Crushing equipment for road builders declared tax-exempt in Wisconsin
Effective June 1, 2024, road builders are welcoming a new Wisconsin sales tax exemption.
2023 Wisconsin Act 146 enacts a sales tax exemption for the storage, use or other consumption of portable machinery and equipment used to crush, mill, produce or pulverize asphalt, concrete, gravel, rock or aggregate base for road or commercial surface lot construction or resurfacing, commonly referred to as “crushing.”
The exemption applies to the equipment, related parts, accessories, attachments and supplies associated with the equipment. Services (think repairs, maintenance and inspection) on qualifying equipment will also benefit from the exemption.
What equipment qualifies for an exemption?
Unlike many Wisconsin exemptions, equipment need not be used exclusively (more than 95% of all use) in the activities listed above to qualify. Rather, qualifying use must meet a primarily used standard. The law does not define “primarily used,” but if Wisconsin follows what other states have done, the standard may well be a “more than 50% use test.” The primary use test benefits equipment owners by allowing considerably more nonqualifying use of the equipment without destroying the exemption.
The new law may also provide some relief for manufacturers with portable crushing operations. Wisconsin law is clear that crushing gravel is a manufacturing activity. Wisconsin law also allows a sales tax exemption for machinery and equipment used exclusively in manufacturing, consumables used in manufacturing and utilities consumed in manufacturing.
Few manufacturers engaged in crushing activities may be aware of the Wisconsin position that the crushing activities need to occur on land owned or leased by the manufacturer to qualify for manufacturing exemptions. Theoretically, the requirement stems from the statutory language defining the manufacturing process which refers to activities in the same plant.
Because the law creates an exemption for this type of equipment and the exemption is based on its use in road or commercial surface lot construction or resurfacing, the use on land leased or owned by someone other than the manufacturer does not defeat the exemption for this type of equipment.
Unanswered questions
At this time, the Department of Revenue has not issued any guidance related to the exemption. Future guidance will hopefully address a number of the unanswered questions, such as:
- How will the term “commercial” be defined? The exemption applies to use in commercial lot construction or resurfacing. It is reasonable to conclude that the term commercial excludes residential use. Other uses are less clear. Will commercial use include parking lots for apartment and multifamily dwellings? Will municipal lots meet the definition of commercial?
- What is included in the scope of road or commercial surface lot construction? Will the exemption include curb, gutter, sidewalk, culverts or other infrastructure?
- What equipment qualifies as used in crushing, milling, producing or pulverizing? Will equipment needed to perform these activities include equipment that is necessary to the activity but that does not actually perform the crushing activities? Will end loaders and dump trucks qualify?
- What supplies will be included in the exemption? One significant “supply” consumed in crushing is fuel. Theoretically, fuel should be considered a supply eligible for exemption. However, since the manufacturing exemption for fuel is a separate statutory exemption and the statute does not define “supplies,” one cannot assert that with 100% certainty.
What does this mean for contractors?
Contractors should consider practical applications of the exemption. Taxpayers bear the burden of proof to document that they meet the requirements of the exemption that they claim.
For taxpayers working in both commercial and residential settings, it will be necessary to document the amount of qualifying and/or nonqualifying use for the exempt equipment.
For taxpayers that use crushing equipment at pits and at job sites, it may be even more critical to understand the scope of road and commercial surface lot construction and resurfacing so that exclusive use requirements of the manufacturing exemption continue to be met.
How Wipfli can help
If your business operates crushing equipment, you could benefit from this new exemption. Contact Wipfli today to learn more. Our team of dedicated SALT professionals can assist you with maximizing the exemption and the practical considerations documentation.
