Wis. Admin. Code Department of Revenue Tax 11.68

Current through November 25, 2024

Section Tax 11.68 - Construction contractors

(1) DEFINITION. In this section, "real property construction activities" means activities that occur at a site where tangible personal property or items or goods under s. 77.52(1) (b) or (d), Stats., that are applied or adapted to the use or purpose to which real property is devoted are affixed to that real property, if the intent of the person who affixes that property, item, or good is to make a permanent accession to the real property. "Real property construction activities" do not include affixing property subject to tax under s. 77.52(1) (c), Stats., to real property or affixing to real property tangible personal property that remains tangible personal property after it is affixed.

Note: The definition of real property construction activities was revised effective for sales of property pursuant to contracts entered into on or after December 1, 1997, to:

(a) Reverse the effect of the Wisconsin Supreme Court decision in the case of Wisconsin Department of Revenue vs. Sterling Custom Homes (283 N.W. 2d 573 (1979)) prospectively from the effective date of this revision, and

(b) Provide by statute those criteria that were used by the Supreme Court in the case of Dept. of Revenue vs. A.O. Smith Harvestore Products, Inc. (72 Wis. 2d 60, (1976)), for purposes of determining whether tangible personal property becomes real property. The meaning of each of the criteria is explained in the Supreme Court's decision.

(2) GENERAL.

(a) Construction contractors may be retailers with respect to some activities and consumers with respect to others. When a construction contractor acts as a retailer, the contractor shall obtain a seller's permit and pay the tax on its receipts from retail sales of tangible personal property, items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., and taxable services. When the contractor acts as a consumer, the contractor shall pay the tax on its purchases of property, items, and goods consumed.

Note: Refer to s. Tax 11.002 for a description of permit requirements, how to apply for a permit, and the 15-day time period within which the department is required to act on permit applications.

(b) Contractors are retailers of:

1. Property, items, and goods it installs which retain their character as personal property after sale and installation.

Note: Refer to subs. (5) and (7) for the classification of property.

2. Labor or services furnished in installing tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., which retain their character as personal property after installation.

Note: Refer to subs. (5) and (7) for the classification of property.

3. Labor and material furnished in the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, and maintenance of items of real property which retain their character as tangible personal property for repair purposes.

Note: Refer to sub. (11) for a description of real property which retains its character as tangible personal property for repair purposes.

4. Tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., sold.

(c) Contractors are consumers of tangible personal property and items and goods under s. 77.52(1) (b) and (d), Stats., they use when engaged in real property construction activities, such as altering, repairing, or improving real property.

(3) REAL PROPERTY CONSTRUCTION CONTRACTORS.

(a) Generally, real property construction contractors are persons who perform real property construction activities and include persons engaged in activities such as building, electrical work, plumbing, heating, painting, steel work, ventilating, paper hanging, sheet metal work, bridge or road construction, well drilling, excavating, wrecking, house moving, landscaping, roofing, carpentry, masonry and cement work, plastering, and tile and terrazzo work.

(b) A retailer may also be a real property contractor, such as a department store which sells and installs tangible personal property and items or goods under s. 77.52(1) (b) or (d), Stats., which becomes a part of real property after installation.

Example: A water heater or water softener sold and installed in a purchaser's residence by a retailer becomes real property after installation. The retailer is considered to be a real property contractor.

(4) PURCHASES BY CONTRACTORS.

(a)Materials used in real property. Under s. 77.51(2), Stats., contractors who perform real property construction activities are the consumers of building materials which they use in altering, repairing, or improving real property. Therefore, suppliers' sales of building materials to contractors who incorporate the materials into real property in performing construction activities are subject to the tax. This includes raw materials purchased outside Wisconsin that are used by a contractor in manufacturing tangible personal property or items under s. 77.52(1) (b), Stats., outside Wisconsin, or that are fabricated or altered outside Wisconsin by a contractor so as to become different or distinct items of tangible personal property or items under s. 77.52(1) (b), Stats., from the constituent raw materials, and are subsequently stored, used, or consumed in Wisconsin by that contractor.

