LC / Contract Carrier Exemption
Wisconsin's sales and use tax exemption for contract carriers covers vehicles, trailers, parts, supplies, and accessories — but only when three specific requirements are met.
Below is an excerpt from WI DOR Publication 202, Motor Vehicles, regarding the sales and use tax exemption for contract carriers. This exemption applies to the purchase of the vehicle/trailer, parts, service/maintenance, and also to supplies like oil, washer fluid, etc. In addition, the exemption applies to items assigned to qualifying vehicles such as dollies, communication/navigation equipment, tool boxes, lifts, signage, etc.
Requirements to Qualify for the Exemption
Requirements to qualify for the sales and use tax exemption are:
The contract carrier must be a separate entity for tax reporting purposes (carrier company cannot report on the same income tax return as the contractor or business that owns the goods the carrier is hauling).
The contract carrier must exclusively haul the goods of others for hire (cannot haul its own product).
The contract carrier must be providing a transportation service (not a lease or rental of vehicles). This means the contract carrier entity must have drivers.
Separate Entity — Combining Two Exemptions
A separate entity can lease/rent vehicles to another entity (cannot be disregarded) and be able to purchase vehicles without tax for resale. Parts and service to those vehicles would also qualify for resale. This is effectively combining two exemptions and that is okay to do. As long as you are not using those trucks in a taxable manner.
Example
Trucks/trailers sitting idle can be rented out to another entity for use. This use does not create a taxable use since it is resale. So the purchase of the vehicles, parts and service still qualify as exempt. Note that the charges for the truck/trailer rental may be subject to sales tax, unless a fully completed exemption certificate is obtained from the rental customer.
Tax 11.16 Common or Contract Carriers — Statutory Language
(1) MOTOR CARRIERS. (a) Exemption.
Section 77.54 (5) (b), Stats., provides a sales and use tax exemption for motor trucks, truck tractors, road tractors, buses, trailers, and semitrailers, and accessories, attachments, parts, supplies, and materials therefore, sold to common or contract carriers who use such motor trucks, truck tractors, road tractors, buses, trailers, and semitrailers exclusively as common or contract carriers, including the urban mass transportation of passengers as defined in s. 71.38, Stats.
(am) Exclusively.
As used in s. 77.54 (5) (b), Stats., and this section, "exclusively" means that the motor trucks, truck tractors, road tractors, buses, trailers, and semitrailers are used solely as common or contract carriers to the exclusion of all other uses, except that the sales and use tax exemption for this tangible personal property will not be invalidated by an infrequent and sporadic use other than as a common or contract carrier.
Under department of transportation rules, a licensed carrier (LC) number is required if a common or contract carrier hauls goods of others for hire. The sales and use tax exemption in par. (a) applies only if the common or contract carrier used the vehicle exclusively for hauling goods of others for hire.
Questions About the Contract Carrier Exemption?
Holly Hoffman is a former WI Dept. of Revenue auditor and the owner of Sales Tax Advisory Network, LLC. She helps transportation businesses and contractors navigate Wisconsin sales and use tax compliance.