Computer Software - Information Regarding Menasha Decision

(Request for Computer Software Determination)

  1. What was the decision issued by the Wisconsin Supreme Court in the case of Wisconsin Department of Revenue vs. Menasha Corporation (Menasha)?
  2. Does this decision still apply?
  3. Who is eligible for a refund based on this decision?
  4. Is there a deadline for filing a claim for refund?
  5. Does my extension of time to file a claim for refund based on this decision allow me to file a claim for refund on other issues where tax was overpaid for periods that would otherwise be closed to adjustment?
  6. What form do I use to file a claim for refund with the Wisconsin Department of Revenue?
  7. What type of supporting information/documentation do I need to furnish with my claim for refund?
  8. How soon can I expect to receive my refund?
  9. Is there anything I can do to help speed up the process?
  10. Will I receive interest on my refund?
  11. What happens if I do not agree with the determination issued by the Wisconsin Department of Revenue regarding my claim for refund?
  12. Who can I contact if I have questions regarding my claim for refund?
  13. Under what circumstances may a buyer file a claim for refund with the Wisconsin Department of Revenue?
  14. As a buyer, what can I do to receive a refund of tax paid in error if the period is closed to adjustment?
  15. What can I do if the seller is out of business or refuses to sign the buyer's claim for refund?
  16. I understand that I am not allowed to file a claim for refund for closed period(s) unless the period(s) are open to adjustment under an extension agreement with the Wisconsin Department of Revenue. Am I allowed to file a claim for refund for tax paid on a service contract or agreement for periods still open to adjustment, even though the service contract or agreement relates to software that was purchased in a period closed to adjustment?
  17. What should I do if I am currently undergoing a Wisconsin field audit and I purchased software or a related service contract that should not have been taxed during the period under audit?
  18. What should I do if I am currently undergoing a Wisconsin field audit and I purchased software or a related service contract that should not have been taxed in a period prior to or after the periods under audit?
  19. What should I do if I purchased or sold software and/or a related service contract that should not have been taxed in a period covered by a field audit that is under appeal?
  20. How do I avoid paying tax on future purchases of maintenance contracts related to software that was not taxable based on the Menasha decision?

  1. What was the decision issued by the Wisconsin Supreme Court in the case of Wisconsin Department of Revenue vs. Menasha Corporation (Menasha)?

    The Wisconsin Supreme Court held in the case of Wisconsin Department of Revenue vs. Menasha Corporation (No. 2004AP3239, July 11, 2008), that the SAP R/3 System software purchased by Menasha was custom software that is not subject to Wisconsin sales or use tax when sold, leased, or licensed. The basis for this determination was the specific facts and circumstances relating to the following criteria found in sec. Tax 11.71(1)(e), Wis. Adm. Code (April 1993 Register):

    • The extent to which the vendor or independent consultant engages in significant presale consultation and analysis of the user's requirements and system.
    • Whether the program is loaded into the customer's computer by the vendor and the extent to which the installed program must be tested against the program's specifications.
    • The extent to which the use of the software requires substantial training of the customer's personnel and substantial written documentation.
    • The extent to which the enhancement and maintenance support by the vendor is needed for continued usefulness.
    • There is a rebuttable presumption that any program with a cost of $10,000 or less is not a custom program.
    • Custom programs do not include basic operational programs or prewritten programs.
    • If an existing program is selected for modification, there must be a significant modification of that program by the vendor so that it may be used in the customer's specific hardware and software environment.
  2. Does this decision still apply?

    Sales, licenses, leases, and rentals of prewritten computer software:

    For sales, licenses, leases, and rentals of prewritten computer software on and after March 6, 2009, this decision no longer applies. Effective March 6, 2009, the definition of "tangible personal property" was amended to include prewritten computer software, regardless of how it is delivered to the purchaser. In addition, a definition of "prewritten computer software" was created. These law changes reversed the effect of the Menasha decision. For additional information about these law changes, see Wisconsin Tax Bulletin 160 (March 2009), beginning on page 14.