Note: Prior to August 12, 1993, raw materials purchased outside Wisconsin that were used by a contractor in manufacturing tangible personal property outside Wisconsin or that were fabricated or altered outside Wisconsin by a contractor so as to become different or distinct items of tangible personal property from the constituent raw materials, and were subsequently stored, used, or consumed in Wisconsin by that contractor were not subject to tax pursuant to the Circuit Court of Dane County decision in Morton Buildings, Inc. vs. Wisconsin Department of Revenue (2/10/92).

(b)Materials sold as personal property.

1. Tangible personal property and property, items, and goods under s. 77.52(1) (b), (c), and (d), Stats., which a construction contractor will resell as personal property may be purchased without tax for resale. This includes personal property furnished as part of a real property construction activity when the personal property retains its character as personal property after installation. This also includes personal property furnished as part of a real property construction activity when provided as part of a taxable landscaping service.

Note: Refer to subs. (5) and (7) for the classification of property.

2. Taxable services which a construction contractor will resell may be purchased without tax for resale.

(c)Machinery and tools purchased by contractors. Machinery and equipment, including road building equipment, tunnel shields, construction machines, and cement mixers, tools, including power saws and hand tools, and supplies, including machine lubricating and fuel oils, form lumber, and industrial gases, purchased by a construction contractor for the contractor's use are generally either consumed in the process of construction or are removed when the project is completed. The contractor is the consumer of the personal property and shall pay the tax on its purchases of the property. However, an exemption is provided in s. 77.54(5) (d), Stats., for mobile cement mixers used for mixing and processing and the motor vehicle or trailer on which a mobile mixing unit is mounted, including accessories, attachments, parts, supplies, and materials for the vehicles, trailers, and units.

(d)Waste treatment facilities. Under s. 77.54(26), Stats., contractors may purchase without sales or use tax tangible personal property and items and property under s. 77.52(1) (b) and (c), Stats., which become a component part of an industrial waste treatment facility that would be exempt under s. 70.11(21), Stats., if the property were taxable under ch. 70, Stats., or a municipal waste treatment facility, even though they are the consumers of the property and items.

Note: Refer to s. Tax 11.11 regarding industrial and municipal waste treatment facilities.

(e)Waste reduction and recycling. Under s. 77.54(26m), Stats., contractors may purchase without sales or use tax waste reduction and recycling machinery and equipment, including parts, which are exclusively and directly used for waste reduction and recycling activities which reduce the amount of solid waste generated, reuse, recycle, or compost solid waste, or recover energy from solid waste, even though they are the consumers of the property.

Examples:

1) Equipment used in a foundry to clean sand so that the sand can be reused qualifies for exemption.

2) Equipment used to remove impurities from lubricating oil used in manufacturing machines so that the oil can continue to be used by the manufacturer qualifies for exemption.

3) Equipment used to produce fuel cubes qualifies for exemption. This equipment shreds waste paper and cardboard, removes foreign objects, blends the materials with a binding agent, adds moisture if necessary and then compresses the materials into fuel cubes which are burned by homeowners or others to replace wood.

4) A roto-mill machine that mines old pavement and grinds up the mined materials to be reused in construction activities qualifies for exemption.

5) Large steel waste collection containers, including dumpsters, which may be picked up and dumped into waste collection trucks or hauled away on flatbed trucks, or which may mechanically compact the waste in the container do not qualify for exemption.

(f)Sports and entertainment home stadiums. Under s. 77.54(41), Stats., contractors, subcontractors, or builders may purchase without sales or use tax building materials, supplies, and equipment acquired solely for or used solely in the construction, renovation, or development of property that would be exempt under s. 70.11(36), Stats. Section 70.11(36), Stats., exempts property consisting of or contained in a sports and entertainment home stadium, including but not limited to parking lots, garages, restaurants, parks, concession facilities, transportation facilities, and functionally related or auxiliary facilities and structures; including those facilities and structures while they are being built; constructed by, leased to, or primarily used by a professional athletic team that is a member of a league that includes teams that have home stadiums in other states, and the land on which that stadium and those structures and facilities are located.

