In 2009, the Wisconsin Legislature enacted significant changes to the Wisconsin sales and use tax laws as they relate to manufacturers, with different effective dates. The law changes were contained in Wisconsin Act 28. Manufacturers should be aware of the following exemptions:
Manufacturing Consumables Exemption (eff. August 1, 2009) – In Wisconsin, manufacturers are allowed an exemption for ingredients or component parts and consumable items used in manufacturing tangible personal property that is destined for sale. Act 28 included a significant change to this exemption. It now states that these items must be used exclusively and directly by a manufacturer in the manufacturing process.
As a result of this change, certain property that qualified for exemption no longer qualifies for the exemption. The following examples explain the change in tax treatment:
- Chemicals and cleaning agents used by a manufacturer to clean the room where the manufacturing of tangible personal property takes place are now taxable because they are not used directly in the manufacturing process. This includes cleaning walls, ceilings, floors, drains, windows, and doors, even if the cleaning is required in order to meet sanitation standards required by state and federal regulatory agencies. (Note: cleaning compounds and solvents for maintaining exempt manufacturing machinery is still exempt).
- Property that is consumed, destroyed, or loses its identity by a person who is not a manufacturer would not qualify for exemption, even if the person who is not a manufacturer consumes such property while performing a service for a manufacturer. Such items are now taxable because they are not used by a manufacturer.
Biotechnology and Manufacturing Research Exemptions (eff. January 1, 2012) – A new sales and use tax exemption was created for items used exclusively and directly in qualified research by persons who are engaged primarily (more than 50%) in manufacturing or biotechnology in Wisconsin. “Qualified research” is defined under section 41(d)(1) of the Internal Revenue Code. Effective January 1, 2012, the following purchases are exempt:
- Machinery and equipment, including attachments, parts, and accessories, that are sold to persons who are engaged primarily in manufacturing or biotechnology in Wisconsin and are used exclusively and directly in qualified research.
- Tangible personal property and certain other items that are sold to persons who are engaged primarily in manufacturing or biotechnology in Wisconsin, if the property or item is consumed or destroyed or loses its identity while being used exclusively and directly in qualified research.
- Machines and specific processing equipment, including accessories, attachments, and parts for the machines or equipment, that are used exclusively and directly in raising animals that are sold primarily to a biotechnology business, a public or private institution of higher education, or a governmental unit for exclusive and direct use by any such entity in qualified research or manufacturing.
- The farming items listed in sec. 77.54(3m)(a) to (m), Wis. Stats., medicines, semen for artificial insemination, fuel, and electricity that are used exclusively and directly in raising animals that are sold primarily to a biotechnology business, a public or private institution of higher education, or a governmental unit for exclusive and direct use by any such entity in qualified research or manufacturing.
Caution: Prior to January 1, 2012, the scope of manufacturing did not include research and development activities. Therefore, before 2012, items purchased for use in a manufacturer’s research and development department were subject to sales or use tax (this is a common audit adjustment).
For more information, please call Julie Woelfel at 800-236-2248 or 920-803-3113.