Budget eliminates double taxation concern

By Dan Shaw

Wisconsin’s new budget eliminates a wrinkle in state law that a couple of accountants believe has caused some contractors to pay sales taxes twice.

Keith Krueger, a principal at the Waukesha-based Benes & Krueger SC, said Tuesday that he can’t accurately estimate how many contractors have paid taxes twice as a result of the wrinkle but said he is certain some have.

Companies can avoid a double payment by taking advantage of a state tax credit, he said, “but that probably doesn’t always happen” because many are unaware the credit exists.

The double payments that have occurred, Krueger said, likely were the result of complexity in the state’s tax code.

Adding to the bewilderment, said John Mielke, president of the Wisconsin chapter of the Associated Builders and Contractors, was sometimes inconsistent interpretations of the rules.

“Different auditors,” he said, “would sometimes apply them in different ways.”

In an attempt at simplifying matters, the state’s new budget, signed by Gov. Scott Walker on Sunday, makes changes to the tax code’s differing treatments of what is known as tangible personal property.

That type of property generally is defined as things that a person easily could remove from a building site, such as furniture.

Usually, contractors must collect sales taxes from customers on any tangible personal property that goes into building projects. A state rule lets contractors pay the taxes directly, however, if the value of the personal property constitutes 10 percent or less of the project’s cost as shown in a lump-sum contract, which doesn’t list the prices of project components separately.

Yet, a wrinkle in state law treats personal property differently if it appears on what are known as “schedules of values,” which often are used to show the separate costs of the materials that went into a project. Providing such a schedule brings into effect a rule that requires contractors to collect sales tax on any tangible personal property they list, even if they already have paid the tax on those same items under the rule pertaining to lump-sum contracts.

According to an email attributed to Laurel Patrick, communications director for the Wisconsin Department of Revenue, contractors can avoid double payments by taking advantage of a tax credit or deduction that essentially refunds the sales tax. Still, Krueger said, the sheer complexity of the matter probably results in the collection of fewer refunds than are allowed under law.

What’s more, Krueger said, contractors often don’t learn they had to collect sales taxes on certain tangible personal property until a project is complete, making it virtually impossible to get the tax money from their former customer.

To make the taxation rules simpler, the state’s new budget exempts contractors that already have paid sales taxes on personal property from having to collect sales taxes from customers on the same items. A note from the nonpartisan Legislative Fiscal Bureau estimates the change will cost the state a little more than $ 1 million in the next two years, largely because personal property is marked up in price usually, and thus generates more sales tax, when a contractor sells it to a customer.

Scott Tracy, a partner in the accounting firm Clifton Larson Allen LLP’s Milwaukee office, said the change will make the tax code easier to follow.

“The bottom line of this thing is to make it administratively easier, so contractors do not have to worry about the small things they are installing as part of a larger contract,” he said. “It’s a small item, but it’s good news for contractors.”

Krueger said the budgetary provision is a good one, not only because it will prevent double payments but also because it will simplify construction companies’ bookkeeping.

“Now, if you have some personal property that’s incidental,” he said, “you can put it in your schedule of values.”

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