Nov. 6, 2019 – After more than five years of advocacy on behalf of the State Bar of Wisconsin membership, the State Bar recently received a favorable ruling from the Wisconsin Tax Appeals Commission (“Commission”) regarding the imposition of sales tax against the State Bar’s OnDemand seminars. The Commission found that OnDemand seminars are not subject to sales tax.
The Wisconsin Department of Revenue initiated a sales tax audit of the State Bar in August 2014. In August, 2015 the State Bar received a Notice of Field Audit Action taxing in arrears two forms of CLE offered by the State Bar during calendar years 2010 through 2013: scheduled webcast replays and OnDemand seminars.
The State Bar filed a Petition for Redetermination in October 2015 regarding both formats. In April, 2016 the Department of Revenue granted the State Bar’s petition with respect to scheduled webcast replays1 and denied the petition with respect to OnDemand seminars. In May 2016, the State Bar filed a Petition for Review with the Commission. Cross-motions for summary judgment were filed and in September 2019 the Commission granted the State Bar’s motion.
True Objective Test
The Commission relied upon the “True Objective Test” outlined in Wis. Admin. Code § Tax 11.67(1).2 As applicable to OnDemand seminars, the True Objective Test provides that when a transaction involves the transfer of an otherwise taxable specified digital good (the OnDemand seminar), along with the performance of a service, the true objective of the purchaser is determinative.
If the purchaser’s objective in purchasing the OnDemand seminar is to obtain the specified digital good, the transaction is taxable. Conversely, if the purchaser’s objective in purchasing the OnDemand seminar is to obtain a service, the transaction is not taxable as long as the underlying service (here, education) is not delineated as taxable under Wis. Stat. § 77.52(2). While the nature of the service as an educational service was critical to the outcome in this case3, the True Objective Test may exempt from sales tax any service that is not expressly listed as taxable by Wis. Stat. § 77.52(2).
The Commission cited prior case law dealing with the True Objective Test.4 In finding that the True Objective Test applied to OnDemand seminars, the Commission looked at the rules set forth by the Supreme Court of Wisconsin relating to continuing legal education for lawyers.
Attorneys who actively practice law in Wisconsin must obtain 30 CLE credits in every two-year reporting period. SCR 31.02(1). In each reporting period, attorneys may obtain up to 15 credits via on-demand programming, such as the convenient OnDemand seminars offered by the State Bar and at issue before the Commission. SCR 31.05(5).
In its decision, the Commission stated that a lawyer purchasing an OnDemand seminar “does not have the objective of merely obtaining, or even primarily obtaining, a digital good.” The lawyer is instead “trying to obtain the educational service that accomplishes his or her goals of legal education, competence and good standing.”
The educational service provided by the State Bar includes the OnDemand seminar itself, and also includes, as part of the overall educational service: the guaranteed right to have contact with, and ask questions of, the CLE seminar presenter via email, the State Bar obtaining and maintaining CLE certification of the on-demand program, and compliance with Wisconsin Supreme Court Rules and associated record-keeping.
In its decision the Commission expressed that there is no definition of educational service contained in Wisconsin’s sale tax statutes and that the Commission was not creating a definition, noting that such determinations are and will continue to be fact based. In the case of OnDemand seminars, the availability of “legitimate earned credit as determined by a branch of state government, is a strong indicator that there is an educational service and that obtaining the service is the true objective of the purchaser.” As a result, the sale of OnDemand seminars is exempt from sales tax under the True Objective Test.
The Department of Revenue has not appealed the Commission’s decision.
Endnotes
1 The Department of Revenue later changed its position regarding scheduled webcast replays, contending that the replays were prospectively subject to sales tax. Although scheduled webcast replays were not before the Commission in this case, the Commission’s decision that OnDemand seminars are not subject to sales tax supports the position that scheduled webcast replays should not be subject to sales tax.
2 Other arguments were made by both the State Bar and the Department of Revenue which the Commission did not adopt.
3 The Department of Revenue argued, in part, that no service was purchased with an OnDemand seminar – the Commission denied this argument.
4 Namely, Dep’t of Revenue v. Dow Jones & Co., Inc. 148 Wis. 2d 872, 436 N.W.2d 921 (Ct. App. 1989) (teleprinting machine was deemed incidental to the true objective of purchasing a news service), Janesville Data Center v. Dep’t of Revenue, 84 Wis.2d 341, 267 N.W.2d 656 (1978) (gross receipts of a computer keypunch operation were not derived from the transfer of tangible personal property or the furnishing of taxable services and were not subject to imposition of retail sales tax), and Cannon & Dunphy S.C. v. Dep’t of Revenue, Wis. Tax. Rptr. (CCH) ¶ 401-982 (WTAC 2015) (tangible copies of medical records were incidental to the service of medical care which was the root or essence of the transaction).