(g)Modular and manufactured homes used outside Wisconsin. Under s. 77.54(5) (am), Stats., contractors and subcontractors may purchase without sales and use tax modular homes, as defined in s. 101.71(6), Stats., and manufactured homes as defined in s. 101.91(2), Stats., that are used in real property construction activities outside Wisconsin.

(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.

(c) Cemetery monuments.

(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.

4.

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.

(b) Pay sales tax to suppliers on all property, items, and goods purchased. If the property, item, or good is later consumed in fulfilling a real property construction contract, the tax obligation is taken care of. If the property, item, or good is resold at retail, the contractor shall collect and remit sales tax on these retail sales, but may take as a credit against the sales tax any tax paid to suppliers on the purchase of such property, item, or good.

(9) PROPERTY, ITEMS, AND GOODS PURCHASED TO FULFILL A CONTRACT WITH AN EXEMPT ENTITY.

(a) Except as provided in s. 77.54(9m), Stats., the sales tax exemption provided to governmental units and other exempt entities, such as churches and nonprofit hospitals, does not apply to building materials purchased by a contractor for use under a construction contract to alter, repair, or improve real property for the exempt entity. The sales price received from sales of these building materials to a contractor is subject to the tax if the building materials become part of real property after construction or installation.

Example: A contractor shall pay the tax to its supplier of tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., purchased to construct a bridge or road, since the property, item, or good becomes a part of realty after installation.

(b) A contractor may purchase without tax for resale tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., which retain their character as personal property after installation as described in sub. (7), and taxable services, even though the resale of the property, item, good, or taxable service by the contractor is exempt when sold to a governmental unit or other exempt entity having a Wisconsin certificate of exempt status. This property includes furniture; processing machinery or equipment used in a municipal sewerage or water treatment plant; classroom laboratory sinks, tables, and other equipment; and seating for an auditorium. Taxable services include landscaping services. This exemption does not apply to property, items, goods, or taxable services which become a part of real property as described in sub. (6) and par. (a).

(10) USE OF PROPERTY, ITEMS, AND GOODS PURCHASED OUTSIDE WISCONSIN.

(a) If a construction contractor, when the contractor acts as a consumer, purchases property, items, or goods outside Wisconsin for use in Wisconsin, the contractor shall pay the Wisconsin use tax, but may claim a credit against this use tax for any sales or use tax legally due and paid in the state where the purchase was made.

(b) If a construction contractor purchases property, items, or goods outside Wisconsin which will be stored in Wisconsin and subsequently used in real property construction activities outside Wisconsin, the contractor shall pay the Wisconsin use tax on those purchases, but may claim a credit against this use tax for any sales or use tax legally due and paid in the state where the purchase was made or where the property, item, or good was used prior to being stored in Wisconsin.

(c) If Wisconsin has jurisdiction over the out-of-state supplier, the supplier shall collect the use tax and remit it to the department. If the supplier fails to collect the tax, the contractor shall report and pay the tax to Wisconsin.

Note: The use tax as provided for in sub. (10) does not apply prior to August 12, 1993, to raw materials purchased outside Wisconsin that are, prior to being stored, used or consumed in Wisconsin, manufactured into tangible personal property by that contractor outside Wisconsin, or that are fabricated or altered outside Wisconsin by that contractor so as to become different or distinct items of tangible personal property from the constituent materials pursuant to the Circuit Court of Dane County decision in Morton Buildings, Inc. vs. Wisconsin Department of Revenue (2/10/92).

(11) CONSTRUCTION AND REPAIR SERVICES.

(a) A contractor who performs real property construction activities may not add tax to any charge for labor or material, since the sales price received from these activities is not taxable. The tax which a contractor pays on its purchases of materials consumed in real property construction increases its cost of the materials and becomes a cost of doing business.