    Sales of maintenance contracts for computer software:

    The tax treatment of a maintenance contract generally follows the tax treatment of the customer's purchase, license, lease, or rental of the computer software covered by the maintenance contract. For additional information about the tax treatment of maintenance contracts for computer software, see Question 20 and the chart titled Wisconsin Sales and Use Tax Treatment of Computer Software.

  3. Who is eligible for a refund based on this decision?

    If you are the seller or buyer of computer software or a related service contract that should not have been taxable based on the Menasha decision, you may file a claim for refund with the Wisconsin Department of Revenue for period(s) still open to adjustment under the statute of limitations, including open to adjustment by an extension agreement you have entered into with the Wisconsin Department of Revenue.

    Note: If a seller is refunded tax and interest by the Department of Revenue for tax collected from a buyer in error, the seller must return the tax and interest to the buyer or to the Department of Revenue within 90 days after the date of the refund.

  4. Is there a deadline for filing a claim for refund?

    Deadlines vary depending on the specific facts and circumstances. This is explained in Publication 216, Filing Claims for Refund of Sales or Use Tax, Part V, on pages 4-10.

    If you have entered into a sales and use tax extension agreement with the Wisconsin Department of Revenue, a claim for refund may be filed based on the terms/deadlines established by that agreement.

  5. Does my extension of time to file a claim for refund based on this decision allow me to file a claim for refund on other issues where tax was overpaid for periods that would otherwise be closed to adjustment?

    In most cases, no. If the signed extension agreement makes reference only to the Menasha decision, only those purchases and/or sales directly related to the issues of this case may be filed under this agreement for those periods addressed in this agreement.

    If the extension agreement keeps all sales and use tax issues open for the periods covered by the agreement, then yes, those periods covered by the agreement are open for other types of adjustments as well. However, to help speed up the processing of your claim for refund, please file a separate claim for refund for issues pertaining to Menasha.

  6. What form do I use to file a claim for refund with the Wisconsin Department of Revenue?

    Sellers:

    Sellers claiming a refund of sales or use tax paid to the Department of Revenue may use Form ST-12, Wisconsin Sales and Use Tax Return, as an amended return. Refer to page 6 of the instructions for Form ST-12 for information about how to file Form ST-12 as an amended return. Amended returns should be sent to: Wisconsin Department of Revenue, Mail Stop 5-144, PO Box 8906, Madison, WI 53708-8906.

    In lieu of Form ST-12, a seller may file a claim for refund by sending a letter to the Department of Revenue. Claims for refunds submitted in this manner must indicate the claimant's name and address, seller's tax account number, amount of the claim for refund, reporting period for which the overpayment was made, and a reason for the claim for refund. Also see Question 6.

    Buyers (also see Questions and Answers 12, 13, 14, and 19):

    • Tax Paid to a Seller:

      Buyers that overpaid sales or use tax to a seller can file a claim for refund using one of the following three methods:

      • If you have filed a buyer's claim for refund in the past – Use My Tax Account.
      • If you have not filed a buyer's claim for refund before, file electronically. Select File a buyer's claim for refund – sales tax.
      • Use paper Form S-220, Buyer’s Claim for Refund of Wisconsin State, County, and Stadium Sales Taxes, (also known as Form BCR). Form S-220a, Schedule P, Attachment to Buyer’s Claim for Refund of Wisconsin State, County, and Stadium Sales Taxes, must be completed and attached to Form S-220 for each seller to whom the buyer paid sales or use tax in error.

        Forms are available at revenue.wi.gov or from any Department of Revenue office. See Forms S-220 and S-220a at the end of this publication for copies of these forms.

        Claims for refund filed on paper Form S-220 should be send to: Wisconsin Department of Revenue, Mail Stop 5-144, PO Box 8906, Madison, WI 53708-8906.

