Sales Tax Exemption Replaces Manufacturer's Sales Tax Credit
Beginning January 1, 2006, a sales and use tax exemption applies for fuel and electricity consumed in manufacturing tangible personal property in Wisconsin. To claim this exemption, manufacturers will need to determine the amount of fuel and/or electricity that is consumed in manufacturing and provide an exemption certificate to the supplier of the fuel and/or electricity. The Wisconsin Sales and Use Tax Exemption Certificate (Form S-211) has been revised to allow manufacturers to claim exemption from Wisconsin sales and use tax on the percentage of fuel and electricity that is exempt. The revised form can be obtained from the Department of Revenue’s web site at: www.revenue.wi.gov/forms/sales/s-211.pdf.
The amount of fuel and/or electricity that qualifies for exemption from Wisconsin sales and use tax beginning January 1, 2006 should be calculated in a similar manner as was previously used to calculate the amount of fuel and/or electricity that qualified for the manufacturer’s sales tax credit for tax years beginning prior to January 1, 2006. When making the determination as to the amount of fuel and/or electricity that qualifies for exemption, the following rules should be kept in mind:
- Fuel and electricity "consumed in manufacturing" means only fuel and electricity used to operate machines and equipment used directly in the step-by-step manufacturing process. Fuel and electricity are not "consumed in manufacturing" if they are used in providing plant heating, cooling, air conditioning, communications, lighting, safety and fire prevention, research and product development, receiving, storage, sales, distribution, warehousing, shipping, advertising or administrative department activities. However, fuel and electricity used directly in manufacturing steam which is used by the manufacturer in further manufacturing or in heating a facility, or both, is consumed in manufacturing.
- Purchasers (other than purchasers holding a direct pay permit) are not allowed to claim 100% exempt usage for fuel or electricity when they know at the time of purchase that the exempt usage will be less than 100%. The exemption percentage claimed should represent the buyer’s best estimate of the exempt usage and should be calculated and claimed on a meter-by-meter basis for each meter that is measuring electricity and/or natural gas consumption.
- If a purchaser provides a properly completed exemption certificate to a seller and the seller accepts that certificate in good faith, the seller of the fuel and/or electricity is not liable for the sales tax on the gross receipts from the sale of the fuel and/or electricity which the purchaser has indicated is exempt on the exemption certificate.
- If a purchaser provides an exemption certificate to a seller and the seller does not charge sales tax on that portion of the fuel and/or electricity which the purchaser has indicated is exempt from tax on the exemption certificate and the purchaser subsequently uses the fuel and/or electricity in a taxable manner, the purchaser is responsible for self-assessing and remitting use tax on the taxable portion of the fuel and/or electricity originally purchased without tax.
- If a purchaser pays sales or use tax on fuel and/or electricity that is used in an exempt manner, the purchaser may claim a refund of those sales or use taxes. The purchaser may request the seller to refund the sales or use tax paid to the seller in error, or, under certain circumstances, the purchaser may file a claim for refund of these taxes directly with the Department of Revenue. See Wisconsin Publication 216, Filing Claims for Refund of Sales or Use Tax, for additional information.
- Electricity and/or natural gas is considered sold at the time of billing as provided in sec. 77.54(30)(b), Wis. Stats. (2003-04). If the billing is being made by mail, the time of billing is the day on which the billing is mailed. Therefore, electricity and/or natural gas that is metered prior to January 1, 2006, but which is billed on or after January 1, 2006, may qualify for the new exemption.
- Sales of fuels other than natural gas are considered sold when possession of the fuel is transferred from the seller or seller’s agent to the purchaser or purchaser’s agent as provided in sec. 77.51(14r), Wis. Stats. (2003-04). Therefore, fuels other than natural gas that are delivered to the purchaser prior to January 1, 2006 will not qualify for the new exemption, regardless of when the purchaser is billed for these fuels.
Additional information about the exemption for fuel and electricity consumed in manufacturing is provided at: www.revenue.wi.gov/faqs/ise/exemptn.html
Manufacturer’s Sales Tax Credit for Income and Franchise Tax Purposes
Prior to January 1, 2006, sales of fuel and/or electricity consumed, destroyed, or losing its identity in the manufacture of tangible personal property generally are not exempt from sales or use tax. Instead, a business may claim a franchise or income tax credit for the sales and use taxes paid on fuel and/or electricity consumed in manufacturing tangible personal property in Wisconsin.
The manufacturer’s sales tax credit may not be claimed for taxable years that begin after December 31, 2005. The treatment of manufacturer’s sales tax credits claimed but unused for taxable years that begin before January 1, 2006, depends on the amount of unused credits.
Taxpayers having $25,000 or less of unused credits as of January 1, 2006 , may use up to 50% of the credit in each of the taxable years beginning in 2006 and 2007. Any remaining credits may be used in future taxable years within the 20-year carryforward period.
Taxpayers having more than $25,000 of unused credits as of January 1, 2006 , may deduct in each of the taxable years beginning after December 31, 2005, and before January 1, 2008, 50% of the amount of unused credit that the taxpayer had added back to income at the time the taxpayer first claimed the credit. For taxable years that begin after December 31, 2007, a manufacturing investment credit will be available to businesses certified by the Department of Commerce. The credit is equal to the claimant’s unused manufacturer’s sales tax credits. It must be amortized over 15 years, starting with the taxable year beginning after December 31, 2007. The amortized amount may be offset against the claimant’s franchise or income tax, including the alternative minimum tax, due. Unused credits may be carried forward for 15 taxable years.
Last updated November 10, 2005