Sales Tax Treatment of Educational Products, Goods, and Services - Updated

NOTE:This article replaces the same titled article dated June 17, 2014.

Educational products, goods, and services are sold in many different formats. This article discusses the sales tax treatment of the following educational products, goods, and services:

  • Live in-person educational services
  • Live digital online educational services
  • Tangible books and videos
  • Digital books and videos

Sales of Live In-Person Educational Services

Sales of live in-person educational services are not taxable in Wisconsin. When a person provides live in-person educational seminars or furnishes classes at a college or technical school, the charge for the educational services is not taxable, including the service provider's charge for mandatory educational materials (e.g., charge by the service provider for a required manual). The service provider must pay tax on its purchase of the mandatory educational materials that it provides incidentally with the nontaxable educational services.

Sales of Live Digital Online Educational Services

Sales of live digital online educational services are not taxable in Wisconsin. When a person provides live educational webinars (i.e. live online classes or seminars) for people to view from their personal computer, charge for the educational services is not taxable, including the service provider's charge for mandatory educational materials (e.g., charge by the service provider for a required manual). The service provider must pay tax on its purchase of the mandatory educational materials that it provides incidentally with the nontaxable educational services.

Sale of Tangible Books and Videos

Sales of tangible personal property are taxable in Wisconsin, unless an exemption applies. There is no exemption for the sale of educational products. For example, sales of books, video tapes, CDs, and DVDs are taxable in Wisconsin, regardless of whether the content is educational to the purchaser. The seller is not performing an educational service, but rather selling tangible personal property.

Sale of Digital Books, Videos, and Pre-Recorded Seminars

Sales of certain digital goods are taxable in Wisconsin, unless an exemption applies. Taxable digital goods include digital audio works, digital audiovisual works, and digital books. When a person sells pre-recorded webinars, whether downloaded or viewable online, the person is selling a taxable digital good. A digital good is exempt if such digital good sold in tangible form is exempt. However, since the sale of a tangible video is taxable, the sale of a pre-recorded webinar is also taxable.

Note: In some cases, the sale of a digital good (e.g., pre-recorded webinar) may not be taxable if the purchaser is receiving an educational service, and the pre-recorded webinar is transferred to the purchaser incidentally to the educational service. A pre-recorded webinar is transferred to the purchaser incidentally to the educational service if one of the following occurs:

  • The participant is evaluated by an instructor. "Evaluated by an instructor" does not include being graded by, scored by, or evaluated by a computer program or an interactive, automated method.
  • The participants are connected to other participants and presenters via Internet or other networks, allowing the participants to provide, receive, and discuss information together by live interaction, contemporaneous with the presentation.

Example 1: Seller provides an online class that qualifies for college credits. The class does not require Purchaser to attend an in-person or live class. Purchaser is given a password to view pre-recorded classes online at any time. Purchaser must, however, complete three exams during the semester upon which the instructor's evaluation determines whether Purchaser receives a passing grade. Seller is selling a nontaxable educational service, rather than a taxable digital good, since Purchaser is receiving an evaluation from the instructor.

Example 2: Seller records an educational seminar and presents the pre-recorded seminar at a pre-determined time. Purchasers access the pre-recorded seminar from their own computers. During the time that the pre-recorded seminar is presented, or immediately after the presentation, participants may interact with an instructor and other participants. Other participants will hear or see the questions and answers during the live interaction. Participants are not evaluated by an instructor. Although the seminar is pre-recorded, Seller is selling a nontaxable educational service, rather than a digital good, because live interaction with an instructor is provided contemporaneous with the presentation.

Example 3: Same as Example 2, except that live interaction with the instructor does not occur. Questions may be submitted by the participants, but the answers will not be provided by an instructor until five business days later. Seller is selling a digital good, rather than an educational service, and is taxable unless an exemption applies.

Bundled Transactions

When the sale of taxable and nontaxable products, goods, or services are sold for one nonitemized price, and the value of the taxable products or services is 10% or more, the entire sales price is taxable if the sale takes place in Wisconsin. However, the seller may report and remit tax on the portion of the sales price attributable to the taxable products or services if the seller can show in his books and records the portion of the sales price attributable to the taxable and nontaxable products or services. These rules do not apply to sales in which a product (e.g., digital good) is transferred incidentally to the purchaser in connection with a service as described in the example above.

References

DOR article on "Tax Treatment of Online Seminars": Tax Treatment of Online Seminars

Wisconsin Sales/Use Tax Publication 240, Digital Goods: revenue.wi.gov/pubs/pb240.pdf

DOR tax release on "Sales of Education Services and Course Materials": revenue.wi.gov/ise/wtb/092tra.pdf

Imposition of tax:

  • Tangible Personal Property - Sec. 77.52(1)(a), Wis. Stats.(2011-12)
  • Specified Digital Goods and Additional Digital Goods - Sec. 77.52(1)(d), Wis. Stats. (2011-12) (eff. 10/1/09)
  • Bundled Transactions - Sec. 77.52(20), Wis. Stats. (2011-12) (eff. 10/1/09)

Definitions

Tangible PersonalProperty - Sec. 77.51(20), Wis. Stats. (2011-12)

Specified DigitalGood - means digital audio works, digital audiovisual works, and digital books. For purposes of this subchapter, the sale, license, lease, or rental of or the storage, use, or other consumption of a digital code is treated the same as the sale, license, lease, or rental of or the storage, use, or other consumption of any specified digital goods for which the digital code relates. (Sec. 77.51(17x), Wis. Stats. (2011-12))

Digital Audio Works - means works that result from the fixation of a series of musical, spoken, or other sounds that are transferred electronically, including prerecorded or live music, prerecorded or live readings of books or other written materials, prerecorded or live speeches, ringtones, or other sound recordings… (Sec.77.51(3pa), Wis. Stats. (2011-12))

Digital Audiovisual Works - means a series of related images that, when shown in succession, impart an impression of motion, along with accompanying sounds, if any, and that are transferred electronically. 'Digital audiovisual works' includes motion pictures, musical videos, news and entertainment programs, and live events… (Section 77.51(3p), Wis. Stats. (2011-12))

Digital Books - means works that are generally recognized in the ordinary and usual sense as books and are transferred electronically. "Digital books" includes any literary work, other than a digital audio work or digital audiovisual work, that is expressed in words, numbers, or other verbal or numerical symbols or indicia, if the literary work is generally recognized in the ordinary and usual sense as a book, work of fiction or nonfiction, or a short story… (Sec. 77.51(3pb), Wis. Stats. (2011-12))

Additional Digital Good - means a greeting card, finished artwork, periodical, video or electronic game, newspaper or other news or information products, if they are transferred electronically. (Sec. 77.51(1a)(a), Wis. Stats. (2011-12))

Bundled Transaction - means the retail sale of 2 or more products, not including real property and services to real property, if the products are distinct and identifiable products and sold for one nonitemized price… (Sec. 77.51(1f), Wis. Stats. (2011-12), and sec. Tax 11.985, Wis. Adm. Code (August 2013 Register))

Exemption

Section 77.54(50), Wis. Stats. (2011-12), provides an exemption from the sales price from the sale of and the storage, use, or other consumption of specified digital goods or additional digital goods, if the sale of and the storage, use, or other consumption of such goods sold in a tangible form is exempt from, or not subject to, taxation under this subchapter.

April 7, 2016