Boardman Law Firm

Streamlined Sales and Use Tax Agreement Provisions Effective October 1

By Jeff Storch   With appreciation to Patrick Neuman, a Boardman law clerk scheduled to join the firm's Business and Tax Practice Groups as attorney in 2010, for his contributions to this article.

Numerous changes to Wisconsin's sales and use tax rules become effective October 1, 2009, as a result of Wisconsin joining a growing number of states aiming to have a simpler and more uniform sales and use tax system. If you are or may become subject to Wisconsin's sales or use tax, you will want to become familiar with the changes.

Wisconsin enacted 2009 Wisconsin Act 2 (the "Act") early in 2009. The Act includes many changes to Wisconsin sales and use tax law. In large part, these changes were made to conform to the Streamlined Sales and Use Tax Agreement ("SSUTA") and to allow Wisconsin to join the Streamlined Sales and Use Tax Governing Board ("Board"), a coalition of states who have agreed to operate under SSUTA. SSUTA provides sales and use tax definitions, administrative procedures, and standards across all states, however, states maintain the right to make independent decisions about which products and services are taxable and which are exempt. Wisconsin has been approved to join the Board, effective October 1, 2009.

Of note, SSUTA provides for states to use uniform definitions when establishing their respective tax bases. Consequently, the Act made the following changes to Wisconsin's tax base definition effective October 1, 2009:

• Food

  Most food products that were tax-exempt will remain tax exempt, however, the Act does provide a new definition for "food" and "food ingredient." As a result, some foods previously exempted from tax are no longer exempt and some foods previously not exempt are now exempt.

• Medical Equipment

  The Act exempts certain medical equipment purchased for in home use, such as medical beds, patients lifts, and I.V. stands.

• Digital Goods

  The Act extends sales tax to cover "specified digital goods" and "additional digital goods." Digital goods includes video games, downloaded music, downloaded books, greeting cards, artwork and periodicals. Tax is imposed on digital goods purchased for both permanent and less than permanent use and regardless of whether the purchaser is required to make continued payments. A comprehensive explanation is available at http://www.revenue.wi.gov/pubs/pb240.pdf.

• Prewritten Computer Software

  The Act expands the definition of "prewritten computer software" to repeal related tax exemptions established in the 2008 case Wisconsin Dep't of Rev. v. Menasha Corp. (2008 WI 88, 299 Wis. 2d 348)

• Leases

  The Act expands the definition of "lease" to include a transfer that includes a future option to purchase and extend.

In addition to the above changes effective October 1, 2009, other highlights of the Act include:

• "Nexus" Expanded

  A retailer must pay sales and use tax if the retailer has sufficient connections or "nexus" with Wisconsin. A retailer is subject to tax if it is "engaged in business" in Wisconsin. The Act expanded the definition of "engaged in business" in Wisconsin to include any person who has an affiliate in this state, if the person is related to the affiliate and if the affiliate uses facilities or employees in this state to advertise, promote, or facilitate the establishment of or market for sales of items by the related person to purchasers in this state or for providing services to the related person's purchasers in this state, including accepting returns of purchases or resolving customer complaints. The statute provides specific tests to determine whether a person and their affiliate are "related."

• Disregarded Entities Disregarded For Sales And Use Tax Purposes

  As of July 1, 2009, a single-owner entity that is disregarded as a separate entity for income and franchise purposes (such as a single member limited liability company) is also disregarded for sales and use tax purposes (this was not the case before). There are transitional provisions to ensure that the owner of a single-owner entity will not incur tax liability for property purchased before July 1, 2009, or real estate transactions executed before July 1, 2009. This change could effect disregarded entities formed to take advantage of certain exemptions, including the common carrier exemption.

• Amnesty Program Implemented

  The Act provides amnesty for businesses that have failed to collect and remit sales taxes on sales made to Wisconsin customers. To participate, businesses must register to collect and remit Wisconsin sales taxes and any sales tax due on sales in any other SSUTA member states for three consecutive years after the date the seller registers. Registration must occur by September 30, 2010. Businesses currently registered to collect Wisconsin sales tax, or who were registered to collect sales tax at any time during the previous twelve months, are not eligible to participate. The sales tax amnesty program does not apply to use tax due on purchases already made or any Wisconsin sales tax that has been previously collected from a customer. Additional information regarding the amnesty program can be found at http://www.revenue.wi.gov/sstp/amnesty.html.

If you have questions about SSUTA, Wisconsin's new sales and use tax provisions, or how they may impact your business, please contact Jeff Storch or your primary Boardman attorney.

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This legal update is not legal advice. Individuals should seek advice based on their particular circumstances from their own counsel.