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Wisconsin Software Refund Opportunity

On July 11, 2008, the Wisconsin Supreme Court made a landmark decision in the case of the Wisconsin Department of Revenue v. Menasha Corporation. Menasha purchased SAP R/3 System software and sales tax was collected on the purchase price. This software had been categorized as "off the shelf," and the Wisconsin Department of Revenue assessed sales tax on the transaction. The court decided that the SAP R/3 System software purchased by Menasha was considered custom and therefore exempt from Wisconsin sales and use tax.

The Wisconsin Department of Revenue has now issued guidelines for companies to file refund claims if they meet the criteria for this exemption.

The key bases of determination in the Menasha case consisted of the following:

1. Significant pre-sale consulting
2. Extensive testing against program specifications
3. Substantial training and written documentation requirement
4. Major enhancement and maintenance support requirement

If you have purchased software in Wisconsin that meets these requirements, a refund claim should be filed with the Wisconsin Department of Revenue. Refund Claims must generally be filed within four years after the due date of a taxpayer's corresponding income or franchise tax return, or if exempt, within four years of the 15th day of the 4th month of the year following the close of the calendar or fiscal year for which a claim is filed, unless a determination by office or field audit has been made. Wisconsin treats refund claims as requests for determination.

Taxpayers who made similar purchases in states other than Wisconsin might want to try filing a refund claim based on arguments made by Menasha. Similar purchases outside of Wisconsin should be large enough to justify the expense of a claim that may or may not be accepted. The facts and circumstances of each situation are of course unique, and each state will not necessarily agree with the Wisconsin court holding.

For more information, please contact Jason Parish at jparish@BlackmanKallick.com or 312-980-2959, or your Blackman Kallick representative. Our thanks to Deb Rood for her contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.