Wisconsin Tax Appeals Commission Rules True Object is Educational Service, Not Digital Good
On September 20, 2019, the Wisconsin Tax Appeals Commission (Commission) ruled that On-Demand Seminars sold by the State Bar of Wisconsin (State Bar) were exempt sales because the purchaser’s true object was the purchase of educational services, not merely to obtain a digital good (State Bar of Wisconsin v. Wisconsin Department of Revenue, Docket No. 16-S-139).
During the audit period (1/1/2010 – 12/31/2013), the State Bar offered continuing legal education (CLE) seminars to attorneys. The State Bar offered the seminars in various formats:
Live In-person – offered at a specific date, time, and location, and the attendees and instructors were physically present in the same room.
Live Webcast – these seminars were Live In-person seminars streamed in real time over the Internet and were offered at the same date and time as the Live In-person seminars. Attendees were able to view the seminars on their computers but were not physically present in the same room as the instructors.
Replay Webcast – were broadcast over the Internet and were replays of the previously recorded Live In-person seminars and were offered at a specific date and time, but the instructor(s) were not required to be available during that time.
On-Demand – seminars were broadcast over the Internet and were replays of the previously recorded Live In-person seminars and were available to be viewed within a 90-day window from the date of purchase (could be viewed at any time of the day or night during the 90-day period). The On-Demand seminars could not be downloaded or saved on the purchasers’ computer.
The State Bar did not collect sales tax on sales of the CLE seminars in any of the four formats. The Wisconsin Department of Revenue (Department) assessed sales tax on the sales of Replay Webcast and On-Demand seminars sales. Through the appeal process, the Department adjusted the assessment to only include the On-Demand seminars. The Department argued that the On-Demand seminars were the sale of a specified digital good (“digital audiovisual work”), which is subject to Wisconsin sales tax.
The Commission noted that both parties agreed that the On-Demand seminars did meet the definition of a digital good. However, the Commission concluded that the “true objective” of the purchase was to obtain educational services, with the digital good being incidental to that service. Therefore, the sales of the On-Demand seminars were not subject to sales tax.
To reach this conclusion, the Commission analyzed the true objective test – “look at the essence of the transaction to determine if it is fundamentally a sale of property or a performance of a service.” The Commission concluded that the On-Demand seminars are educational programs per the Wisconsin Supreme Court and that the attorneys purchasing the On-Demand seminars do not have the objective to merely obtain, or even primarily obtain a digital good. The digital good is the transmission vehicle, incidental to the purchase of the purchased educational service.
The Department did not appeal the Commission’s decision.
Impact on Ohio
Digital goods are also subject to sales and use tax in Ohio. Based on our experience, the Ohio Department of Taxation has been taxing similar video downloads as discussed in the State Bar of Wisconsin case. Ohio also may attempt to tax these video downloads as electronic information services. The true object test could be used to argue that similar On-Demand seminars are not taxable as a digital good or electronic information service.