With all the major changes to tax law for both income tax and sales tax it is important to review the exposure to all taxes in your home state and surrounding states. It is also important to know what activities may create a connection with the state also known as nexus. One state we have seen an increase in client exposure in is Wisconsin. Here is a snap shot of Wisconsin taxes that business and individuals might encounter.
Wisconsin does impose a sales tax on property and services provided to customers in Wisconsin. A company is doing business in Wisconsin if they engage in:
- Owning or leasing property in WI
- Have employees located in WI
- Have agents or sales people entering in WI on the company behalf
- Providing services in WI (installation or repairs)
- Making deliveries in WI via company owned vehicles
- Trade shows
- Data storage provided by a company located in WI
In response to the recent South Dakota v. Wayfair decision, Wisconsin began requiring remote seller as of October 1, 2018 to start collecting and remitting sales tax if they have annual gross receipts in WI over $100,000 or 200 or more separate transitions. With the new law a business that has no physical presence (listed above) now has a filing requirement in Wisconsin.
Wisconsin has a state sales tax rate of 5% and local rates that range between 0%-1.75%. Wisconsin also does impose Use tax of 5% on items that are used in Wisconsin where sales tax was not already paid.
Some examples of what Wisconsin charges sales taxes on are:
- Retail sales of tangible goods
- Retail leases or rentals of tangible property
- Repairs or installation of tangible personal property
- Cleaning services
- Landscaping and lawn maintenance
Wisconsin charges sales tax based on destination sourcing, or where the product or service is being delivered. Wisconsin does have a Sales and Use Tax Exemption Certificate, which has exemptions for resale, manufacturing, farming and Federal and Wisconsin Governmental Units. Wisconsin is also a full member of Streamlined Sales Tax, which is an organization that focuses on simplification of sales and use tax compliance.
Wisconsin Sales and Use Tax returns are filed on a quarterly basis on Form ST-12. Returns are generally due quarterly but depending on sales and use tax liability may be monthly or annual. The returns are due on the last day of the month following the period end date.
Wisconsin does impose income tax on both business and individuals. For a business to have nexus for income tax in Wisconsin it does not require physical presence. Wisconsin does follow Public Law 86-272, which states a state can not impose income tax on a business selling tangible personal property for soliciting business in a state. That allows sellers of tangible personal property to have sales people in the state without creating income tax nexus. The law is very specific to what soliciting sales includes if the individual is collecting payments, training, installing or other activities the protection is lost.
When Wisconsin Will Tax Your Company
In Wisconsin, the sales of tangible personal property are sourced to Wisconsin if delivered or shipped to a purchaser in Wisconsin. Wisconsin sources sales of service based on where the benefit of the service is being received. For example, if the property receiving the services is in Wisconsin or when the user of the service is in Wisconsin, then it is taxed in Wisconsin.
Any business that has nexus in Wisconsin should file the following returns:
- Corporations – Form 4
- S-Corporations – Form 5S
- Partnerships and LLPs – Form 3
- Non-Resident Withholding – PW-1
The tax rate for corporations in Wisconsin is 7.9% for 2018. Pass-through businesses are not subject to an entity level income tax but do have to pay an Economic Development Surcharge. The Economic Development Surcharge is the great of $25 or .2% of income apportioned to Wisconsin. For pass-through business income is reported to the shareholders or partners who will report the income on their personal returns. The business is required to withhold tax on their non-resident shareholders or partners behalf on the PW-1, the withholding rate on PW-1 is 7.9% which is the highest individual rate in Wisconsin.
S-Corporations starting in taxable years beginning on January 1, 2018 can elect to be taxed at the entity level instead of passing the income to the shareholders. The entity would be paying tax at the 7.9% rate, but income would no longer flow to the shareholders. The same election will be available for partnerships starting tax year beginning January 1, 2019.
How DHJJ Can Help
If you have nexus creating activities in Wisconsin or receive K-1s for business that allocate income to Wisconsin it is important to discuss the above information with your tax preparer or contact DHJJ at 630-420-1360 or fill out the form below.