in terminology related to “mobile homes,” “manufactured homes,” and “recreational vehicles,” became effective January 1, 2008, pursuant to 2007 Wis. Act 11; (j) The change of the term “gross receipts” to “sales price” became effective October 1, 2009, pursuant to 2009 Wis. Act 2; and (k) 2019 Wis. Act 10 relating to marketplace providers became effective January 1, 2020. Tax 11.88 HistoryHistory: Cr. Register, December, 1980, No. 300, eff. 1-1-81; r. and recr. (3) and (6), Register, July, 1987, No. 379, eff. 8-1-87; am. (2) (b), (3) (d), (4) (b) and (5), cr. (3) (e), Register, June, 1991, No. 426, eff. 7-1-91; am. (3) (b) and (d), Register, April, 1993, No. 448, eff. 5-1-93; corrections in (3) (c) and (6) (a) made under s. 13.93 (2m) (b) 7., Stats., Register July 2002 No. 559; EmR0924: emerg. r. and recr. eff. 10-1-09; CR 09-090: r. and recr. Register May 2010 No. 653, eff. 6-1-10; CR 12-014: am. (title), cr. (1) (bm), am. (3) (b), cr. (3) (c), (4m) Register August 2012 No. 680, eff. 9-1-12; CR 20-027: am. (6) Register July 2021 No. 787, eff. 8-1-21; CR 22-017: r. and recr. (6) Register June 2023 No. 810, eff. 7-1-23. Tax 11.90Tax 11.90 Penalty for failure to produce records under s. 77.61 (19), Stats. Tax 11.90(1)(1) General. A person who fails to produce records or documents, as provided under ss. 73.03 (9) and 77.59 (2), Stats., that were requested by the department may be subject to any of the following penalties under s. 77.61 (19), Stats.: Tax 11.90(1)(a)(a) The disallowance of deductions, credits, exemptions or inclusions of additional taxable sales or additional taxable purchases to which the requested records relate. Tax 11.90(1)(b)(b) In addition to any other penalties that the department may impose, a penalty for each violation that is equal to the greater of $500 or 25% of the amount of the additional tax on any adjustment made by the department that results from the person’s failure to produce the records. Tax 11.90(2)(a)(a) “Disallowance,” “inclusion,” or “adjustment” means that an item is disallowed, included or adjusted through action taken by the department when a proposed assessment or refund or notice of assessment or refund is issued to a taxpayer. Tax 11.90(2)(b)(b) “Records” include both paper and electronic formats. Examples include bills, receipts, invoices, contracts, letters, memos, accounting statements or schedules, general ledgers, journal entries, and board of director’s minutes. “Records” do not include items protected by attorney-client privilege, if the taxpayer provides a brief description or summary of the contents of each record, the date each record was prepared, the person or persons who prepared each record, the person to whom each record was directed, or for whom each record was prepared, the purpose in preparing each record, and how each element of the privilege is met as to each record. Tax 11.90(2)(c)(c) “Records requested were not provided” means that all records requested were not provided to the department within the time specified by the department. Tax 11.90(2)(d)(d) “Written request for records” includes requests made by letter, e-mail, fax or any other written form. Tax 11.90(2)(e)(e) “Provided” means the records are provided by electronic means or in paper format to the address specified by the department in its written request for records. If the address specified by the department is the person’s location, the records are considered provided on the date the person notifies the department they are available for review at that location. Tax 11.90(3)(3) Procedures. The penalties in this section may be imposed if the records requested were not provided and the department provided the notifications in pars. (a), (b), and (c) regarding the records requested. The number of days established by the department for the person to respond to the record requests should be reasonable based on the facts of each situation. Tax 11.90(3)(a)(a) A first written request for records where the department allowed the person a minimum of 30 days from the date of request for the records to be provided. Tax 11.90(3)(b)(b) After the time period to respond to the first written request has expired as provided in par. (a), a second written request for records where the department allowed the person a minimum of 30 days from the date of request for the records to be provided. This second written request for records shall include a statement explaining that if the requested records are not provided by the date specified, the penalties provided by s. 77.61 (19), Stats., may be imposed. Tax 11.90(3)(c)(c) After the time period to respond to the second written request has expired as provided in par. (b), a summons request for records where the department allowed the person a minimum of 30 days from the date of receipt of the request for the records to be provided. This summons request shall be prepared on a form prescribed by the department and shall be served: