Whats New with Sales Taxes in Wisconsin Repeal of Sales Tax on - PowerPoint PPT Presentation

What’s New with Sales Taxes in Wisconsin Repeal of Sales Tax on Internet Access & Other Sales Tax Considerations

Presenters Matt Macdonald Jason Grosh Jim Pierzchalski Partner Director Director 2

Agenda › Federal Background › Wisconsin Background › Internet Access Services Definition › Telecommunication Services Definition › Transition from Taxable to Non-taxable › Specific Examples › Other Considerations 3

Federal Background › Enacted in 1998, the Internet Tax Freedom Act (“Act”) prohibited states & localities from applying taxes on internet access or imposing digital-only taxes › Ban on tax on internet access became permanent on February 24, 2016 › Act included a grandfather clause that allowed states with taxes on internet service in place before 1998 to keep them until June 30, 2020 › Six states met the criteria for continued tax on internet access service • Hawaii, New Mexico, Ohio, South Dakota, Texas, Wisconsin 4

Wisconsin Background › Until July 1, 2020, sales of internet access services are subject to Wisconsin sales or use tax when the customer's place of primary use is in Wisconsin › Place of primary use means the residential street address or the primary business street address of the customer › In the case of mobile telecommunications services, “place of primary use” means a street address within the licensed service area of the home service provider › Pursuant to 2017 Wisconsin Act 59, charges for internet access services are no longer subject to Wisconsin sales & use tax effective July 1, 2020 5

Internet Access Services › “Sending messages & information transmitted through the use of local, toll & wide-area telephone service; channel services; telegraph services; teletypewriter; computer exchange services; cellular mobile telecommunications service; specialized mobile radio; stationary two-way radio; paging service; or any other form of mobile & portable one-way or two-way communications; or any other transmission of messages or information by electronic or similar means between or among points by wire, cable, fiber optics, laser, microwave, radio, satellite or similar facilities” Wis. Stat. § 77.51(5f) 6

Internet Access Services (cont.) › Examples of Internet Access Services • DSL • Dial Up internet • Cable modem • Fiber internet • Satellite internet • Wireless internet • Broadband • Internet 7

Telecommunications Services › “Electronically transmitting, conveying, or routing voice, data, audio, video, or other information or signals to a point or between or among points. Telecommunications services includes the transmission, conveyance, or routing of such information or signals in which computer processing applications are used to act on the content's form, code, or protocol for transmission, conveyance, or routing purposes, regardless of whether the service is referred to as a voice over Internet protocol service or classified by the federal communications commission as an enhanced or value-added nonvoice data service” Wis. Stat. § 77.51(21n) 8

Telecommunication Services (cont.) › Examples of Telecommunications Services • Wireless services • Paging services • Fax transmission services • Conference call services • Voice services • The Wisconsin Administrative Code defines 22 different taxable telecommunications services 9

Specific Examples › Internet Access vs. Telecommunications Service • It could be difficult to differentiate between these two services until Wisconsin provides further guidance by way of updates to Wis. Admin Code Tax 11.66 • Companies may want to be cautious & seek additional guidance or assume the service is taxable in situations where taxability is not clear 10

Specific Examples (cont.) › Bundled/Packaged Services • For sales that occur on or after July 1, 2020, if a retailer sells internet access services & taxable products for one nonitemized price, & the taxable products are greater than 10 percent of the retailer's total purchase price or sales price of all bundled products, the sale is a bundled transaction • The entire sales price of a bundled transaction is subject to Wisconsin sales or use tax • Companies should also consider the appropriate treatment of sales tax when a multiservice discount is applied on bundled transactions 11

Specific Examples (cont.) › Bundled/Packaged Services (cont.) • If the retailer can identify, by reasonable & verifiable standards from its books & records, the portion of the sales price in a bundled transaction that is attributable to products that are not subject to tax (e.g., internet access services on or after July 1, 2020), the retailer may, at its option, not charge tax on the nontaxable portion of the transaction o If utilizing this method it is critical that support from books & records align with a company’s GAAP financial data & regulatory filings • If the retailer itemizes the sales price attributable to the internet access service & other taxable products provided on the invoice or other billing statement, the transaction is not a bundled transaction 12

Wisconsin Publication 201, Appendix H

Specific Examples (cont.) › Equipment Charges • Modem • Router • Network box • Remote control • Phone › Lease or Sale of Equipment • Should follow general sales tax rules as opposed to taxability of the service • What if equipment is included in price of service or provider retains ownership at all times? 14

Specific Examples (cont.) › Installation or Activation Charges • Fee – Should be exempt if the service is exempt but Wisconsin has yet to update this in statutory guidance • Labor – Likely exempt if separately stated on invoice › Managed WiFi – Likely taxable pending further guidance from Wisconsin › Static IP Charge - Likely taxable pending further guidance from Wisconsin › Digital Products – Taxable if product is the following: • Digital audio works (e.g. – Recorded or live songs, readings, books, speeches) • Digital audiovisual works (e.g. – Movies, news programs, live or recorded events) • Digital books (e.g. – Any literary work that is expressed in words, recognized as a book or short story, & transferred electronically 15

Specific Examples (cont.) › Live Streaming Video – Likely taxable › OnDemand Video – Likely taxable › Web Hosting – Likely exempt › Web Design – Likely exempt › Email Accounts – Likely exempt 16

Transition from Taxable to Non-taxable › Possible Scenarios • Invoice sent in June relates to July monthly service o Service should generally be exempt if period is on calendar basis o Consider bifurcation if service period is June 15 to July 15 • Installation/activation charges incurred in June but invoiced in July o Likely taxable • Invoice sent in July related to June monthly service o Service will generally be taxable if period follows calendar basis o Consider bifurcation if service period is June 15 to July 15 17

Other Considerations › Internet Access Services Taxability in Surrounding States • Iowa – Bundled transactions are subject to Iowa sales & use tax unless the sales price which is attributed to the taxable services can be segregated from the non- taxable services or the taxable component is merely incidental to the non-taxable service • Illinois – Internet access service charges that are bundled & not separately stated from charges for telecommunications or other taxable services are taxable unless the internet access provider can reasonably identify the charges for internet access from its books & records kept in the regular course of business • Minnesota – Similar guidance as Wisconsin as it relates to taxability & bundled services ( i.e. internet services are exempt but bundled charges are taxable unless the service provider has books & records to reasonable identify the internet access charge) 18

Other Considerations (cont.) › Updates to Tax Engines & Billing Systems • Companies must review links between reporting systems & ensure there is proper mapping › Tax on Taxes • Universal service fees • 911 & E-911 charges • Police & fire protection fee › Tax at County Jurisdiction • 68 Wisconsin counties have currently adopted › Property Tax Exemption for Broadband Equipment • Effective for 2021 property tax filings 19

Other Considerations (cont.) › Possible Sales Tax Exemptions • Notification to current customers that internet access service is no longer subject to sales tax • Resale or telecommunications equipment exemption via Wisconsin Form S-211 › Remedies for Correcting Potential Errors • Potential credit on future invoice › Best Practices • Proper documentation for tax decisions & customer exemptions • Support for price of component services & fees › Sale of product over the internet remains subject to sales tax 20

Other Considerations (cont.) › COVID-19 Impact • Federal government changes position on internet access taxability • Due date extensions for sales tax filings • Possible waiver of penalties & interest • Delinquency of customer invoice payment o Accrual basis reporting for sales tax remittance o Account for customer write-offs in timely manner o Cash basis reporting for remittance of some other taxes & fees • Increased audit activity due to Wayfair nexus o General statute of limitations period for assessment is four years from the return’s due date 21