(b) A contractor's charges for the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, and maintenance of all tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., are taxable. Solely for the purpose of imposing the tax on these services, numerous items that in other circumstances and for other purposes are deemed part of real property are deemed to retain their character as tangible personal property. Accordingly, any construction contractor who is engaged in the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, and maintenance of any items listed in par. (c) or other items of tangible personal property or items, property, or goods under s. 77.52(1) (b), (c), or (d), Stats., shall register as a retailer and pay the tax on the sales price received from the performance of these services except that the tax does not apply to the original installation or complete replacement of an item listed in par. (c), if that installation or replacement is a real property construction activity under s. 77.51(2), Stats.

(c) Section 77.52(2) (ag), Stats., provides in part that the following items shall be considered to have retained their character as tangible personal property for purposes of repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, and maintenance, regardless of the extent to which the item is fastened to, connected with or built into real property:

1. Furnaces.

2. Boilers.

3. Stoves.

4. Ovens, including associated hoods and exhaust systems.

5. Heaters.

6. Air conditioners.

7. Humidifiers.

8. Dehumidifiers.

9. Refrigerators.

10. Coolers.

11. Freezers.

12. Water pumps.

13. Water heaters.

14. Water conditioners and softeners.

15. Clothes washers.

16. Clothes dryers.

17. Dishwashers.

18. Garbage disposal units.

19. Radios and radio antennas.

20. Incinerators.

21. Television receivers and antennas.

22. Record players.

23. Tape players.

24. Jukeboxes.

25. Vacuum cleaners.

26. Furniture and furnishings.

27. Carpeting and rugs.

28. Bathroom fixtures.

29. Sinks.

30. Awnings.

31. Blinds.

32. Gas and electric logs.

33. Heat lamps.

34. Electronic dust collectors.

35. Grills and rotisseries.

36. Bar equipment.

37. Intercoms.

38. Recreational, sporting, gymnasium, and athletic goods and equipment including the following:

a. Bowling alleys.

b. Golf practice equipment.

c. Pool tables.

d. Punching bags.

e. Ski tows.

f. Swimming pools.

39. Equipment in offices, business facilities, schools, and hospitals but not in residential facilities including personal residences, apartments, long-term care facilities, as defined under s. 16.009(1) (em), Stats., state institutions, as defined under s. 101.123(1) (i), Stats., Type 1 juvenile correctional facilities, as defined in s. 938.02(19), Stats., or similar facilities including the following:

a. Lamps.

b. Chandeliers.

c. Fans.

d. Venetian blinds.

e. Canvas awnings.

f. Office and business machines.

g. Ice and milk dispensers.

h. Beverage-making equipment.

i. Vending machines.

j. Soda fountains.

k. Steam warmers and tables.

l. Compressors.

m. Condensing units and evaporative condensers.

n. Pneumatic conveying systems.

40. Laundry, dry cleaning, and pressing machines.

41. Power tools.

42. Burglar alarm and fire alarm fixtures.

43. Electric clocks.

44. Electric signs.

(d) Charges for tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., such as a repair part, incorporated into property listed in par. (c) being repaired are taxable. Because the item repaired is deemed personal property, any tangible personal property or item, property, or good under s. 77.52(1) (b), (c), or (d), Stats., incorporated into it may be purchased by the contractor without tax for resale.

Example: If a contractor is engaged to repair a refrigerator, whether free-standing personal property or built-in so as to be a part of real property, in a home, the repair service and any charge for parts are taxable.

(12) REPAIR SERVICES CONTRASTED WITH REPLACEMENT SERVICES. Section 77.52(2) (a)10., Stats., provides that the sales price received for the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, and maintenance of all items of tangible personal property or items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., is taxable, except that the tax does not apply to the original installation or complete replacement of an item listed in s. 77.52(2) (ag), Stats., if that installation or replacement is a real property construction activity under s. 77.51(2), Stats. When a contractor performs an original installation or complete replacement of an item listed in s. 77.52(2) (ag), Stats., and that activity is a real property construction activity, the contractor's charges for the installation of the item is not subject to tax imposed under s. 77.52(2) (a)10., Stats., and the contractor must pay tax on its purchase of the materials used in making the real property improvement, as described in sub. (4) (a), unless an exemption applies.

