Are there examples that describe the sales and use tax treatment of transactions with disregarded entities?
EXAMPLE 1 - Construction Company's Purchasing Entity: Contractor is the single owner of a disregarded entity (LLC) that purchases and sells building materials. Exempt Entity, a federal governmental unit, purchases building materials from LLC and hires Contractor to install the materials in a real property construction activity.
Treatment - Contractor and LLC are treated as a single entity for Wisconsin sales and use tax purposes; therefore, the purchase by LLC of materials used by Contractor in a real property construction activity are subject to tax. A person who performs a real property construction activity is the consumer of the materials purchased and used in the activity and is liable for Wisconsin sales or use taxes on the purchase of such materials.
EXAMPLE 2 - Transportation Company: Retailer is the single owner of a disregarded entity (LLC). LLC is a contract transportation entity hauling Retailer's goods for hire. LLC purchased a semitrailer to use exclusively to transport Retailer's goods.
Treatment - Retailer and LLC are treated as a single entity for Wisconsin sales and use tax purposes; therefore, LLC's purchase of the semitrailer does not qualify for the common and contract carrier exemption, since it is not hauling goods of others for hire. LLC's purchase of parts and service for the semitrailer are also taxable.
EXAMPLE 3 - Leasing Company: Company is the single owner of a disregarded entity (LLC). LLC's only business activity is to lease its aircraft to Company and others.
Treatment - Company and LLC are treated as a single entity for Wisconsin sales and use tax purposes; therefore, LLC's purchase of the aircraft does not qualify for resale since LLC is not solely leasing the aircraft to others.
Note: The sale of parts used to modify or repair aircraft is exempt from Wisconsin sales and use taxes. This exemption does not apply to supplies for aircraft. See the article titled "New Sales and Use Tax Exemptions for Aircraft."
EXAMPLE 4 - Disregarded Entity's Business Assets Transferred to Owner: Company is the single owner of a disregarded entity (LLC). LLC purchased assets (e.g., office equipment, furniture) for use in LLC's business activities. At a later date, Company purchased one-half of LLC's business assets.
Treatment - Company and LLC are treated as a single entity for Wisconsin sales and use tax purposes. LLC's (i.e., Company's) purchase of the business assets is subject to tax. Although LLC can transfer business assets to Company, this transfer is not considered a sale of business assets from LLC to Company, because they are treated as a single entity for tax purposes.
EXAMPLE 5 - Disregarded Entity's Business Assets Transferred to Unrelated Company:
Transaction 1: Company A is the single owner of a disregarded entity (LLC). LLC purchased assets (e.g., office equipment, furniture) for use in LLC's business activities.
Transaction 2: At a later date, Company B, an unrelated entity, purchased 100% of Company A's interest in LLC.
Transaction 3: LLC then sells one-half of its business assets to Company B.
Treatment
Transaction 1: Company A and LLC are treated as a single entity for Wisconsin sales and use tax purposes. LLC's (i.e., Company A's) purchase of the business assets is subject to tax, unless as exemption applies.
Transaction 2: Company A sells 100% of its disregarded LLC interest to Company B. The sale is considered a sale of assets by Company A for tax purposes and is subject to tax, unless an exemption applies (e.g., occasional sales exemption).
Note: If Company B is reselling the inventory, Company B should provide Company A an exemption certificate claiming an exemption for resale because the inventory does not qualify for the occasional sales exemption. If all of Company B's sales of the inventory will be nontaxable (e.g., wholesale sales to other retailers), Company B does not need to register for a permit and may enter "wholesale sales only" on the exemption certificate instead of a seller's permit number.
Transaction 3: Since Company B is now the single-member owner of LLC, Company B and LLC are treated as a single entity. Although LLC can transfer business assets to Company B, this transfer is not considered a sale of business assets from LLC to Company B because they are treated as a single entity.
Yes. If the owner and its disregarded entities are collectively engaged in business in Wisconsin as described in secs.
77.51(13g) or
(13gm), Wis. Stats., the owner and its disregarded entities have nexus Wisconsin and must register and file sales and use tax returns as described under Question 3 above.
Example 1: ABC Company and its disregarded entity, Main Street LLC, do not have a physical presence in Wisconsin, but ABC Company has $75,000 in sales sourced to Wisconsin and Main Street LLC has $67,000 in sales sourced to Wisconsin. Since total sales in Wisconsin exceeds $100,000, ABC Company and Main Street LLC have nexus in Wisconsin.
Example 2: DEF Company and its disregarded entity, Side Street LLC, do not have a physical presence in Wisconsin, but DEF Company has $35,000 in sales sourced to Wisconsin and Side Street LLC has $50,000 in sales sourced to Wisconsin. Since neither company has a physical presence in Wisconsin and total sales in Wisconsin does not exceed $100,000, neither company has nexus in Wisconsin.
Example 3: GHI Company has $45,000 of sales sourced to Wisconsin but does not have a physical presence in Wisconsin. Its disregarded entity, Uptown LLC, has an employee in Wisconsin. Since Uptown LLC has an employee in Wisconsin, GHI Company and Uptown LLC have nexus in Wisconsin.