SALES AND USE TAX ALERT by qti12007

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									                                 SALES AND USE TAX ALERT
                                         May 2004


In today’s ever-changing economy, trying to interpret the many laws and regulations that govern
how you conduct your business may be confusing and somewhat overwhelming. One such
topic that raises many questions is sales and use tax. This alert is an attempt to provide you
with a general understanding of the law and what you can and should be doing to be in
compliance.

What is the difference between Wisconsin sales tax and use tax?
Sales tax
According to Publication 201 from the Wisconsin Department of Revenue (WI DOR), “the
Wisconsin sales tax is a 5% tax imposed on the gross receipts of retailers who sell or lease
tangible personal property or taxable services at retail in Wisconsin.” County sales tax of 0.5%
may also apply, as well as baseball stadium (0.1%) and football stadium (0.5%) sales taxes in
certain counties.

An example would include:
 If an office supply store in Wisconsin (i.e. Office Max) sells copier paper to ABC, Inc. (a
    Wisconsin company not exempt from sales tax), the purchase would be subject to sales
    tax.

 Use tax
According to Publication 201 from the WI DOR “the Wisconsin use tax is a 5% tax imposed on
the sales price of tangible personal property or taxable services that are used, stored, or
consumed within Wisconsin, upon which a Wisconsin sales or use tax has not previously been
paid.” County use tax of 0.5% may also apply, as well as baseball stadium (0.1%) and football
stadium (0.5%) sales taxes in certain counties.

Two examples would include:
 If ABC, Inc. (a Wisconsin company not exempt from use tax) purchased paper from an
   Illinois mail order catalog (i.e. Quill Corporation), the purchase would be subject to use tax,
   assuming ABC, Inc. was the final user of the paper.

   If John Smith (a Wisconsin resident), purchased a computer through a catalog of an out-of-
    state company and no sales tax was charged, the purchase would be subject to use tax.
    (Individuals remit payment of use tax via their Wisconsin income tax return.)

Who needs a Seller’s Permit?
Any entity making retail sales or rentals of tangible personal property or taxable services in
Wisconsin must obtain a Seller’s Permit, unless all sales by the seller are exempt from sales or
use tax. Apply for a Seller’s Permit by filing Form BTR-101, Application for Business Tax
Registration.




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Who needs a Use Tax Certificate?
Any entity that is engaged in business in Wisconsin and has a use tax liability, must apply for a
Use Tax Certificate (unless they already have a sales tax permit). Every person who regularly
has use tax obligations should apply for a Consumer Use Tax Certificate. Both certificates can
be obtained by filing Form BTR-101.

How are sales and use taxes collected?
Entities holding a Seller’s Permit, Use Tax Certificate, or Consumer’s Use Tax Certificate must
file Form ST-12 Wisconsin Sales and Use Tax Return and remit all taxes collected on a
monthly, quarterly, or annual basis. Generally, your reporting period will be quarterly, unless
the WI DOR notifies you in writing that your returns must be filed monthly or annually. The WI
DOR has created the Sales Internet Process (SIP) to allow for electronic filing of sales and use
tax returns over the Internet. More information on electronically filing your sales and use tax
returns can be found in Wisconsin Publication 227, “E-File Sales Tax Returns with SIP.”

How are companies chosen for sales and use tax audits?
 Internal referrals - during an audit of one business, an auditor may find a Wisconsin
  business not charging proper sales taxes to the company under audit
 Targeted industries - some include manufacturers, contractors, and hotels
 Special projects - such as start-up companies
 Combination audits - if you are being audited for income tax, you will normally be audited for
  sales and use taxes at the same time

What are the most common audit adjustments?
 Failure to report use tax (filing four consecutive years without reporting any use tax may
  trigger an audit)
 Failure to obtain required certificates to prove sales were exempt
 Failure to charge sales tax on sales to employees
 Failure to charge sales tax on the sale of used equipment
 Sales tax collected but not remitted
 Failure to charge sales tax on the rental of tangible personal property

The above list is not meant to be all-inclusive. We have chosen the items most likely to occur.

