News and Insights

Wisconsin Supreme Court Rules in Favor of Taxpayer in Menasha Decision

Tax Development Jul 16, 2008

The Wisconsin Supreme Court ("Court") ruled in favor of the Menasha Corporation when it decided to affirm the Appeals Court decision that an enterprise-wide accounting software package is exempt from sales and use tax. (Wisconsin Department of Revenue v. Menasha Corporation, Wisconsin Supreme Court, Case No. 2004AP3239, July 11, 2008). The software is deemed to be exempt customized software and not taxable canned, pre-written software.

The Wisconsin Tax Appeals Commission ("Commission"), which is the first independent hearing level before the Circuit Court, had ruled in favor of Menasha. The Circuit Court then overturned the Commission’s decision in favor of the Department of Revenue’s ("Department") position. The Wisconsin Appeals Court overturned the Circuit Court’s ruling.

The Court considered the level of deference that must be given to the Commission’s interpretation of the statute and the administrative rule. As a part of that determination, the Court also considered whether the Commission was required to give deference to the Department’s interpretation of the applicable Wisconsin sales and use tax statutes. The Court concluded that the Commission’s statutory interpretation is entitled to due weight deference and that its rules interpretations are entitled to controlling weight deference. The Court also stated that when a Department decision is appealed by the taxpayer to the Commission, the Commission is not required to give deference to the Department’s statutory interpretation when deciding that appeal.

Relying on the controlling weight deference of the Commission’s earlier decision, the Court ruled that the Commission reasonably interpreted the rule regarding the taxability of customized software. The Court thus agreed with the Commission that the purchase of the enterprise-wide software was exempt from sales and use tax.

If you have any questions regarding the above information, please contact Mr. James Kranjc, Principal in Charge, of the Ryan Chicago office, at 630.515.0477. Mr. Kranjc can also be reached via e-mail.