E-Mail Services Provided With Web Hosting

Statutes: Sections 77.51(1f) and (5) and 77.52(2)(a)5m. and (20), Wis. Stats. (2009-10)

Wis. Adm. Code: Section Tax 11.66(2)(d)3. (November 2010 Register)

Applicable Wisconsin Statutes:
Section 77.52(2)(a)5m., Wis. Stats. (2009-10), imposes sales and use tax on:

"The sale of services that consist of recording telecommunications messages and transmitting them to the purchaser of the service or at that purchaser's direction, but not including services that are taxable under subd. 5. or services that are incidental, as defined in s. 77.51 (5), to another service that is not taxable under this subchapter and sold to the purchaser of the incidental service."

Section 77.51(5), Wis. Stats. (2009-10), provides:

"For purposes of subs. (13) (e) and (f) and (15a) and s. 77.52 (2m), "incidental" means depending upon or appertaining to something else as primary; something necessary, appertaining to, or depending upon another which is termed the principal; or something incidental to the main purpose of the service. Tangible personal property or items, property, or goods under s. 77.52 (1) (b), (c), or (d) transferred by a service provider is incidental to the service if the purchaser's main purpose or objective is to obtain the service rather than the property, items, or goods, even though the property, items, or goods may be necessary or essential to providing the service."

Facts:

Taxpayer provides a web hosting service and a telecommunications message service for one price of $25. For $25, the customer gets web hosting of their website on one server and if the customer chooses, they can receive one to ten e-mail accounts hosted on a separate server. The taxpayer does not provide the Internet access for the e-mail, but does provide storage of e-mail messages on a server and the ability for customers to send and receive e-mail messages.

The $25 fee includes the following:

Some customers do not use the e-mail accounts available to them and some customers use more than ten e-mail accounts. Usage or non-usage of the one to ten e-mail accounts does not change the price of the web hosting fee of $25. If a customer uses more than ten e-mail accounts, the customer gets charged $1 for each e-mail account over ten.

Wisconsin sales and use tax treatment:

No part of the $25 hosting charge is subject to Wisconsin sales or use tax. The additional charge of $1 for each e-mail account over ten is subject to Wisconsin sales or use tax.

Analysis:

Web hosting services are not subject to Wisconsin sales or use tax because they are not among the services listed as taxable in sec. 77.52(2)(a), Wis. Stats. (2009-10).

Section 77.52(2)(a)5m., Wis. Stats. (2009-10), imposes sales and use tax on:

"The sale of services that consist of recording telecommunications messages and transmitting them to the purchaser of the service or at that purchaser's direction, but not including services that are taxable under subd. 5. or services that are incidental, as defined in s. 77.51 (5), to another service that is not taxable under this subchapter and sold to the purchaser of the incidental service." (Emphasis added)

Section Tax 11.66(2)(d)3., Wis. Adm. Code (November 2010 Register), provides that telecommunications message services include electronic mail services.

As provided in sec. 77.51(5), Wis. Stats. (2009-10), "incidental" means, in part: "depending upon or appertaining to something else as primary ... or something incidental to the main purpose of the service." The e-mail hosting services described above meet the definition of "incidental" because the primary objective of the customers is to receive the web hosting services, not the e-mail account(s) that are included for the $25 charge.

Section 77.52(2)(a)5m., Wis. Stats., does not apply to the e-mail hosting services because the e-mail hosting services are incidental to the nontaxable web hosting services. As a result, no part of the taxpayer's $25 charge is taxable. However, the additional charge of $1 for each e-mail account over ten represents a charge for a telecommunications message service sold separately from the web hosting services, and is subject to Wisconsin sales and use tax, as provided in sec. 77.52(2)(a)5m., Wis. Stats. (2009-10).

Notes: (1) The $25 charge is not subject to tax as a charge for a "bundled transaction" because neither the web hosting service nor the e-mail hosting service described above is a taxable service. The definition of "bundled transaction" is provided in sec. 77.51(1f), Wis. Stats. (2009-10), and tax is imposed on "bundled transactions" in sec. 77.52(20), Wis. Stats. (2009-10).

(2) The tax treatment described above applies to periods both before and after October 1, 2009, the effective date of the legislation passed to conform Wisconsin's sales and use tax laws to the requirements of the Streamlined Sales and Use Tax Agreement.

Last updated July 7, 2011