United States

Wisconsin: Membership to Online Legal Practice Support Services is Taxable Bundled Transaction

Feb 12, 2018
From KPMG TaxWatch

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Recently, the Wisconsin Department of Revenue issued a private letter ruling addressing whether subscription fees paid for access to a number of online legal tools were subject to Wisconsin sales and use tax. The taxpayer at issue sold subscriptions for online legal support services to members, who paid a single, non-itemized fee for the subscription. The subscription included access to three distinct products: education resources, document drafting tools, and an interactive community.

At the outset, the Department determined that the sale of the membership was the sale of a bundled transaction that included both taxable and nontaxable products. For example, the “education resources” included both nontaxable live in-person and live online conferences and classes, as well as access to taxable specified digital products, such as recorded video courses. The document drafting tool included access to a nontaxable software as a service platform, which members could use to download completed legal documents. Although downloaded legal documents and access to the SaaS platform were not taxable, the document drafting tool also provided members the option to download and install a ribbon in their word processors. This ribbon, which was necessary to ensure that documents downloaded and printed properly, was taxable pre-written computer software. Finally, the Department addressed the interactive community service that was provided with the membership and that allowed members to communicate with each other and share documents and materials. In the Department’s view, these services were taxable telecommunication services, or taxable telecommunications messaging services because the community’s interfacing allowed communications and/or messages to be electronically transmitted, conveyed, or routed to other members within the group.

Under Wisconsin law, the entire sales price of a bundled transaction is subject to tax. However, if the taxpayer could identify “by reasonable and verifiable standards from its books and records” which portions of the subscription fee were attributable to non-taxable items, then sales and use tax would not be owed on those portions. For more information on this ruling, please contact Jill Nielsen at 312-665-2794.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.