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February 3, 2016Client Alert

New Sales and Use Tax Exemption Could Affect Your Upcoming Construction Project

Punxsutawney Phil did not see his shadow yesterday, meaning spring – and the beginning of Wisconsin’s busy construction season, is just around the corner. Luckily, a recent change in Wisconsin’s sale and use tax law could make many upcoming construction projects run a bit smoother.

Signed into law by Gov. Scott Walker on December 16, 2015, Wis. Stat. § 77.54(9m) allows construction contractors to directly purchase construction materials for certain qualifying tax-exempt entity owned projects without having to pay Wisconsin sales and use tax. Previously, in order to benefit from their tax-exempt status, tax-exempt owners were required to either directly purchase construction materials for their construction projects or require their construction contractors to set up captive or related purchasing companies. The recent change in Wisconsin sales and use tax law, which went into effect on January 1, 2016, will avoid the administrative headaches the previous system often caused.

In order for the new law to apply, a construction contractor must have entered into a contract after January 1, 2016 with a “qualifying exempt entity,” such as a Wisconsin county, municipality, school district or certain nonprofit organizations. The exemption does not, however, extend to public higher education projects or contracts with the State of Wisconsin. In addition, the project itself must fall within the definition of “facility” – which includes “any building, shelter, parking lot, parking garage, athletic field, athletic park, storm sewer, water supply system, or sewerage and waste water treatment facility, but does not include a highway, street, or road.” (Wis. Stat. §77.54(9m), emphasis added).

While the recent change will simplify the owner-direct purchasing process, it is important to remember that not all tax exempt entities nor all projects will qualify for the new streamlined law. Contractors, subcontractors and owners alike should pay close attention to the details of their upcoming projects and confirm best practices are in place in order to capitalize on potential cost savings while avoiding unnecessary risk.

For more information on this case or the impact it could have on your project, please contact your Michael Best attorney; Michelle W. Ebben at mwebben@michaelbest.com or 414.225.8277; or Steve R. Battenberg at srbattenburg@michaelbest.com or 262.956.6526.

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