Example: A contractor furnishes and installs a new furnace as part of a contract to build a new home for an individual. The installation of the furnace is a real property construction activity. The contractor is the consumer of the furnace, and is liable for tax on its purchase of the furnace. The tax imposed under s. 77.52(2) (a) 10., Stats., does not apply to the contractor's charges for installing the furnace.

(13) COUNTY TAX ON BUILDING MATERIALS.

(a) Section 77.71(3), Stats., imposes excise taxes upon a contractor engaged in construction activities, which includes constructing, altering, repairing, or improving real property within any county that has adopted the county sales and use tax. The taxes are measured by the purchase price of the tangible personal property and items, property, and goods under s. 77.52(1) (b), (c), and (d), Stats., used in constructing, altering, repairing, or improving real property which becomes a component part of real property in that county, unless the contractor has paid the county tax of a county in Wisconsin or a similar local sales tax in another state on the purchase of that property, item, or good.

(b) Building materials which become a component part of real property are used and consumed at the job site.

(c) In providing the services to property subject to taxation under s. 77.52(2) (a)10., Stats., a contractor may purchase without county tax for resale tangible personal property and items and goods under s. 77.52(1) (b) and (d), Stats., physically or electronically transferred to the customer in conjunction with providing such services.

(d) Section 77.77(3), Stats., provides that the sales tax under s. 77.71(1), Stats., and the county tax under s. 77.71(3), Stats., on the sale of building materials to contractors engaged in the business of constructing, altering, repairing, or improving real estate for others are not imposed, if the materials are affixed and made a structural part of real estate and the amount payable to the contractor is fixed without regard to the costs incurred in performing a written contract that was irrevocably entered into prior to the effective date of the county ordinance or special district resolution, or that resulted from the acceptance of a formal written bid accompanied by a bond or other performance guaranty that was irrevocably submitted before that date.

(e) The county tax under s. 77.71(3), Stats., on building materials used in real property construction activities are not imposed if the contractor purchased the building materials before the effective date of the county tax of that county or has paid the sales tax of another county in Wisconsin in purchasing the building materials.

Note: Section Tax 11.68 interprets ss. 77.51(2), (12m) (b) 7., (12t), (14) (intro.), (15a) (b) 1. and 4., (15b) (b) 7., 77.52 (2) (a) 10., 11., and 20. and (2m), 77.53 (1), 77.54 (5) (d), (6) (am) 1., 4., and 5., (9m), (26), (26m), (31), (41), (60), (62m), and (65), 77.71 (3), and 77.77 (3), Stats.