Tax 11.90(3)(c)1.1. By certified mail, evidenced by a return receipt signed by the taxpayer or an authorized representative. Tax 11.90(3)(c)2.2. By personal service pursuant to sec. 801.11, Stats., if unable to obtain a signature as provided in subd. 1. Tax 11.90 NoteExamples: 1) The department issues a first written request for records to Corporation A on September 1, 2016, allowing Corporation A until October 6, 2016, to provide the records requested. Corporation A does not provide the requested records to the department by October 6, 2016. The department issues a second written request for records to Corporation A on October 21, 2016, allowing Corporation A until November 30, 2016, to provide the records requested. Included in this second written request for records is a notification regarding the penalties provided by s. 77.61 (19), Stats. Corporation A does not provide the requested records by November 30, 2016. The department mails a summons request for records to Corporation A which is received on December 20, 2016, allowing Corporation A until January 31, 2017, to provide the records requested. Corporation A does not provide the requested records by January 31, 2017. Therefore, the department may disallow the deductions, credits, or exemptions or include the additional taxable sales or additional taxable purchases to which the requested records relate and impose a penalty equal to the greater of $500 or 25% of the additional tax on the adjustments made resulting from Corporation A not providing the records requested. Tax 11.90 Note2) The department issues a first written request for records to Corporation B on December 21, 2016, allowing Corporation B until January 20, 2017, to provide the records requested. Corporation B does not provide the requested records to the department by January 20, 2017. The department issues a second written request for records to Corporation B on February 8, 2017, allowing Corporation B until March 10, 2017, to provide the records requested. Included in this second written request for records is a notification regarding the penalties provided by s. 77.61 (19), Stats. Corporation B does not provide the requested records to the department by March 10, 2017. The department personally serves a summons request for records on Corporation B on March 28, 2017, allowing Corporation B until May 10, 2017, to provide the records requested. Corporation B provides records to the department by May 10, 2017, but the department determines that the taxpayer did not provide some of the records requested by May 10, 2017. Therefore, since the taxpayer did not provide all of the records requested by May 10, 2017, the department may disallow the deductions, credits, or exemptions or include the additional taxable sales or additional taxable purchases to which the requested records that were not provided relate and impose a penalty equal to the greater of $500 or 25% of the additional tax on the adjustments made resulting from the requested records that were not provided. Tax 11.90(4)(a)(a) The penalties in this section may be waived if the person whose records were requested can show that, under all the facts and circumstances, its response to the written request for records or its failure to respond to the written request for records was reasonable or justified by factors beyond the person’s control. In determining whether the penalties will be waived, the department may consider any of the following factors: Tax 11.90(4)(a)1.1. Death of the taxpayer, tax preparer, accountant or other responsible party. Tax 11.90(4)(a)2.2. Onset of debilitating illness or injury of the taxpayer, tax preparer, accountant or other responsible party. Tax 11.90(4)(a)4.4. Records that were destroyed due to events beyond control of the taxpayer or other responsible party and not due to neglect. Tax 11.90(4)(a)5.5. Any other facts and circumstances that the department believes pertinent. Tax 11.90(4)(b)(b) Providing requested records after the time period required for providing the records has expired, as provided in sub. (3), shall result in a reduction of the penalties provided in sub. (1) (a) and (b) if the department determines that these records support a reduction in the disallowance or inclusion previously made by the department. Tax 11.90 NoteExamples: 1) Since Corporation C does not provide the records requested by the date specified in a summons request for records to support deductions for exempt sales, the department issues a proposed audit report to Corporation C disallowing all the deductions for exempt sales previously claimed, which represents the penalty provided in s. 77.61 (19) (a) 1., Stats. Additional tax of $100,000 and the penalty as provided in s. 77.61 (19) (a) 2., Stats., of $25,000 results in the proposed audit report from disallowing the deductions for exempt sales. Corporation C provides the records requested 26 days after the department issues the