Wisconsin Sales Tax & Audit Guide
Straightforward Answers to Your Wisconsin Sales Tax Questions.
- Do I need to collect Wisconsin sales tax?
- Should I be collecting or paying Wisconsin use tax?
- What do I do if I should have been collecting but haven't?
- I received an audit notice. What should I do?
- Guidance on fighting a sales tax assessment in Wisconsin.
Who Needs to Collect Wisconsin Sales and Use Tax?
Like most states, to be subject to Wisconsin sales tax collection and its rules, your business must:
1) Have nexus with Wisconsin, and
2) Sell or use something subject to Wisconsin sales tax.
How is Nexus Established in Wisconsin?
According to the Wisconsin Department of Revenue, a business with a physical presence in Wisconsin must be licensed for sales tax collection. The minimum thresholds listed below for remote sellers do not apply to businesses with a physical presence in Wisconsin.
Any of the following establishes physical nexus:
- The retailer owns real property of any kind in Wisconsin.
- The retailer maintains a warehouse, storage place, or other place of business in Wisconsin.
- The retailer occupies or uses, permanently or temporarily, directly, or indirectly, or through a subsidiary, agent, other person, an office, place of distribution, or location, leases or rents out any taxable products located in Wisconsin.
- The retailer has any representative, agent, salesperson, or solicitor operating in Wisconsin under the retailer's or its subsidiary's authority to sell, deliver, or take orders for any products or services.
- The retailer (or its representative) services, repairs, or installs products in Wisconsin.
- The retailer delivers goods into Wisconsin in company-operated vehicles.
- The retailer (or its representative) performs construction activities in Wisconsin.
- The retailer is related to an affiliate, and the affiliate uses facilities or employees in Wisconsin to advertise, promote, or facilitate the establishment of or market for sales of items by the retailer and including accepting returns of purchases or resolving customer complaints.
Additionally, businesses that do not have a physical presence in Wisconsin can establish economic nexus by exceeding a certain annual sales threshold.
Economic Nexus (Wayfair Law) and Internet Sales in Wisconsin
As of October 1, 2018, Wisconsin requires remote sellers to collect and remit sales and use tax on sales of taxable products and services in Wisconsin. A remote seller that sells taxable products or services in Wisconsin is required to register and collect Wisconsin sales or use tax if the retailer meets either of the following criteria in the previous year or current year:
- The retailer's annual gross sales in Wisconsin exceed $100,000.
- The retailer's annual number of separate sales transactions in Wisconsin is 200 or more.
The following applies to the criteria above:
• "Year" means the retailer's taxable year for federal income tax purposes.
• The annual amounts include taxable and nontaxable sales.
• Each required periodic payment of a lease or license is a separate sale transaction.
• Deposits in advance of a sale are not sale transactions.
• An out-of-state retailer's annual amounts include all sales in Wisconsin
How is the $100,000 gross revenue threshold calculated?
Sales tax is imposed on a retailer's total sales on the sales and use tax return. "Total sales" is the total amount of the sale, license, lease, or rental price from retail sales of taxable products and services, whether received in money or something other than money.
Note: If the seller charges the purchaser for the product or service delivery, the seller must include the transportation charges in "total sales."
For more information, see page 19 in Wisconsin Sale Tax Information
Marketplace providers must remit sales tax on all must collect sales and use taxes on all sales it facilitates in Wisconsin if the thresholds of 200 or more transactions or $100,000 or more in sales to Wisconsin customers.
Which Sales are Subject to Wisconsin Sales Tax?
If you have nexus in Wisconsin, the next step is determining whether the products or services you sell are subject to Wisconsin sales and use tax.
Unless an item is specifically exempt, sales and rentals of tangible personal property are subject to Wisconsin sales tax.
The rules seem simple, but many details make applying Wisconsin’s tax rules to your business challenging. We recommend scheduling a time to review your specific situation with one of our sales tax professionals.