    • Tax Paid to Department of Revenue:

      Buyers claiming a refund of use tax paid directly to the Department of Revenue may use Form ST-12.

      Refer to page 6 of the instructions for Form ST-12, available from any Department of Revenue office or online at revenue.wi.gov, for more information on how to use Form ST-12 as an amended return to file a claim for refund. Amended returns may be submitted using My Tax Account or sent to: Wisconsin Department of Revenue, PO Box 930389, Milwaukee, WI 53293-0389.

      In lieu of Form ST-12, a buyer may file a claim for refund by sending a letter to the Department of Revenue. The letter must indicate the claimant's name and address, tax account number, amount of the claim, reporting period for which the overpayment was made, and reason for the claim. A chronological listing of all invoices included in the claim should be attached to the letter. Claims for refund submitted in this matter should be submitted to: Wisconsin Department of Revenue, Mail Stop 5-144, PO Box 8906, Madison, WI 53708-8906.

  7. What type of supporting information/documentation do I need to furnish with my claim for refund?

    The following items should be included with your claim for refund:

    1. A properly completed and signed request:
      • Electronically filed buyer's claim for refund
      • Forms S-220 and S-220a for a buyer's claim for refund filed on paper
      • Form ST-12 for a seller's claim for refund on retail sales
      • Form ST-12 for claims for refunds of use tax you reported on your Wisconsin Sales and Use Tax Return, Form ST-12;
    2. Include all required documents with the claim for refund. For a listing of the required documentation, see Request for Computer Software Determination.

      Exception: If you purchased any of the following, it is presumed, based on the Menasha decision, that the software is custom software. In support of your claim, include the sales or purchase invoice for the software and related services upon which a refund is being claimed.

    3. PRODUCT VENDOR
      Blue Martini E-Merchandising System Escalate Retail Inc.
      Calypso Calypso Technology Inc.
      Epicor Enterprise Epicor
      ERP LN (aka Baan) Infor Global Solutions
      ERP SL (aka SyteLine) Infor Global Solutions
      ERP SX Enterprise (aka SX Enterprise) Infor Global Solutions
      ERP XA (aka MAPICS) Infor Global Solutions
      Hyperion Enterprise Application & Reporting Hyperion Solutions Corporation
      IFS Applications Industrial and Financial Systems
      JD Edwards One World JD Edwards
      JD Edwards EnterpriseOne Oracle
      JD Edwards World Oracle
      Lawson M3 Lawson Software
      Lawson S3 Lawson Software
      Manugistics TMS JDA Software
      Microsoft Dynamics AX (formerly Axapta) Microsoft
      Microsoft Dynamics GP (formerly Great Plains) Microsoft
      Oracle e-Business Suite Oracle
      Peoplesoft HRMS Peoplesoft
      Peoplesoft Financials Peoplesoft
      Peoplesoft HR Payroll Peoplesoft
      Sales Logix CRM Sage North America
      SAP R/3 SAP
      mySAP SAP
      Siebel Financial Services Oracle
      UltiPro HRMS/Payroll The Ultimate Software Group Inc.
      Warehouse Management Open Systems (WMOS) Manhattan Associates Inc.
      Workforce Manager Kronos Incorporated
    4. For buyer claims for refunds, proof of payment for each invoice;
    5. Any extension agreements filed with the Wisconsin Department of Revenue for one or more periods included in your claim for refund open for adjustment; and
    6. A properly completed Power of Attorney (POA) form (Form A-222), if, in acting on your claim for refund, you want the Department of Revenue to work with someone that is not an employee of your business.
  8. How soon can I expect to receive my refund?

    Refunds will be processed on a case-by-case basis, generally in the order they are received. Every effort will be made to act on claims as soon as possible. Based on the provisions of the law and the extension agreements, the department may take up to one year from the date your claim was actually received by the department to act on your claim.