Wis. Admin. Code Department of Revenue Tax 11.68

Cr. Register, November, 1978, No. 275, eff. 12-1-78; am. (5) (d), (6) (a) 2. and 12., (10) (b), Register, December, 1983, No. 336, eff. 1-1-84; reprinted to correct error in (10) (b), Register, January, 1984, No. 337; emerg. cr. (12), eff. 3-24-86; cr. (12), Register, October, 1986, No. 370, eff. 11-1-86; am. (9) (a), Register, July, 1987, No. 379, eff. 8-1-87; am. (5) (g) and (12) (a), Register, April, 1990, No. 412, eff. 5-1-90; am. (1) (b) 1., 2. and 3., (2) (a) and (b), (3) (b) and (c), (4) (a) (intro.) and (b), (5) (intro.), (b), (e), (f), (h) and (j), (6) (a) 2., 4., 5., 6., 9. and 10. and (b), (7), (8), (9) (a), (10) (a), (b) and (d) and (11), cr. (3) (d) and (e), Register, June, 1991, No. 426, eff. 7-1-91; renum. (9) (b) to be (c); cr. (2) (c), (3) (f) and (9) (b), am. (6) (a) (intro.), 9., 10., (10) (a), (c), and (12) (c), Register, December, 1992, No. 444, eff. 1-1-93; am. (3) (a), Register, April, 1994, No. 460, eff. 5-1-94; am. (4) (a) 2., (5) (L) and (10) (c), cr. (6) (a) 15., Register, October, 1997, No. 502, eff. 11-1-97; renum. (1), (2) (a) and (b) and (3) (a), (b), (c) to (f) and (4) to (12) to be (2), (3) (a) and (b), and (4) (a), (b) 1., (c) to (f) and (5) to (13) and am. (2) (b) 1., (4) (f), (7) (a) 6., 9., (b), (9) (b), (11) (c), (13) (a) and (c) to (e), cr. (1) and (4) (b) 2., r. (2) (c), Register, June, 1999, No. 522, eff. 7-1-99; EmR0924: emerg. am. (1), (2) (a), (b) 1. to 4., (c), (3), (4) (a), (b) 1., (c) to (f), (5) (b), (6) (intro.), (b), (d), (f), (7) (a) (intro.), 1. to 9., 15., (b), (8), (9), (10), (11) (a), (b), (d), (13) (title), (a) and (c) to (e), cr. (6) (bm), r. (6) (g), renum. (6) (h) to (n) to be (6) (g) to (m) and am. (6) (g), r. and recr. (11) (c) and (12), eff. 10-1-09; CR 09-090: am. (1), (2) (a), (b) 1. to 4., (c), (3), (4) (a), (b) 1., (c) to (f), (5) (b), (6) (intro.), (b), (d), (f), (7) (a) (intro.), 1. to 9., 15., (b), (8), (9), (10), (11) (a), (b), (d), (13) (title), (a) and (c) to (e), cr. (6) (bm), r. (6) (g), renum. (6) (h) to (n) to be (6) (g) to (m) and am. (6) (g), r. and recr. (11) (c) and (12) Register May 2010 No. 653, eff. 6-1-10; CR 10-094: am (6) (f), (7) (b) Register November 2010 No. 659. eff. 12-1-10; CR 12-014: cr. (4) (g), am. (13) (title), (a), (c) to (e) Register August 2012 No. 680, eff. 9-1-12; CR 14-006: r. and recr. (7) (b) Register August 2014 No. 704, eff. 9-1-14.

Amended by, CR 16-053: cr. (4) (h), am. (6) (d), (h), (7) (a) 2., 4., cr. (7) (a) 7m., am. (11) (c) (intro.) Register June 2018 No. 750, eff. 7/1/2018

Amended by, CR 19-112: cr. (4) (a) (title), (b) (title), (c) (title), (d) (title), (e) (title), (f) (title), (fm), (g) (title), (h) (title), (i) Register June 2020, No. 774, eff. 7-1-20; correction in (4) (fm), (i) 1. b. made under s. 35.17Register June 2020 No. 774, eff. 7/1/2020

Amended by, CR 20-018: r. and recr. (4) (i). cr. (4) (j), am. (7) (title), cr. (7) (a) (title), am. (7) (a), r. and recr. (7) (b), am. (9) (a), (Example 1), r. (9) (a) (Example 2) Register July 2021 No. 787, eff. 8-1-21; correction in (4) (i), (7) (b) 1. a., 4. b. made under s. 35.17, Stats., Register July 2021 No. 787, eff. 8/1/2021

Amended by, CR 22-044: r. (4) (fm), am. (13) (title), (a), (c) to (e) Register June 2023 No. 810, eff. 7/1/2023

