What are examples of disregarded entity scenarios?
EXAMPLE 1 - Construction Company's Purchasing Entity: Contractor is the single owner of a disregarded entity (LLC). LLC purchases and sells materials to Exempt Entity, a federal governmental unit. Exempt Entity hires Contractor to install the materials it purchases from LLC. The materials become a part of real property when installed.
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 it uses 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 for others for hire. LLC's purchase of parts and service for the semitrailer are 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. LLC's purchase of parts and service for the aircraft are taxable.
Note: Effective July 1, 2014, the sale of parts used to modify or repair aircraft became 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.
EXAMPLE 5 - Disregarded Entity's Business Assets Transferred to Unrelated Company: 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. At a later date, Company B, an unrelated entity, purchased 100% of Company A's interest in LLC. LLC then sells one-half of its business assets to Company B.
Treatment - 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. 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.
What should I do if my business is not properly registered or if I change my business structure, relating to disregarded entities?
Owners of disregarded entities holding or required to hold a seller's permit should contact one of the department's customer service representatives at (608) 266-2776 or by email
DORBusinessTax@wisconsin.gov if any of the following apply:
- The owner and one or more disregarded entity have the same business location. (Seller's permits issued to a disregarded entity having the same business location as its owner must be inactivated.)
- The owner elects to file a separate electronic sales and use tax return for the disregarded entity.
- The owner and/or one or more of its disregarded entities are currently improperly registered (e.g., have different 15-digit account identification numbers).
If you contact the department, include the following information:
√ Tax account number (Include the business name and address if you have more than one location)
√ Federal employer identification number (FEIN)
√ Effective date of change
√ Explanation of change.