Equipment Provided With Operator
When equipment comes with an operator, the tax treatment hinges on one key question: does the operator do more than maintain, inspect, or set up the equipment?
When equipment is provided with an operator, the tax treatment of the transaction depends on whether the operator does more than maintain, inspect, or set up the equipment and if the operator is necessary for the equipment to perform in the manner for which it is designed.
Leases and Rentals of Equipment
Leases and rentals of equipment with an operator that only maintains, inspects, or sets up the equipment are subject to sales or use tax. A lessor may purchase equipment without tax for resale if the lessor uses the equipment solely for leasing or renting. A lessor may also purchase lubricants, repair parts, and repair services for equipment used solely for leasing or renting, without tax for resale.
Equipment Used to Provide a Service
If equipment is provided along with an operator and the operator does more than maintain, inspect, or set up the equipment and is necessary for the equipment to perform in the manner for which it is designed, the transaction is considered to be a service and not a lease or rental of the equipment. A service provider is liable for the payment of sales or use tax on its purchases of equipment that it uses to provide a service. A service provider is also liable for the payment of sales or use tax on its purchases of repair parts and repair services for such equipment.
Example
Company provides cranes with operators to its customers. For all of the crane transactions, the operators provided by Company operate the cranes while they are in use (i.e., the operators provided by Company do more than maintain, inspect, or set up the cranes and are necessary for the cranes to perform in the manner for which they are designed). Company's customers are on site when the cranes are being operated, directing the crane operators in the operation of the cranes, and are responsible for the satisfactory completion of the jobs. Company is considered to be providing services, rather than leasing or renting the cranes to its customers. Company is considered the consumer of the cranes, and the consumer of the repair parts and repair services for the cranes, and is liable for the payment of sales or use tax on its purchases of the cranes, repair parts, and repair services.
If the service provided is a taxable service (e.g., landscaping services or the repair or maintenance of tangible personal property), the charge for the service is also subject to sales or use tax.
Service Contracts for Equipment
The sale of contracts, including service contracts, maintenance agreements, and warranties, that provide, in whole or in part, for the future performance of or payment for the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, or maintenance of equipment, are subject to Wisconsin sales or use tax, unless the sale, license, lease, or rental in Wisconsin of the equipment to the purchaser of the contract is or was exempt from sales and use taxes.
Not Sure How Your Equipment Transactions Are Taxed?
Holly Hoffman is a former WI Dept. of Revenue auditor and the owner of Sales Tax Advisory Network, LLC. She helps businesses correctly classify equipment transactions and avoid costly audit surprises.