  9. Is there anything I can do to help speed up the process?

    There are several things you can do that will help speed up the processing of your claim for refund:

    1. Limit your claim for refund to issues related only to the Menasha decision. File a separate claim for refund for any unrelated issues.
    2. Include all required documents with the claim for refund. For a listing of the required documentation, see the answer to Question 7.
    3. Ensure your claim for refund is legible, complete, filed on the correct form, signed, dated, and sent to the correct address.
    4. Attach all supporting information and documentation with the claim for refund when it is filed.
    5. Inform us of any issues that you believe may affect your claim for refund. For example, inform us if a period covered by your claim for refund or an issue in your claim for refund is or was under audit or appeal.
  10. Will I receive interest on my refund?

    Yes.

    Taxes refunded to a seller bear interest at 3% per year from the unextended due date of the return upon which the tax being refunded was remitted to the Department of Revenue to the date the refund is issued.

    Taxes refunded to a buyer bear interest at 3% per year from the last day of the month following the month during which the buyer paid the tax to the date the refund is issued.

  11. What happens if I do not agree with the determination issued by the Wisconsin Department of Revenue regarding my claim for refund?

    The Wisconsin Department of Revenue will inform you if your refund is not granted in full. You will have 60 days from the date you receive the determination to file an appeal with the department. If your appeal is not received within the 60 days, the department's determination becomes final. For more information regarding your appeal rights, see Wisconsin Publication 505, Taxpayer's Appeal Rights of Office Audit Adjustments.

  12. Who can I contact if I have questions regarding my claim for refund?

    • If the issue is being addressed as part of an appeal, you should contact the resolution officer handling your appeal.
    • If you are undergoing a field audit for the periods of your request, you should contact the auditor conducting the field audit.
    • In all other situations, contact the auditor identified in your acknowledgement letter. If you have not received an acknowledgement within one month of submitting your claim, please contact Kurt Flechtner at (608) 266-3503. He will direct you to the auditor assigned to process your claim.
    • Inquiries regarding which software transactions are not taxable based on the Menasha decision, or other general questions, should be directed to the department's Business Tax Customer Service Unit or (608) 266-2776.
  13. Under what circumstances may a buyer file a claim for refund with the Wisconsin Department of Revenue?

    A buyer may file a claim for refund of sales and use tax paid in error to a seller under any of the following four conditions:

    1. The claim for refund totals $50 or more of tax (i.e., the total tax relating to all transactions contained in the claim for refund filed with the Department of Revenue is $50 or more).

      Example: Buyer A erroneously paid $40 of sales tax to Seller B and $30 of sales tax to Seller C. Buyer A may file a claim for refund with the Department of Revenue for the $70 of overpaid sales tax because the total tax paid in error is $50 or more.

      Important: For conditions b., c., and d. below, the $50 requirement does not apply.

    2. Seller has ceased operating business.

      If at the time of filing the claim for refund the seller has ceased business, the buyer may file a claim for refund with the Department of Revenue.

      Example: Buyer D erroneously paid $45 of sales tax to Seller E in January 2009. In April 2010, Seller E terminated the business. Buyer D may file a claim for refund with the Department of Revenue for the $45 of overpaid sales tax.

      If the buyer also paid sales or use tax in error to sellers who have not ceased business, only the seller may file a claim for refund with the Department of Revenue for such tax, unless the buyer meets one of the other conditions described in a., c., or d.

    3. Buyer is being field audited.

      If a buyer being field audited by the Department of Revenue paid sales or use tax in error to sellers or to the Department of Revenue, the buyer may file a claim for refund with the Department of Revenue.

      Example: Buyer F is being field audited for the period of January 2009 through December 2012. Buyer F erroneously paid $1,000 of sales tax to Seller G in February 2009.

      While Buyer F is being field audited, Buyer F may file a claim for refund for the $1,000 of sales tax erroneously paid in February 2009. The auditor will include this overpayment in the audit determination.

