Sales, Use and International Tax Activity Update - January 2010

When Does a Lease Become a Service in Wisconsin?

A Wisconsin Department of Revenue news release discusses changes in the sales and use tax treatment of equipment provided with an operator. Effective October 1, 2009, when equipment is provided with an operator that does more than maintain, inspect, or set up the equipment, and the operator is necessary for the equipment to perform in the manner for which it is designed, the transaction is considered to be a service and not a lease or rental of the equipment. This change was made to conform Wisconsin sales and use tax laws to the Streamlined Sales and Use Tax (SST) Agreement and the definition of lease or rental.

Generally, beginning October 1, 2009, when equipment is provided with an operator, the tax treatment of the transaction depends on whether the operator does more than maintain, inspect, or set up the equipment and if the operator is necessary for the equipment to perform in the manner for which it is designed. Before October 1, 2009, when equipment was provided with an operator, the tax treatment of the transaction depended on who was responsible for the satisfactory completion of the job. The tax treatment in specific situations is discussed below.

Beginning October 1, 2009, leases and rentals of equipment with an operator that only maintains, inspects, or sets up the equipment are taxable. A lessor may purchase equipment without tax for resale if the lessor uses the equipment solely for leasing or renting. A lessor may also purchase lubricants, repair parts, and repair services for equipment used solely for leasing or renting without tax for resale.

Before October 1, 2009, if a person furnished equipment with an operator to perform a job that the lessee supervised and was responsible for completing in a satisfactory manner, the person furnishing the equipment was considered a lessor renting out the equipment. If it was customary or mandatory that the lessee accept an operator with the leased equipment, then the entire charge, including the charge for the operator, was taxable. However, the operator's services were not taxable if they were billed separately and if the lessor customarily gave the lessee the option of taking the equipment without the operator. A lessor was allowed to purchase equipment without tax for resale if the lessor used the equipment solely for leasing or renting. A lessor was also allowed to purchase lubricants, repair parts, and repair services for equipment used solely for leasing or renting without tax for resale.

Beginning October 1, 2009, if equipment is provided with an operator and the operator does more than maintain, inspect, or set up the equipment and is necessary for the equipment to perform in the manner for which it is designed, the transaction is considered to be a service and not a lease or rental of the equipment. A service provider is liable for the payment of tax on its purchases of equipment that it uses to provide a service and on purchases of repair parts and repair services for such equipment.

Before October 1, 2009, if a person used its own equipment to perform a job and assumed responsibility for the satisfactory completion of the job, the person was considered to be performing a service. The person performing the service was liable for the payment of tax on its purchases of the equipment used. The sales and use tax treatment of the charge for the service depended on whether the service performed was a taxable service or a nontaxable service.

Beginning October 1, 2009, the sale of contracts, including service contracts, maintenance agreements, and warranties, that provide in whole or in part for the future performance of or payment for the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, or maintenance of equipment are taxable unless the sale, license, lease, or rental in Wisconsin of the equipment to the purchaser of the contract is or was exempt.

Before October 1, 2009, the sale of a service contract, maintenance agreement, or warranty was taxable if the equipment to which the service contract, maintenance agreement, or warranty related was taxable.

The full news release can be viewed on the Wisconsin Department of revenue Web site.

---

Subscribe to CyberTax News and receive the latest indirect tax news, including rate changes, rule updates, compliance issues, and more, delivered directly to your email.

Email Address

e.