proposed audit report but before the notice of assessment is issued and explains, without any further detail, that they were too busy with other aspects of their business to respond to the three written requests for records by the dates specified. In this situation, the failure to provide the records requested is not reasonable or justified by factors beyond the person’s control. In addition, the records provided do not support a reduction of the exempt sales deductions disallowed in the proposed audit report. Therefore, the deductions for exempt sales adjustment is not modified so the proposed additional tax of $100,000 and the original proposed penalty as provided in s. 77.61 (19) (a) 2., Stats., of $25,000 remain. Tax 11.90 Note2) Since Mr. Smith does not provide the records requested regarding his business, which primarily receives payments in cash, to support the reported gross receipts by the date specified in a summons request for records, the department issues a notice of assessment to Mr. Smith including an estimated amount into taxable sales for unreported receipts, which represents the penalty provided in s. 77.61 (19) (a) 1., Stats. Additional tax of $60,000, a negligence penalty of $15,000 and the penalty as provided in s. 77.61 (19) (a) 2., Stats., of $15,000 results in the assessment from including these estimated receipts. Mr. Smith appeals the assessment, provides the records that were requested during the audit, and explains that he forgot to provide the records that were previously requested. In this situation, the failure to provide the records requested is not reasonable or justified by factors beyond the person’s control. However, the records provided show that unreported receipts were only 20% of the amount previously included by the department as estimated unreported receipts. Therefore, the unreported receipts adjustment is modified to reduce the additional tax from $60,000 to $12,000, the negligence penalty is reduced from $15,000 to $3,000 and the original penalty as provided in s. 77.61 (19) (a) 2., Stats., is reduced from $15,000 to $3,000. Tax 11.90 Note3) Assume the same facts as example 2, except that Mr. Smith explains that he did not previously provide the requested records because his accountant had possession of them and was in the hospital when the records were requested during the audit. In this situation the failure to provide the records requested is reasonable or justified by factors beyond the person’s control. Therefore, the unreported receipts adjustment is modified to reduce the additional tax from $60,000 to $12,000, the negligence penalty is reduced from $15,000 to $3,000 and the original penalty as provided in s. 77.61 (19) (a) 2., Stats., of $15,000 is waived. Tax 11.90 HistoryHistory: EmR0929: emerg. cr. eff. 10-19-09; CR 09-087: cr. Register June 2010 No. 654, eff. 7-1-10; correction in (3) (intro.) made under s. 13.92 (4) (b) 7., Stats., Register June 2010 No. 654; CR 17-018: am. (3) (intro.), cr. (3) (c), am. (3) (c) (Examples), (4) (b) (Examples) Register September 2019 No. 765, eff. 10-1-19; correction in (4) (b) (Examples) made under s. 13.92 (4) (b) 7., Stats., Register September 2019 No. 765. Tax 11.905(1)(1) Purpose. The purpose of this section is to establish criteria applicable to field audits using statistical sampling conducted by the department. Sales transactions and purchase transactions must independently meet the criteria in sub. (4). This section does not apply to non-statistical sampling conducted by the department in field audits. Tax 11.905(2)(a)(a) “Annual sales” means net sales reportable for federal income tax purposes for the person’s taxable year. Tax 11.905(2)(b)(b) “Electronic records” means machine readable records that include electronic transactions and electronic source documents. Tax 11.905(2)(c)(c) “Electronic transaction” means a record produced by a computerized data processing accounting system that is used for recording an accounting transaction. Tax 11.905(2)(d)(d) “Maximum sample size” means the maximum number of sample units selected using statistical sampling for each sample population identified. Tax 11.905(2)(e)(e) “Net error” means the total error from the sample population determined by projecting the error from each subgroup or stratum of the sample population and summing those results. Tax 11.905(2)(h)(h) “Relative precision” means the accuracy of the sample projection compared to the real or inherent value of the net error sampled for in the population. Tax 11.905(2)(i)(i) “Sample population” means the electronic transactions from the total population that will be used to draw the sample. More than one sample population may exist in the total population. Tax 11.905 NoteExample: A person uses separate accounting systems to record purchase and sales transactions. The department draws samples from two sample populations; one for purchase transactions and one for sales transactions.