    4. Periods covered in the claim for refund are within the statute of limitations for the buyer, but are closed to the seller.

      Example: In May 2013, Buyer H discovers that it erroneously paid sales tax to Seller I in February 2009. Seller I reported the sales tax on its February 2009 sales and use tax return and paid the tax to the Department of Revenue in March 2009.

      Seller I files its Wisconsin corporate franchise tax return on a fiscal year basis, with its fiscal year ending March 31. Buyer H files its Wisconsin corporate franchise tax return on a calendar year basis.

      The statutory deadline for Seller I to file a claim expired on June 15, 2013, which is four years from the unextended due date (i.e., June 15, 2009) of its corporate franchise tax return for the period of April 1, 2008 through March 31, 2009.

      Buyer H may file a claim for refund of tax it paid to Seller I in February 2009. Buyer H must file this claim by March 15, 2014, which is four years from the unextended due date (i.e., March 15, 2010) of Buyer H's 2009 corporate franchise tax return.

      Note: If the buyer also paid sales or use tax to sellers in error which pertains to a period that is within the statute of limitations for both the buyer and seller, only the seller may file a claim for refund with the Department of Revenue for such tax, unless the buyer meets one of the other conditions described in a., b., or c.

  14. As a buyer, what can I do to receive a refund of tax paid in error if the period is closed to adjustment?

    If you are the buyer and tax was remitted to the seller in error, you should contact the seller to determine if the period(s) are open to adjustment for the seller. If so, you should request that the seller file a claim for refund on your behalf.

    If you are the buyer, you remitted use tax directly to the Department of Revenue and you do not have a signed extension agreement with the Department of Revenue to hold the period(s) open for adjustment, you are not eligible for a refund of overpaid sales and use taxes for these periods.

  15. What can I do if the seller is out of business or refuses to sign the buyer's claim for refund?

    If the seller is out of business, you should still make a reasonable effort to contact the seller to review and sign your claim for refund. The seller's signature confirms that it has reviewed the sales included in your claim for refund, remitted the associated tax to Wisconsin on those sales to you, and not received, nor will it request, a refund of this tax.

    If the seller refuses to sign your claim for refund, you should (a) request that the seller contact the Wisconsin Department of Revenue for clarification of what is required of the seller, or (b) include a letter with your claim for refund documenting your attempts to obtain the seller's signature and the seller's refusal to do so. If you are unable to locate the seller, you should document your attempts to locate the seller in a letter included with your claim for refund. Please understand that it may take longer to process your claim for refund if you are not able to obtain the seller's signature.

  16. I understand that I am not allowed to file a claim for refund for closed period(s) unless the period(s) are open to adjustment under an extension agreement with the Wisconsin Department of Revenue. Am I allowed to file a claim for refund for tax paid on a service contract or agreement for periods still open to adjustment, even though the service contract or agreement relates to software that was purchased in a period closed to adjustment?

    Yes, provided (a) the software is not taxable based on the Wisconsin Supreme Court's decision in Menasha, and (b) the service contract or agreement was purchased during a period open to adjustment.

  17. What should I do if I am currently undergoing a Wisconsin field audit and I purchased software or a related service contract that should not have been taxed during the period under audit?

    You should immediately bring this to the auditor's attention so any allowable refund can be included in the audit.

  18. What should I do if I am currently undergoing a Wisconsin field audit and I purchased software or a related service contract that should not have been taxed in a period prior to or after the periods under audit?

    You should immediately bring this to the auditor's attention. The auditor will help you determine if the period is still open for adjustment and will discuss your options for filing a claim for refund.

  19. What should I do if I purchased or sold software and/or a related service contract that should not have been taxed in a period covered by a field audit that is under appeal?

    You should contact the resolution officer handling your appeal. The resolution officer will help you determine if the period is still open to adjustment and determine whether the purchase or sale can be addressed as part of the appeal process.

  20. How do I avoid paying tax on future purchases of maintenance contracts related to software that was not taxable based on the Menasha decision?