The interpretations in s. Tax 11.68 are effective under the general sales and use tax law on and after September 1, 1969, except: (a) Vault doors were not considered personal property until August 1, 1975; (b) Service station equipment such as underground tanks, gasoline pumps and hoists installed in or securely attached to their owner's land was real property, but the property was personal property if the personal property and land were owned by different persons prior to August 1, 1975; (c) Advertising signs were real property if erected on and securely attached to the owner's land prior to August 1, 1975; (d) Landscaping services became taxable effective May 1, 1982, pursuant to Chapter 317, Laws of 1981; (e) The exemption for waste reduction and recycling machinery and equipment became effective July 1, 1984, pursuant to 1983 Wis. Act 426; (f) The exemption for mobile units used for mixing and processing became effective July 20, 1985, pursuant to 1985 Wis. Act 29; (g) The credit for local sales taxes paid to other states became effective April 1, 1986, pursuant to 1987 Wis. Act 27; (h) The exemption for safety attachments for manufacturing machines became effective June 1, 1986, pursuant to 1985 Wis. Act 149; (i) The exemption of 35% of the selling price of new mobile homes and 100% of the selling price of used mobile homes became effective January 1, 1987, pursuant to 1985 Wis. Act 29; (j) The exemption for property used in constructing professional sports and home entertainment stadiums became effective October 1, 1991, pursuant to 1991 Wis. Act 37; (k) The 35% reduction in gross receipts for new mobile homes transported in 2 unattached sections became effective October 1, 1991, pursuant to 1991 Wis. Act 39; (L) Tangible personal property purchased outside Wisconsin, stored in Wisconsin and subsequently used outside Wisconsin became taxable October 1, 1991, pursuant to 1991 Wis. Act 39; (m) Raw materials purchased outside Wisconsin, manufactured, fabricated or otherwise altered by the contractor outside Wisconsin and used in real property construction by the contractor in Wisconsin became subject to use tax effective August 12, 1993, pursuant to 1993 Wis. Act 16; (n) In Tom Kuehne Landscape Contractor, Inc. vs. Wisconsin Department of Revenue, Wisconsin Court of Appeals, District IV, No., October 29, 1987 (CCH 202-919), highway signs, sign bridges, delineator posts and guardrails were found to remain tangible personal property after installation; (o) The stadium tax on building materials became effective January 1, 1996, pursuant to 1995 Wis. Act 56; (p) The change to the definition of "real property construction activities" to include only those activities that take place at a site where tangible personal property is affixed to real property became effective for sales of property pursuant to contracts entered into on or after December 1, 1997, pursuant to 1997 Wis. Act 27; (q) The clarification of the tax treatment of the original installation or complete replacement of certain deemed items became effective on October 1, 2001, pursuant to 2001 Wis. Act 16; (r) The changes in the use of the terms mobile homes and manufactured homes became effective January 1, 2008, pursuant to 2007 Wis. Act 11; (s) The change of the term "gross receipts" to "sales price" and the separate impositions of tax on coins and stamps sold above face value under s. 77.52(1) (b), Stats., certain leased property affixed to real property under s. 77.52(1) (c), Stats., and digital goods under s. 77.52(1) (d), Stats., became effective October 1, 2009, pursuant to 2009 Wis. Act 2; (t) The exemption for modular homes and manufactured homes used in real property construction activities outside Wisconsin became effective September 1, 2011 pursuant to 2011 Wis. Act 32; and (u) The exemption for lump sum contracts first applied to contracts entered into on or after October 1, 2013, pursuant to 2013 Wis. Act 20; (v) The exemption for building materials acquired solely for holding structures used in a fertilizer blending, feed milling, or grain drying operation became effective April 19, 2014, pursuant to 2013 Wis. Act 324; (w) The exemption for building materials, supplies, and equipment used in the construction or development of sports and entertainment arena facilities became effective August 14, 2015, pursuant to 2015 Wis. Act 20; (x) The exemption for building materials that become a part of a facility owned by a local government or exempt nonprofit organization first applies to contracts entered into January 1, 2016, pursuant to 2015 Wis. Act 126; (y) The exemption for products used in constructing or developing a facility in the electronics and information technology manufacturing zone became effective September 20, 2017, pursuant to 2017 Wis. Act 58; (z) The exemption for building materials that become a part of a facility owned by certain title holding companies described in s. 501 (c) (2) of the Internal Revenue Code became effective for contracts entered into on or after September 1, 2017, pursuant to 2017 Wis. Act 231, and to technical colleges and the UW System, and state veterans organization for contracts entered into on or after July 1, 2018, pursuant to 2017 Wis. Acts 59 and 190, respectively; and (za) The exemption for lump sum contracts was amended to apply to time and materials construction contracts and to subcontractors for construction contracts entered into or extended, modified, or renewed on or after December 1, 2017.