Common Exemptions from Wisconsin Sales and Use Tax:
Items exempt from Wisconsin sales tax include:
- Aircraft Parts and Repair
- Animal Identification Tags
- Caskets and Burial Vaults
- Copies of Certain Records
- Diaper Services
- Certain Drugs
- Durable Medical Equipment, Mobility-enhancing Equipment, and Prosthetic Devices
- Food, except for candy, soft drinks, dietary supplements, and prepared food, which are taxable.
- Manufactured Homes
- Printed Publications
The Wisconsin Department of Revenue has different rules and rates depending on the industry and the type of service. Find information about sales tax on specific types of services below.
Taxable services include:
- Admission and access privileges to amusement, athletics, and recreational places or events.
- Access or use of amusement devices
- Boat docking and storage
- Cable television services
- Contracts for future performance of services
- Internet access (not taxable beginning July 1, 2020)
- Landscaping and lawn services
- Laundry and dry-cleaning services
- Parking services for motor vehicles and aircraft
- Photographic services
- Producing, fabricating, and printing
- Towing and hauling motor vehicles by a tow truck
- Telecommunications message services
- Rooms or lodging for less than 30 days
- Repair and service of tangible personal property, items, property, or goods (Part 10.B.9 in Publication 201)
- Telecommunications services to include prepaid calling services and ancillary services
See the following guides for more information:
Many people have questions about the taxability of software as a service (SaaS).
Many states already impose a tax on software as a service. As these options proliferate, states are moving to update their tax laws and, naturally, impose a tax.
To determine whether you need to collect tax on software sales, we highly recommend contacting one of our sales tax professionals to help you sort it out.
For now, we’ve summarized Wisconsin’s software tax rules here:
Charges to the customers for the following services are subject to Wisconsin sales and use tax:
- Installation and setup of computer hardware
- Installation of the hardware devices (including printers, hard drives, modems, monitors, etc.)
- Setting up the hardware and prewritten computer software on a network
- Online or on-site troubleshooting hardware problems
- Installation of prewritten computer software
- Configuration of prewritten computer software
- Installation of prewritten computer software
- Inspections of hardware and prewritten computer software
- Online or on-site troubleshooting of prewritten computer software
- Consulting and design services are provided in connection with the sale of computer hardware and prewritten computer software.
- Inspecting, servicing, or repairing prewritten computer software via modem
Charges for the following services are not subject to Wisconsin sales or use tax:
(Note: If the services below are a "service necessary to complete the sale" of taxable products or services, the charges would be part of the "sales price" of the taxable property or service and would be subject to Wisconsin sales or use tax.)
- Writing software other than prewritten software
- Making modifications or enhancements to prewritten software designed and developed to the specifications of a specific purchaser, and the person who makes the modifications or enhancements provides a reasonable, separately stated charge or an invoice for the modification or enhancement.
- Installing software other than prewritten software
- Updating software other than prewritten software
- Training people in the use of the software or hardware
- Writing queries for databases
- Designing screens, forms, reports, or menus
- Answering consumer questions
- Data conversion
- Reformatting and recovery
- Backing up of data
- Network assessment services, network analysis, and evaluation unrelated to a specific hardware or software problem and unrelated to the sale of computer hardware or computer software
- Hosting websites (storing data on a computer) without selling tangible personal property or any digital good is a nontaxable service. Domain name registration and site maintenance/update services are not subject to sales tax when no tangible personal property or digital good is transferred or taxable service performed.
- Designing websites and home pages. Website design is not among the services subject to Wisconsin sales tax; whether the completed website design is transferred to the customer electronically or transferred using a tangible storage medium, the charges for the website design work is not taxable.
- Website database charges.
- Charges for providing advertising or listing space on a website.
- Training on how to use the internet.
- Internet access services are not taxable beginning July 1, 2020.