    The seller should not charge sales tax on the maintenance contract if it knows the maintenance contract relates to computer software purchased, licensed, leased, or rented prior to March 6, 2009 and, at the time of such purchase, license, lease, or rental, the software was considered a custom computer program under the Menasha decision. No exemption certificate is required. If the seller is uncertain as to whether the computer software should be considered a custom computer program because of activities that occurred after the sale, license, lease, or rental, the buyer should provide a properly completed Wisconsin Sales and Use Tax Exemption Certificate (Form S-211) to the seller when purchasing the maintenance contract claiming that (1) the maintenance contract relates to computer software purchased, licensed, leased, or rented prior to March 6, 2009, and (2) the computer software covered by the maintenance contract is a custom computer program under the Menasha decision.

    Example 1: In January 2009, Seller A enters into an agreement to license computer software to Buyer B for a period of three years. Buyer B contracted with Service Provider C to make significant modifications to the software so that Buyer B could use the software in its business. Buyer B provided Seller A with a properly completed Wisconsin Sales and Use Tax Exemption Certificate (Form S-211) claiming that the software is custom computer software, based on the Menasha decision. In January 2009, Buyer B enters into a one-year maintenance contract with Seller A to provide service, maintenance, and updates to the computer software. Buyer B also enters into similar contracts with Seller A in January 2010 and January 2011. No sales or use tax is due on the maintenance contracts because (1) the service contracts relate to computer software purchased, licensed, leased, or rented prior to March 6, 2009, and (2) the computer software is a custom computer program under the Menasha decision.

    Example 2: In January 2009, Seller D enters into an agreement with Buyer E to license a computer program. The terms of the licensing agreement provide that in exchange for a one-time payment, Buyer E receives 700 user licenses for the computer program. Buyer E contracted with Service Provider F to make significant modifications to the program so that Buyer E could use the program in its business. Buyer E provided Seller D with a properly completed Wisconsin Sales and Use Tax Exemption Certificate (Form S-211) claiming that the program is custom computer software. In January 2011, Seller D enters into another agreement with Buyer E, under which Buyer E pays Seller D a one-time payment for 300 additional user licenses for the computer program. The original agreement for the 700 licenses remains in effect (i.e., it was not altered or renewed). The computer program meets the definition of "prewritten computer software" in sec. 77.51(10r), Wis. Stats., as created by 2009 Wis. Act 2. In January 2011, Buyer E enters into a one-year maintenance contract with Seller D to provide service, maintenance, and updates to the computer program. The fee charged for the maintenance contract is based on the number of licenses Buyer E has. The maintenance contract fees relating to the 700 licenses entered into prior to March 6, 2009 are not taxable. The maintenance contract fees relating to the 300 licenses entered into after March 6, 2009 are subject to Wisconsin sales or use tax. In addition, the amount paid to acquire the 300 additional licenses is subject to Wisconsin sales or use tax.

    Caution: If software was originally purchased, licensed, leased or rented prior to March 6, 2009, but the lease, license, or rental was renewed on or after March 6, 2009, charges for both the renewal of the software license and for maintenance contracts relating to the software are subject to sales or use tax, assuming the software meets the definition of prewritten computer software.

Contact the Department of Revenue to submit information or if you have questions:

If you have not filed a claim for refund, and have general questions about taxability: To file a claim for refund or if you previously filed a protective claim for refund, send additional information to:
Write: Wisconsin Department of Revenue
Mail Stop 5-77
PO Box 8949
Madison, WI 53708-8949
Wisconsin Department of Revenue
STOA - Mail Stop 5-144
PO Box 8906
Madison, WI 53708-8906
Telephone: (608) 266-2776
FAX: (608) 267-1030
Email: DORSalesandUse@revenue.wi.gov
Website: revenue.wi.gov
Do not FAX or email refund claim or additional information.

December 23, 2013