By Susan G. Schellinger
Certain local Wisconsin governmental entities and nonprofit organizations have historically been exempt from payment of sales and use tax. Under a change in Wisconsin law which took effect on January 1, 2016, contractors may purchase construction materials on behalf of certain tax-exempt entities and organizations without paying Wisconsin sales or use tax. In essence, as long as the construction materials are incorporated into a construction project for those tax-exempt entities, the contractor will get the benefit of its client’s tax exemption.
Before the change in the law, the contractor would be required to pay sales or use tax on the purchase, even if the contractor was purchasing the materials for use on a project for a tax-exempt entity. The tax would ultimately be passed on to the contractor’s clients by a higher project cost. To avoid that result, tax-exempt entities could recognize savings by purchasing materials direct from the supplier. The practical ramifications of the new law for contractors and their tax-exempt clients is that the administration of construction projects for exempt entities will be simplified. The exempt organization will no longer have to purchase materials directly to take advantage of its sales tax exemption.
The new exemption applies to contracts entered into with certain governmental entities listed in the statute, including any Wisconsin county, city, village, town, school district, city or county hospital, and local sewer and water districts. The exemption also applies to material used on projects for religious, charitable, educational, and other nonprofit organizations that are exempt from sales and use tax. The exemption does not extend to contracts with the State of Wisconsin itself, any of the State’s agencies, local exposition districts, local cultural arts districts, or to Native American tribes.
The exemption applies if the personal property becomes part of a facility owned by the exempt entity, with a facility being defined in the statute as any building, shelter, parking lot, parking garage, athletic field, athletic park, storm sewer, water supply system, or sewerage and waste water treatment facility. Importantly, the new law specifically excludes highway, street and road projects from the scope of the exemption.
Senate Bill 227 was signed into law by Governor Walker on December 16, 2015 and applies to contracts entered into on or after January 1, 2016.
If you have any questions about this change in law in relation to your construction project, please contact your Davis & Kuelthau attorney or the author, Susan G. Schellinger, at 414.225.1492 / sschellinger@dkattorneys.com.