Shipping & Handling
When a retailer sells taxable products or services subject to tax and charges the purchaser for delivery, the total cost, including delivery charge, is taxable. This applies whether the seller's vehicle, a contract carrier, or the United States Postal Service makes the delivery.
- The sales price for direct mail does not include separately stated delivery charges.
- The Wisconsin purchaser pays transportation or delivery charges to a carrier independent of the seller.
When a retailer charges a purchaser for the delivery of the nontaxable or exempt product or service, the retailer's total charge, including any delivery charge, is not subject to the sales or use tax. If a shipment includes taxable and nontaxable products, the retailer will determine and set forth on the invoice the portion of the delivery charge to be reasonably allocated to the taxable products. If no allocation is made, the total delivery charge is taxable. The amount allocated to nontaxable products is not subject to tax.
For additional information, see Publication 201, page 51, Wisconsin Sales and Use Tax Information.
While the general sales tax rules seem straightforward, applying those rules can get tricky when gray areas arise. The Wisconsin Department of Revenue provides some specific guidance for the following industries:
Determining Local Sales Tax Rates in Wisconsin
The Wisconsin sales tax rate is 5% for most retail sales. 68 Wisconsin counties have adopted a 0.5% tax imposed on the sales price from retail sales, licenses, or rentals of tangible personal property.
If you make sales subject to the 0.5% county tax, you must collect 5.5% sales tax on your retail sales.
Local Sales and Use Tax Tables
Here you can look up local Wisconsin sales tax rates by zip code or see the chart below for the tax rates of the most populated Wisconsin cities.
*Exact tax rates vary. Occupancy fees and taxes are not included in this table.
I Should Have Collected Wisconsin Sales Tax, But I Didn't
Many of our competitors suggest Filing a Voluntary Disclosure Agreement in each state. This is a one-size-fits-all solution that isn't always the best. Our sales tax professionals will work with you to determine your business's best and most cost-effective solution.
If you determine your business has nexus, but you have not collected Wisconsin sales tax, here are your options:
1. Register and pay back taxes, penalties, and interest, or
2. Complete a VDA to cut penalties (and, in some cases, reduce your tax liability and avoid interest).
Here is what you need to know about each option to make the best decision for your business:
Option 1: Register to Pay Back Taxes, Penalties, and Interest.
A VDA is not cost-effective if the past liabilities and penalties are minimal. Sometimes the best resolution for a business is to register with Wisconsin and pay back taxes, penalties, and interest.
Be wary of the tax professionals recommending a VDA in these cases. They want to make a buck rather than look out for your best interests.
When to consider registration and payment:
- If you established nexus less than 3 or 4 years ago.
- The sales tax penalty is LESS than the professional fees charged for the VDA.
- Your business does NOT have a sales tax collected issue.
Beware: Registering does not generally end past liabilities.
If you're unsure what your past liabilities are, contact us. Our state tax professionals work with you so you can make the right choice for your business.
Option 2: Voluntary Disclosure Agreement (VDA)
Wisconsin’s lookback period The standard lookback period isfour years.
In many situations, voluntary disclosures are a valuable tool to reduce extended periods of past exposure.
The voluntary disclosure limits the lookback period to four years. So, if you should have collected sales tax over the past ten years but didn't, you may benefit from doing a VDA.
A VDA may be a good option for you if:
- You established nexus more than 3 or 4 years ago.
- You have a sales tax collected but not remitted issue.
- The sales tax penalty savings is MORE than the professional fees charged for the VDA.
What to Expect During an Audit
The typical audit process is shown in this flowchart. Detailed guidance for each Wisconsin audit process stage follows in the sections below.
A Notice of Intent to Audit (Audit Questionnaire & Routine Audit Letter). -->.All records and documents are to be ready for presentation to the auditor on the audit site visit's commencement dateSite Visit (sometimes) -->. The length of the audit can vary depending on what issues come up -->. You must deliver any exemption certificates within 120 (one hundred twenty) days. -->.