In addition to audit adjustments, what other payments may be required?
 18% Interest
 25% Negligence Penalty
 50% Fraud Penalty
 25% Better Records Penalty

What should YOU do to protect yourself from audit adjustments and penalties?
The sales and use tax law provides that all gross receipts are taxable until the contrary is
established. The seller has the burden to prove that a sale of tangible personal property or
taxable services is exempt, unless the seller accepts a resale or exemption certificate from the
buyer in “good faith” (see enclosed Form S-211). To protect yourself, you should do the
following:




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   Understand how sales and use taxes affect you and your industry
        Obtain Publication 201 for detailed information on sales and use taxes.
        Obtain any other publications that may specifically pertain to your industry (see
          enclosed list of publications).

   Keep thorough and organized records
        For all of your customers that are exempt from sales taxes (i.e. non-profits, resellers,
           manufacturers, etc.), obtain an exemption certificate. The DOR suggests filing
           these certificates in a three-ring binder.
        Be sure to obtain a new certificate whenever your customer has a change in
           ownership.
        Implement a method to capture purchases where use tax is due. You may want to
           buy a pre-inked stamp that states “USE TAX PAID” so auditors can easily see that
           you are tracking use taxes.
        Maintain a separate fixed asset file/folder. This will help document the payment of
           sales or use tax on asset purchases. This will also help in the preparation of your
           income tax return.

Where can you go for guidance?
 Contact us with your questions and requests for a copy of a publication. If you have a
  specific question we can write an anonymous letter to the WI DOR to request a ruling.
  Generally you can expect a two-week response time. The reply you receive from the WI
  DOR is binding and will hold in an audit if the fact pattern is accurate.

   Contact the WI DOR directly by:

       Phone          (608) 266-2776

       Fax            (608) 267-1030

       E-Mail         sales10@dor.state.wi.us

       Website        http:\\www.dor.state.wi.us

       Writing        Wisconsin Department of Revenue
                      P.O. Box 8902
                      Madison, WI 53708-8902




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                              SALES AND USE TAX PUBLICATIONS
                           From the Wisconsin Department of Revenue


200    Electrical Contractors – How Do Wisconsin Sales and Use Taxes Affect Your Business?

201    Wisconsin Sales and Use Tax Information

202    Sales and Use Tax Information for Motor Vehicle Sales, Leases, and Repairs

203    Sales and Use Tax Information for Manufacturers

205    Use Tax Information for Individuals

206    Sales Tax Exemption for Nonprofit Organizations

207    Sales and Use Tax Information for Contractors

210    Sales and Use Tax Treatment of Landscaping

212    Businesses: Do You Owe Use Tax on Imported Goods?

213    Travelers: Don’t Forget About Use Tax

214    Businesses: Do You Owe Use Tax?

216    Filing Claims for Refund of Sales or Use Tax

219    Hotels, Motels, and Other Lodging Providers: How Do Wisconsin Sales and Use Taxes
       Affect Your Operations?

220    Grocers: How Do Wisconsin Sales and Use Taxes Affect Your Operations?

221    Farm Suppliers and Farmers: How Do Wisconsin Sales and Use Taxes Affect Your
       Operations?

222    Motor Vehicle Fuel Users: Do You Owe Use Tax?

223    Bakeries: How Do Wisconsin Sales and Use Taxes Affect Your Operations?

224    Veterinarians: How Do Wisconsin Sales and Use Taxes Affect Your Business?

225    Beauty and Barber Shops: How Do Wisconsin Sales and Use Taxes Affect Your
       Business?

226    Golf Courses: How Do Wisconsin Sales and Use Taxes Affect Your Operations?

227    Sales Internet Process (E-file Sales Tax returns with SIP)

230    Sales and Use Tax Information for Sellers of Antiques, Crafts, and Artwork



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