Contractors should pay sales tax to vendors such as Menards and Home Depot for parts and materials for remodeling projects on real property generally.
Quick terms tip on the difference between REAL PROPERTY AND PERSONAL PROPERTY (different jurisdictions have different criteria, including based on context as you will see in the following, and may change, so as with everything on the site, use the following definitions as a guide, not as absolute):
Real property is considered the ground that we stand on, and most improvements to the ground. A typical improvement is a structure, and a structure is a building or dwelling, commonly called a building, house, shed, barn, and the things that are permanently attached to structures.
Personal property (sometimes referred to as tangible property, or chattel) are "things" (that you can touch, move, and see) that aren't Real Property.
Personal property can become real property and real property can become personal property. For example, a contractor buys a window from a vendor, and it's considered personal property. At the moment the window is permanently attached to the structure, it changes status from personal property to real property. If the window is replacing an old window, the old window's status changes from real property to personal property once it's removed from the structure. The same is true with carpet, sinks, light fixtures, and crops. For example, something that is growing in the ground is real property, for example a tree, albeit once it's cut down, it becomes personal property).
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If you're a contractor wondering if you should get a reseller's permit (or maybe you already have one), with the thought that since you're "reselling" the building materials when a homeowner or commercial building owner "buys" the product as part of your services, the answer is generally no. There is a difference if you're selling the parts (as purchased from a vendor), and you're in the business of reselling parts and/or building material without installing said parts.
If you're not a contractor that is also a retailer, than you pay the sales tax when you buy building materials, and then invoice your client for the remodeling / installation work, and don't charge sales tax (generally).
According to the State of Wisconsin, here are some examples of when a contractor is acting as a retailer and shouldn't pay sales tax on the material, however, should charge sales tax to the purchaser / client…
1. Selling lumber, roofing materials, or other tangible personal property, without installation.
2. Repairing, servicing, altering, fitting, cleaning, painting, coating, towing, inspecting, and maintaining tangible personal property.
3. Repairing, servicing, altering, fitting, cleaning, painting, coating, towing, inspecting, and maintaining property that is considered to retain its character as tangible personal property after installation, regardless of the extent to which any such item is fastened to, connected with, or built into real property, and regardless of whether such property is considered to be real property for other purposes.
Number three can be confusing to say the least. Especially the part where property is considered real property in other contexts, and yet is considered more or less to be personal property for sales tax purposes. Unless you have a list, there's no real way of knowing what is what because it's all so very subjective. So, I'm including a list from Wisconsin, albeit it's subject to change and may or may not have any relevance for Minnesota or any other state.
4. Ovens, including associated hoods and exhaust systems.
6. Air conditioners.
12. Water pumps.
13. Water heaters.
14. Water conditioners and softeners.
15. Clothes washers.
16. Clothes dryers.
18. Garbage disposal units.
19. Radios and radio antennas.
21. Television receivers and antennas.
22. Record players.
23. Tape players.
25. Vacuum cleaners.
26. Furniture and furnishings.
27. Carpeting and rugs.
28. Bathroom fixtures.
32. Gas and electric logs.
33. Heat lamps.
34. Electronic dust collectors.
35. Grills and rotisseries.
36. Bar equipment.
38. Recreational, sporting, gymnasium, and athletic goods and equipment including, by way of illustration but not of limitation, all of the following:
a. Bowling alleys.
b. Golf practice equipment.
c. Pool tables.
d. Punching bags.
e. Ski tows.
f. Swimming pools.
39. Equipment in offices, business facilities, schools, and hospitals but not in residential facilities including personal residences, apartments, long-term care facilities, as defined under s. 16.009 (1) (em), prisons, mental health institutes, as defined in s. 51.01 (12), centers for the developmentally disabled, as defined in s. 51.01 (3), Type 1 juvenile correctional facilities, as defined in s. 938.02 (19), or similar facilities including, by way of illustration but not of limitation, all of the following:
d. Venetian blinds.
e. Canvas awnings.
f. Office and business machines.
g. Ice and milk dispensers.
h. Beverage-making equipment.
i. Vending machines.
j. Soda fountains.
k. Steam warmers and tables.
m. Condensing units and evaporative condensers.
n. Pneumatic conveying systems.
40. Laundry, dry cleaning, and pressing machines.
41. Power tools.
42. Burglar alarm and fire alarm fixtures.
43. Electric clocks.
44. Electric signs.
4. Performing landscaping and lawn maintenance services, including landscape planning and counseling, and lawn and garden services such as planting, mowing, spraying, fertilizing, and shrub and tree services.
5. Selling or installing property which remains personal property after installation, including:
Acoustical panels used as office partitions, which are not attached to the walls, floor, or ceiling of the building (i.e., they are freestanding). Above ground fuel storage tanks fabricated in a factory and transported to a job site as an assembled tank.
Air handling equipment, including blowers, dust collectors, exhaust equipment, and air washers, used directly with a single machine or a specific process such as paint spraying or welding.
Amusement rides and recreational equipment, including giant amusement slides, ski lift equipment, water rides, and space towers. Note: The concrete foundations for these items are real property improvements and the contractor installing the foundation is the consumer of the materials used in installing and constructing the foundation. In addition, steel support beams that hold up fiberglass water slide flumes are also real property improvements, pursuant to the Wisconsin Tax Appeals Commission decision in Chula Vista, Inc. v. Wisconsin Department of Revenue, dated August 5, 2011 (CCH 401-463).
Catwalks and platforms providing access to a machine or equipment.