Wisconsin regularly audits businesses required to charge, collect, and remit various taxes in the state. Many audits begin with a call from a Wisconsin Department of Revenue sales tax auditor. Shortly after the call, your business will receive a Notification of Intent to Audit. This notification confirms that you were lucky enough to be chosen for a Wisconsin sales tax audit.
Once the audit is complete, the auditor will send you the assessment and the amount.
It is good to start with getting a state and local tax professional involved to prepare for the audit.
I received a Wisconsin Sales Tax Audit Notice. What Should I Do?
Businesses that receive a sales tax audit notice need to consider the following questions:
- If you don’t have sales tax audit experience, how can you trust that the state's auditor abides by the rules and follows proper procedures?
- How will you know when to provide documents or when to push back?
- Do you thoroughly understand your sales and use tax areas of exposure?
- Controlling the audit is paramount to limiting exposure and shaping the results. Are you confident in doing that on your own?
Unless you can confidently answer these questions, hiring a professional is most likely to be the best option.
Contact us to learn how our sales tax professionals can give you the peace of mind and confidence you’ll need during your audit.
Visit our resource pages for more information to help you make critical decisions during your Wisconsin sales and use tax audit.
What to Expect from a Wisconsin Sales Tax Auditor
Here is a summary of the general audit process:
Once the auditor receives the necessary records, they will compare your Wisconsin sales and use tax returns to your federal income tax returns or bank statements to determine whether you reported all applicable or gross sales on your Wisconsin sales tax return(s).
NOTE: A slight error in how the tax was charged on even a single type of transaction can add up to a significant sales tax liability.
When the auditor is confident all sales are accounted for, the auditor will review your exempt and out-of-state sales and may also audit your use tax payments.
If a business buys an item online without paying use tax, the business is still obligated to remit the tax to Wisconsin. Believing otherwise often leads to shocking results for the unsuspecting taxpayer during an audit. Here is more information on Wisconsin Use Tax.
Common areas audited include:
- Advertising Expense
- Auto & Truck Expense
- Repair and Maintenance
- Office Expense
- Miscellaneous Expense
After reviewing all information, the auditor will prepare a proposed audit report which shows preliminary findings, and a preliminary amount due or refund. The proposed audit report is not a final determination but the basis for discussion between you and the auditor.
If you have questions about your situation, contact us to discuss it with one of our tax professionals.
After the Audit – Understand and Defend Your Businesses Rights
The auditor will meet with you by phone or in-person to present the proposed report with corresponding work papers to support the Wisconsin sales and use tax assessment and ensure you understand the proposed adjustments.
This is your first opportunity to see the auditor's findings. You'll want to push back on areas where they have overstepped their bounds or misapplied Wisconsin's sales tax laws.
If you do not have experience with Wisconsin sales and use tax audits, it's best to hold off on agreeing to the sales tax assessment until a sales tax professional has reviewed it for issues that should be challenged.
Many businesses wind up drastically overpaying the state because the business owner or in-house accounting personnel weren't well versed in the sales tax laws that, if challenged, could have reduced their sales tax liability.
In the following sections, we'll cover the process of challenging a Wisconsin sales tax audit assessment.
Contesting Audit Findings After the Audit
Wisconsin Sales Tax Audit Protest Process Flow Chart
Proposed Audit Report Issued -->. 30 days -->. Informal hearing with the Department -->. Assessment Issued -->. 60 days -->. File an appeal with the Department -->. 4- months -->.Decision Issued by the Wisconsin Department of Revenue -->. 60 days -->. Petition for Review with WI Tax Appeals Commission -->. 6-9 months --> Decision Issued by Tax Commission -->. 30 days -->. Appeal to the circuit court
NOTE: If the deadlines are missed, it can be tough to get the case reopened.
You will receive a Notice of Proposed Audit Report requesting you sign (generally within 30 days) and state whether you agree or disagree with the proposed findings.
