To Tax Or Not To Tax — When Businesses Get In Trouble
- Sales and Use Tax
- July 11, 2011 | Susan McLain
According to Journal Sentinel Online (JS Online), Best Buy, Lowe’s, Sears and Home Depot all do not charge customers sales tax on a built-in appliance with installation in Wisconsin. The Best Buy stores stated “…the company’s computer system automatically removes tax from sales of ‘real property’ items in Wisconsin when the transaction is processed.” This isn’t true for all states, however. If you have a business that qualifies for a sales tax exemption, in any state check out this free exemption certificate wizard.
Home Depot, Sears and Lowe’s also said they did not charge sales tax on built-in appliances and their installation as they are considered “real property” and are therefore not taxable per the code.
Yet there is more to the story.
Blow the Whistle Public Investigator for Journal Sentinel Online (JS Online) in Milwaukee, Wisconsin recently delivered a scary sales tax story that could have been titled “Product Taxability—Do You Understand and Apply the Law Correctly?”
According to JS Online, it appears that a locally owned appliance store, American TV & Appliance may have been collecting sales tax when sales tax was not owed by the customer. A particularly complicated product taxability sales tax law identifies that real property is not taxable to the consumer; whereas personal property is. So what’s the difference in relation to appliances?
- An appliance that is installed in your home such as a built-in dishwasher or built-in oven is considered real property.
- A free standing appliance, such as a refrigerator is considered personal property—you can take it with you when you leave.
Now that we know the difference between a real property appliance and a personal property appliance, we know which product is taxable, correct? It actually appears to be more complex than that. The sales and use tax is owed at some point—either from the seller or the consumer—but on which end? Does the seller pay the sales and use tax or do they collect from the consumer?
Installed Appliances Are Not Taxed…But Only When…
If an appliance is considered real property and is installed by the store that it is purchased from, it is considered non-taxable to the consumer. However, “if you buy a built-in appliance or fixture and install it yourself—or pay your own contractor to do it—it doesn’t count as real property. In that case, you
[the consumer] owe sales tax, not the store,” says the spokeswoman for the State of Wisconsin Department of Revenue.
According to the September 2010 Sales and Use Tax Report from the Department of Revenue, the seller must pay sales or use tax on the purchase if the appliance is “…a built-in dishwasher that the seller will install.” It is not taxable to the customer.
A Wisconsin DOR spokeswoman explains that, “…it’s up to stores to track how many items they install and to adjust their tax returns accordingly.” And the seller is also responsible to track and maintain adequate documentation to ensure the sales or use taxes are properly reported and paid for each item—regardless of whether it is collected from the consumer or paid for by the seller.
Managing Who Owes And Applying the Correct Sales Tax
In the case of this locally owned appliance store, past state audits revealed no compliance issue. According to the store, the state of Wisconsin has clearly guided that “…unless a transaction clearly falls within the literal words of the exemption, the transaction is taxable.” In other words, their interpretation of the way the code is written has been that built-in appliance sales are not tax exempt for the consumer, and therefore they collect from the consumer. And so far, the routine audits performed by the Wisconsin Department of Revenue seem to have supported that understanding. However, the state Sales and Use Tax Report clearly states that “the sale and installation of the [built-in appliance] are not subject to Wisconsin sales tax because the [item] is installed as real property improvement.”
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photo credit: kozumel via photopin cc