Communication equipment in offices, business facilities, schools, and hospitals (but not in residential facilities including personal residences, apartments, long-term care facilities, as defined under sec. 16.009(1)(em), Wis. Stats., state institutions, as defined under sec. 101.123(1)(i), Wis. Stats., Type 1 secured correctional facilities, as defined in sec. 938.02(19), Wis. Stats., or similar facilities), including:
• intercoms and sound paging systems
• pneumatic tube systems
• telephone and other communication equipment
• music and sound equipment
• public address systems
• nurse call systems
• cable television (CATV) dishes and accessories. Note: Compact satellite dishes are tangible personal property when installed in a residence, apartment, long-term care facility, etc.
• Roof mounted antennas
• Computer, communication and data cabling
Concrete provided to contractors at the job site which merely requires delivery, whether to separate receptacles or forms.
Equipment for the wind generation of electricity by a business, except for the concrete foundations.
Fabrication of precast steel piling by a fabricator, who delivers it to the job site, where it is placed by another contractor.
Farm irrigation systems, including pumps, power units to drive the pumps, transmission units, sprinkler devices, and sectional piping. (This does not apply to underground installations at a golf course or other nonfarm locations.)
Furniture, radios, television sets, portable antennas, compact satellite dishes, washers, dryers, portable lamps, home freezers, portable appliances, and window air conditioning units.
Materials handling equipment, including storage rack systems installed for business use, except foundation and supports to the building.
Office, bank, and savings and loan furniture and equipment, including office machines, safe deposit boxes, drive-up and walk-up windows, night depository equipment, remote TV auto teller systems, camera security equipment monitoring business activity within a building, and vault doors.
Personal property used to carry on a trade or business, including fixtures and equipment installed in stores, factories, laboratories, schools, hospitals, taverns, night clubs, restaurants, ice arenas, bowling centers, hotels and motels, barber and beauty shops, figure salons, theaters, and gasoline service stations but not in residential facilities including personal residences, apartments, long-term care facilities, as defined under sec. 16.009(1)(em), Wis. Stats., prisons, mental health institutes as defined in sec. 51.01(3), Wis. Stats., Type 1 juvenile correctional facilities, as defined in sec. 938.02(19), Wis. Stats., or similar facilities). This includes:
• cabinets not affixed to real estate and cabinets affixed to real estate in a doctor’s office, motel room, office building, or other business operation which are used to carry on the trade or business. However, affixed cabinets in public restrooms, janitor closets and employee break rooms are not considered tangible personal property when installed because they are not used to carry on a trade or business.
• counters, refrigerated display cases, and condensing units, shelving, and registers in a retail store
• theater’s stage lights, projection equipment, and seating
• hoists, gasoline dispensers, car wash equipment, air compressors, and above ground product tanks at a service station (underground product tanks are realty improvements, but the fill pipe, submersible pump, spill container and piping carrying the gas from the tank to the dispenser are personal property)
• radio, television, telecommunications and CATV broadcasting or receiving towers constructed of steel and anchored to a concrete base on leased land
School equipment, including:
• factory prefab chalk or tack boards
• folding bleachers in a gymnasium, even if affixed to the wall
• portable bleachers
• library tables, desks, shelving, and counters
• classroom tables, desks, and chairs
• fixed seats, or seats and tables for auditoriums and lecture rooms
• cabinets for art, home economic, and music rooms
• trophy and display cases
• movable wardrobes and lockers
• portable coat racks
• gym equipment, including basketball backboards
• food service equipment
• stage equipment
• drapery and drapery tracks
Seasonal boat docks (i.e. docks that are installed and removed each season)
Traffic and railroad signals
Trees, plants, and shrubs in containers in a commercial building.
Venetian blinds, draperies, and drapery rods, even though custom made and installed by the contractor.
Note: Persons installing property in jails and prisons should contact the department for more information on what remains tangible personal property when installed.
6. Installing, altering, repairing, or servicing trade fixtures in commercial establishments (stores, factories, taverns, night clubs, restaurants, ice arenas, bowling centers, hotels, motels, barber and beauty shops, figure salons, theaters, motor vehicle service stations, etc.). This includes:
Examining a faulty portable conveyor in a retail establishment and replacing a motor.
Examining, tightening, and demoisturizing all contacts on hoist controls in a service station.
Locating a short and replacing wiring between the starter and motor on a grain bin conveyor.
Replacing a defective ballast in a lamp in an office.
Caution: Installing, altering, repairing, or servicing fixtures and equipment in residences and other residential structures may Publication 207 10 be considered to be realty improvements and not subject to tax.
Ok, if you made it through all of that, then know that usually, when a contractor is installing, improving, altering, servicing, etc… real property, the contractor is considered the consumer of the tangible personal property.
As a consumer, the contractor pays sales tax on building materials (and it should be known, albeit for the sake of information, tools and equipment are also subject to sales and use tax).
Real property construction activities means for the state of Wisconsin, activities that occur at a site where tangible personal property or items or goods described are applied or adapted to the use or purpose to which real property is devoted are affixed to that real property, if the intent of the person who affixes the perperty, item, or good is to make a permanent accession to real property. "Real property construction activities" do NOT include affixing to real property tangible personal property that remains tangible personal property after it is affixed.
In most cases, the materials buying contractor will pay a sales or use tax on the material purchased by the contractor for the work that is consumed in the real property construction activities. When a contractor is a consumer, its sales price from labor and material related to real property construction activities are NOT subject to sales tax. In other words, you don't charge the land owner or possessor (tenant) sales tax on the building materials and labor.
For example, as a contractor, you sign a contract with a homeowner to replace the bathtub and it's your obligation to deliver and install a tub that you provide as per the contract. You then buy the tub and the required materials to install the tub from your vendor, paying the sales tax, and then bill the homeowner the agreed upon amount, albeit you do NOT charge, collect, or submit to the Department of Revenue a sales tax collected for the contract.