Wisconsin allows a credit for taxes paid to another state on a transaction taxable to Wisconsin. Section 77.53(16), Wis. Stats. (2009-10), provides in part that "If the purchase, rental or lease of tangible personal property, or items, property, or goods under s. 77.52(1)(b), (c), or (d), or service subject to the tax imposed by this section was subject to a sales tax by another state in which the purchase was made, the amount of sales tax paid the other state shall be applied as a credit against and deducted from the tax, to the extent thereof, imposed by this section..."

The examples below illustrate how the credit for taxes paid to another state applies in situations where the other state does not impose its sales tax on repair labor, but does impose its tax on the repair parts.

For purposes of the examples below, only the 5% Wisconsin state use tax is being considered. For additional information relating to transactions that include the county and/or stadium use tax, including information on how to allocate the credit between the state and local taxes imposed, see the tax release published in Wisconsin Tax Bulletin 157 (July 2008), that is titled "Credit for Sales and Use Taxes Paid to Other States and Their Local Units of Government."

Facts 1:

• Customer A, located in Wisconsin, needs his computer repaired.
• Customer A takes his computer to Company B, located in State X.
• Company B charges Customer A $100 for the repair parts and $75 for labor to fix the computer.
• Company B also charges State X's 4% sales tax on the repair parts ($100 x 4% = $4 sales tax), but no tax is charged on the $75 repair labor charge since repair labor is not subject to tax in State X.
• Customer A takes possession of his repaired computer in State X and then brings his repaired computer back to Wisconsin and uses it in Wisconsin.

Question 1:
Does Customer A owe any Wisconsin use tax related to his purchase of the repair services from Company B when he brings the computer back into Wisconsin?

Answer 1:
Yes. Customer A owes $8.75 ($175 x 5% = $8.75) in Wisconsin use tax on the $175 charge to repair the computer. However, since Customer A already paid $4 in sales tax in State X and assuming that tax was legally due and owing in State X, Customer A may use the $4 in sales tax paid to State X to reduce the Wisconsin use tax ($8.75) that is due. Customer A would be required to remit the $4.75 difference to Wisconsin ($8.75 Wisconsin use tax due minus the $4 in sales tax paid in State X).

Facts 2:

• Customer A, located in Wisconsin, needs his computer repaired.
• Customer A takes his computer to Company B, located in State Y.
• Company B charges Customer A $100 for the repair parts and $75 for labor to fix the computer.
• Company B also charges State Y's 6% sales tax on the repair parts ($100 x 6% = $6 sales tax), but no tax is charged on the $75 repair labor charge since repair labor is not subject to tax in State Y.
• Customer A takes possession of his computer in State Y and brings the computer back to Wisconsin and uses it in Wisconsin.

Question 2:
Does Customer A owe any Wisconsin use tax when he brings the computer back into Wisconsin and uses it in Wisconsin?

Answer 2:
Yes. Customer A owes $8.75 ($175 x 5% = $8.75) in Wisconsin use tax on the $175 charge to repair the computer. However, since Customer A already paid $6 in sales tax in State Y, and assuming that tax was legally due and owing in State Y, Customer A may use the $6 in sales tax paid to State Y to reduce the Wisconsin use tax ($8.75) that is due. Customer A would be required to remit the $2.75 difference to Wisconsin ($8.75 Wisconsin use tax due minus the $6 in sales tax paid in State Y). (Note: In this example, even though State Y only imposed its 6% sales tax on the $100 charge for the parts, all of the tax imposed on those parts ($6) may be used to offset the Wisconsin use tax that is due on the entire charge including parts and labor.)

April 11, 2011