Certain Wisconsin Transportation Subsidiaries No Longer Qualify for Sales and Use Tax Exemption

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July 10, 2009

On June 29, 2009, Governor Doyle signed Wisconsin’s Biennial Budget Bill for 2009-2011 (the “Budget Bill”). The Budget Bill had several provisions impacting businesses, including one related to the sales and use tax exemption for transportation companies.

Prior to the enactment of the Budget Bill, transportation companies were exempt from Wisconsin sales and use tax on motor trucks, truck tractors, road tractors, buses, trailers, and semitrailers, as well as accessories, attachments, parts, supplies, and materials for such equipment (collectively, “Transportation Property”). In order to qualify for the exemption, a transportation company was required to use the Transportation Property exclusively in the transportation business as a common carrier or as a contract carrier.

A number of businesses have set up wholly owned subsidiaries (“Transportation Subsidiaries”) that provide contract carrier services to their parent entity and to third parties. Historically, the purchase of Transportation Property by Transportation Subsidiaries was exempt from Wisconsin sales and use taxes. However, under the Budget Bill, Transportation Subsidiaries that are disregarded for federal income tax purposes (“Disregarded Entities”) no longer qualify for this sales and use tax exemption.

Many Transportation Subsidiaries have been created as limited liability companies that are wholly owned subsidiaries of their parent companies and have been disregarded for income tax purposes. As of July 1, 2009, Transportation Subsidiaries that are Disregarded Entities no longer qualify for the sales and use tax exemption on Transportation Property.

There are a number of ways for Transportation Subsidiaries that are Disregarded Entities to restructure their ownership to comply with the Wisconsin sales and use tax law as amended by the Budget Bill and qualify for the Wisconsin sales and use tax exemption for Transportation Property. In the event you have a Transportation Subsidiary that is a Disregarded Entity which you desire to qualify for the sales and use tax exemption, we would be happy to review with you the options that can be used to restructure your Transportation Subsidiary. If you currently own and operate trucks, tractors, and/or trailers and you have not formed a Transportation Subsidiary, you may be able to save significant Wisconsin sales and use tax by doing so. We would be happy to review with you the steps that can be taken to form a Transportation Subsidiary.

If you have questions regarding the above, please contact Jeremy Welch, the author of this article, or any of the attorneys in the Business Transactions Practice Group of Ruder Ware.

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