The sale, lease, or license of computer software, except custom computer software, in Wisconsin is subject to Wisconsin sales or use tax unless an exemption applies, regardless of how it is delivered to the customer (diskette vs. electronically). For the sale, lease, or license of computer software to be subject to Wisconsin sales or use tax, the software, except custom software, must be situated in Wisconsin when used by the customer. If the software at all times is located on the server outside Wisconsin (that is, it is not downloaded or in some other way transferred to the customer's computer but, instead, the customer uses the software at the physical location of the server outside Wisconsin), a Wisconsin tax will not apply.
Note: If, instead of a license of tangible personal property the transaction is a data processing service, the transaction is not taxable. (See
Part B. Data Processing Services, below, for tax treatment.)
Example: A software provider is located in New York and the user is a Wisconsin business. The user is billed by the software provider for use of software located in New York. The software is not downloaded or transferred in any way to the user in Wisconsin. The gross receipts from licensing to the Wisconsin business the software on the New York server are not subject to Wisconsin sales or use tax.
Data Processing Services
A company may provide services which permit persons at different locations to access the same software through remote access by telephone lines, microwave, or other means. Such services are not subject to Wisconsin sales or use tax when (1) the persons or the persons' employees who have access to the software are not located on the premises where the equipment/software is located and do not operate the equipment or control its operation, and (2) software that is downloaded or physically transferred to the customer or the customer's computers is incidental to the data processing services (that is, used solely to allow access to the service provider's hardware and software).
Note: The vendor may load the software onto its server and maintain the software if there is a breakdown. Such loading and maintenance, by itself, does not demonstrate sufficient evidence of control over the software to conclude that the vendor is providing a data processing service. If a customer has control over computer hardware and software it accesses from a remote location, has unlimited access to the server, loads its own software, is responsible for security measures regarding its use of the computer equipment (file server) and software, and decides how, when, and where its output will be provided through its own manipulation of the software, the vendor is leasing (licensing) tangible personal property (software) to its customer (see
Part A,Software Lease, above, for tax treatment).
Example: Company A, an Application Service Provider (ASP), provides access to its software. The software is stored on Company A's servers and the customer accesses the software via the Internet. Customers that contract with Company A have access to Company A's servers, but do not operate or have control over the servers. Company A has control over the computer hardware and software, loads the software onto the server, and is responsible for security measures regarding the computer equipment (file server) and software.
In order for Company A's customers to access the hardware and software, the customers must use a client utility program that they download from Company A.
Company A is providing a data processing service, which is not subject to Wisconsin sales and use tax, regardless of whether the server is located in Wisconsin or outside Wisconsin. Data processing services are not among the services subject to Wisconsin sales and use tax.
Applicable Laws and Rules
This document provides statements or interpretations of the following laws and regulations in effect as of February 20, 2020: Sections 77.51 and 77.52, Wis. Stats. (2007-2008).
Laws enacted and in effect after February 20, 2020, new administrative rules, and court decisions may change the interpretations in this document. Guidance issued prior to February 20, 2020, that is contrary to the information in this document is superseded by this document, pursuant to sec. 73.16(2)(a), Wis. Stats.