Tax 11.905(2)(j)(j) “Sample unit” means a single electronic transaction within the sample population. A sample unit may be a single transaction or separate items of a transaction depending on how the person records the transaction in its data processing accounting system. Tax 11.905 NoteExample: For each equipment sales transaction, person enters two transactions in its data processing accounting system; equipment and delivery. Equipment and delivery are each sample units.
Tax 11.905(2)(k)(k) “Source document” means a record containing the detail of a transaction entered in a data processing accounting system. Tax 11.905(2)(L)(L) “Statistical sampling” means a sampling method in which the department randomly selects a sample of electronic transactions and uses probability theory to evaluate the sample results. Tax 11.905(2)(m)(m) “Total population” means all of a person’s electronic transactions produced by a computerized data processing accounting system. Tax 11.905(3)(a)(a) The department may, by field audit, determine the tax required to be paid to the state or the refund due to any person on the basis of sampling, whether or not any of the following is true: Tax 11.905(3)(b)(b) Any person with less than $10,000,000 annual sales during any year at issue in a field audit may require the department to use statistical sampling in that field audit, if all of the criteria in sub. (4) are met. Tax 11.905(3)(c)(c) Upon the department’s determination of the sample population, a sample is generated of sample units and source documents for those sample units are made available to the department’s auditor. Tax 11.905(3)(d)(d) The department may use more than one sample population to draw sample units for purposes of determining an error rate and tax due or refund. The department may use a separate sample population and sampling method to select sample units in any of the following circumstances: Tax 11.905(3)(d)1.1. Significant changes in the person’s computerized data processing accounting software. Tax 11.905(3)(d)2.2. Changes to laws that affect the tax treatment or recordkeeping of a person’s sales or purchases. Tax 11.905 NoteExample: A new exemption for certain supplies used by the person occurs in the third year of a four-year audit period. The sample units randomly selected for review occur in the first and second year of the audit period, when the exemption did not apply. If the department finds that no tax was paid on the supplies, a projection of the error for the audit period may result in an over-assessment of tax on the supplies.
Tax 11.905(3)(d)3.3. Changes to the person’s internal procedures for reporting sales and use tax. Tax 11.905(3)(d)4.4. Changes to the person’s business operations or organizational structure. Tax 11.905 NoteExample: The person began selling a new line of products in the audit period.
Tax 11.905(3)(d)5.5. Other relevant circumstances in which the use of more than one sample population or a separate sampling method to select sample units would be reasonably necessary to maintain statistical quality. Tax 11.905(4)(4) Criteria for statistical sampling. All of the following criteria must be met before statistical sampling may be used on a sample population: Tax 11.905(4)(a)(a) All accounting transactions must be maintained in an electronic format and must be capable of secure electronic transfer to the department, in a form useable by the department. Tax 11.905(4)(b)(b) The data processing accounting system must be capable of producing and transferring to the department an electronic spreadsheet of all accounts for each period under audit, including account number, account description, and year-end and pre-closing balances. Tax 11.905(4)(c)(c) All electronic sales transactions must include all of the following: Tax 11.905(4)(c)2.2. Electronic transaction number that identifies and leads to the source document. Tax 11.905(4)(d)(d) All electronic purchase transactions must include all of the following: Tax 11.905(4)(d)2.2. Electronic transaction number that identifies and leads to the source document. Tax 11.905(4)(d)5.5. Account number from accounting system or other information that identifies where the purchased item was stored, used or consumed. Tax 11.905(4)(e)(e) Documentation used to prepare each sales and use tax return filed with the department to report sales and use tax paid must be available for review by the department, including transaction detail, reports, and work papers. Tax 11.905(4)(f)(f) All sample unit source documents must be available for review by the department. Tax 11.905(4)(g)(g) There must be at least 10,000 sample units in the sample population. Tax 11.905(5)(a)(a) Except as provided in par. (b), the maximum number of sample units selected for review for each sample population from which a statistical sample is drawn may not exceed 10 percent of the sample population or 15,000 transactions, whichever is less. Tax 11.905(5)(b)(b) Paragraph (a) does not apply if the relative precision of the sample is greater than 20 percent. In determining an acceptable sample size, the department must consult with the person. Tax 11.905 NoteExample: If the relative precision of a sample is 20 percent and the net error is $100,000, there is 90% confidence that the true error of the sample population is between $80,000 and $120,000.