It's essential to review and understand its implications carefully.
The audit report:
- Details of the auditor's findings
- Describes any proposed audit adjustments
- Shows the amount of tax, interest, and penalty due
If you disagree with the proposed changes, you may request an informal conference with the auditor. The auditor will schedule a conference with you and their supervisor to attempt to reach an agreement.
If you and the auditor/supervisor cannot agree, the Department will issue a final notice of field audit determination. It is final unless you appeal it.
Note: Even if you signed the Notice of Proposed Audit Report indicating you disagree, you still must send a written appeal of the final notice
Audit Closing Conference
The taxpayer has a short period to contest the findings with the auditor. Any issues with the results are handled as follows:
1. Issues related to exemptions, proof of tax paid, and calculations are worth addressing with the auditor.
2. Legal interpretations of sales tax law are often not resolvable at this stage.
After this conference, the auditor will adjust the audit assessment, and a Notice of Determination will be issued.
If you cannot resolve this with the auditor, the next step is to appeal/protest the issue.
Protest Rights and Audit Finding Confirmation
If you believe the assessment is based on a mistake of fact or an error of law, you may the Notice or Bill with the Wisconsin Department of Revenue within 60 days of the notice. On the appeal, be sure to:
- Clearly explain your disagreement
- Attach and include relevant documents to support your appeal
- Sign or have your POA sign the appeal
- Include the tax account number, letter ID, and tax period
The appeal must state why the assessment is incorrect and be mailed or faxed to the Wisconsin Department of Revenue.
After processing, the Department of Revenue will assign a conferee to the case. You or your sales tax professional will have time to discuss and resolve the case with the conferee. When you cannot resolve the disagreements, a notice of Redetermination is issued, which is appealable to the Wisconsin Tax Commission.
If you have received a Certificate of Assessment and haven't talked to someone experienced in Wisconsin State tax, now is the time. Do it before these deadlines pass.
You will receive a notice of hearing noting the time and place of the hearing and the issues to be considered. The Department will send a letter with one of the following results:
• No change to the original assessment
• A decrease in amount due or refund
• An increase in the amount due or refund
If you disagree with the Department's decision, the next steps are an appeal with the Wisconsin Tax Appeals Commission and then the Circuit Court.
Settling a Wisconsin Sales Tax Liability
After any critical notices are issued, settling your Wisconsin sales tax case with the Wisconsin Department of Revenue is possible by filing a Wisconsin Offer in Compromise. The business must meet specific criteria to qualify, but you can get better results negotiating here than with the auditor. However, knowing a fair settlement from an unreasonable settlement will be challenging without experience and knowledge of Wisconsin tax laws.
DO NOT attempt to negotiate a settlement without an experienced Wisconsin state and local tax lawyer or other professional.
Contest a Wisconsin Jeopardy Assessment
Wisconsin may issue a Notice of Jeopardy Determination in certain situations.
The jeopardy assessment gives the Wisconsin Department of Revenue the right to try to collect immediately.
Due to the jeopardy nature, the taxpayer only has a very short time to contest the assessment and must place a security deposit to fight the issue.
If you cannot resolve your case with the Department, you have 60 days to appeal to the Wisconsin Tax Commission. Although the Wisconsin Tax Commission is not technically a judicial court, this separate state agency is very similar to a court. Although slightly relaxed, the rules of evidence, discovery, and other court-like features still apply. Eventually, the case proceeds to a hearing before a tax commissioner. For those reasons, developing the record and having a sales tax lawyer or other professional on your side is crucial to ensure the case is handled correctly.
Following the hearing, the Tax Commission issues its ruling, which contains factual findings and conclusions of law. Like most states, the decision is appealable to a judicial court, typically Circuit Court, and must be done within 30 days.
Our team has handled hundreds of administrative court cases. It can help your company receive the resolution you are entitled to. Get in touch with us today.
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