Knowing when your business is required to be registered for sales and use tax (i.e., Seller’s Permit, Use Tax Permit, or Consumer’s Use Tax Permit) is crucial to ensuring your business is in compliance and to avoid unnecessary interest and penalties. For Wisconsin businesses, three things to know about sales and use tax registration requirements are:
- Types of permits
- Taxable sales and services
- Physical presence and economic nexus
Types of Permits
Before we get into whether or not your business is required to be registered, you must first understand the types of permits. There are three basic types of permits:
- Seller’s Permit (Retailer, Wholesaler)
- Use Tax Permit (Out-of-State Seller, Vendor’s Use Tax, Seller’s Use Tax)
- Consumer’s Use Tax Permit (Non-retailer but owes use tax)
A seller’s permit is required to be held by a business that has taxable sales. It is the most common type of permit. A business that is registered, or is required to be registered, for a Seller’s Permit is required to collect and remit all applicable local sales and use taxes on its sales and purchases. In Wisconsin, the requirement applies to ALL taxable sales by the business whether those sales are in the regular course of business or not.
For example, a vacuum retailer is required to be registered to collect sales on all vacuums, supplies, and parts. Because the vacuum retailer holds a Seller’s Permit, it is also required to collect sales tax on its sales to employees and on its sales of used vehicles or office equipment owned by the business.
A Use Tax Permit (otherwise known as Vendor’s Use Tax or Seller’s Use Tax Permit) is required to be held by an out-of-state seller who makes taxable sales into another state. It is called a Use Tax Permit because the seller is required to collect the use tax on behalf of its customer and remit it to the state.
The third type of permit is called the Consumer’s Use Tax Permit. A seller may not have taxable sales, but has a regular use tax liability. In other words, the seller provides nontaxable sales or services but stores, uses, and/or consumes taxable items upon which a Wisconsin sales tax has not been previously paid. Instead of registering for a Seller’s Permit, which creates a requirement for the business to collect tax on all taxable sales including infrequent or sporadic sales of equipment or vehicles that are not sold in the regular course of business, the business can register for a Consumer’s Use Tax Permit. Then the business can submit regular sales and use tax returns to report only its use tax liability. It is not uncommon for a wholesaler, manufacturer, or certain contractors to hold a Consumer’s Use Tax Permit.
Taxable Sales and Services
The next step in determining whether you are required to register for a sales tax permit is to determine whether you have taxable sales and/or services. Businesses located in Wisconsin, that provide sales of taxable products and services are required to hold a Wisconsin seller’s permit. However, wholesalers, manufacturers and other businesses not making direct retail sales of tangible property or taxable services are not required to obtain a Seller’s Permit.
Wisconsin taxable sales and services include (unless an exemption applies):
- Tangible personal property is personal property that can be seen, weighted, measured, felt, or touched, or that is in any other manner perceptible to the senses. Tangible personal property is generally not permanently affixed to realty. It also includes electricity, gas, steam and water.
- Coins and stamps that are sold, licensed, leased, rented or traded as collector’s items, above their face value.
- Leased tangible personal property affixed to real property, if the lessor has the right to remove the leased property upon breach or termination of the lease agreement.
- Certain digital goods (e.g., music downloads, ebooks, movies, etc.)
- Certain tangible personal property installed in a commercial facility if it primarily (more than 50%) serves a business function/process.
- Certain services are specified as taxable including:
- Admission and access privileges to amusement, athletic, entertainment, or recreational places or events
- Access or use of amusement devices
- Boat docking and storage
- Cable television services
- Contracts for future performance of services
- Landscaping and lawn maintenance services
- Laundry and dry cleaning services
- Parking services for motor vehicles and aircraft
- Photography and videography services
- Producing, fabricating, and printing
- Repair and service of tangible personal property
- Rooms or lodging for less than one month
- Telecommunications message services
- Telecommunications services, including prepaid calling services, and ancillary services
- Towing and hauling of motor vehicles by a tow truck
Some common characteristics of all types of sales tax to keep in mind are:
- Everything, even used stuff, is considered taxable unless exempted by law.
- Everyone is considered taxable unless exempted by law.
- All receipts related to the sale are taxable unless excluded by law.
- Only transactions defined by law as occurring within the state are subject to the tax of that state.
- Services are taxable by exception in all states except states who adopted a gross receipts tax (Delaware, Nevada, Ohio, Texas, and Washington).
Physical Presence or Economic Nexus
It is common for Wisconsin businesses to make sales in other states. To determine whether you are required to collect sales or use tax in other states, you need to identify if you have a physical presence or an economic nexus in each state you make sales in.
The first step is to identify if you have a physical presence in states other than Wisconsin. Physical presence automatically creates nexus and, combined with taxable sales in that state, means that your business is required to be registered and remitting sales and/or use tax. The following are activities or situations that may create a physical presence in another state (list not all-inclusive):
- Owning property or inventory in that state
- Employees or agents of your business located in that state
- Providing services (including by a subcontractor) in that state
- An affiliate or division of your business has nexus or a physical presence in that state
- Making sales or taking orders at, or after, a tradeshow as a result of an employee or agent operating a booth in that state
- An employee, agent, or other representative located in that state taking orders or making sales on behalf of your business
- Employees, agents, or other representatives providing training or consulting in that state
- Making deliveries into that state using your company vehicles
If you determine you do not have a physical presence in that other state, you must then look at your sales into that state (i.e., economic nexus). While the standards vary state to state, most states have a small seller exception. Sellers with $100,000 or less in total sales (includes taxable and nontaxable) or less than 200 transactions (invoices) in the previous year may not be required to register for a Use Tax or a Seller’ Use Tax Permit. Kansas is the only state currently that has adopted Wayfair legislation with no small seller exception, so any amount of sales into Kansas requires a business to register and remit sales tax.
This article provides an overview of the types of sales tax permits, taxable sales, and nexus. It is important for a business to understand when they are required to register for a sales tax permit so that they are collecting and remitting tax properly. It is more important than ever to understand your sales tax obligations in other states that you do business in.
For more information about economic nexus as a result of the Wayfair court decision, see the Wisconsin Department of Revenue’s web site regarding “Remote Sellers – Wayfair Decision.” Also check out the Streamlined Sales Tax website for “Remote Seller Guidance by State – Chart.”
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