Wis. Admin. Code Department of Revenue Tax 11.71

Current through September 30, 2024

Section Tax 11.71 - Computer industry

(1) DEFINITION OF TERMS. In this section:

(a) "Application" means the specific job performance by an automatic data processing installation.

(b) "Automatic data processing equipment" includes computers used for data processing purposes and their peripheral equipment as well as punched card tabulating machines. It does not include tape-controlled automatic drilling, milling, or other manufacturing machinery or equipment.

(c) "Coding" means the list, in computer code, of the successive computer instructions for successive computer operations for solving a specific problem.

(d) "Computer" means an electronic device that accepts information in digital or similar form and that manipulates such information to achieve a result based on a sequence of instructions.

(e) "Computer software" means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.

(em) "Computer software maintenance contract" means a contract that obligates a vendor of computer software to provide a customer with future updates or upgrades to computer software, computer software support services, or both.

(f) "Data processing" means the recording and handling of information by means of mechanical or electronic equipment, commonly referred to as automatic data processing.

(g) "Input" means the information or data transferred, or to be transferred, from external storage media including punched cards, punched paper tape, and magnetic media into the internal storage of the computer.

(h) "Keypunching" means recording information in cards, paper tapes, or magnetic tapes, disc, or drum by punching holes or otherwise entering information in the cards, tapes, discs, or drums, or recording data on any media to represent letters, digits, and special characters. Keypunching includes the necessary preliminary encoding or marking of the source documents.

(i) "Keystroke verifying" means the use of a machine known as a punched card verifier or tape transcriber, which has a keyboard, to ensure that information punched in a punch card or transcribed on a tape during the keypunching operation has been punched properly.

(j) "Load-and-leave" means delivery to a purchaser by using a tangible storage media that is not physically transferred to the purchaser.

(k) "Prewritten computer software" is defined in s. 77.51(10r), Stats., to mean computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of 2 or more "prewritten computer software" programs or prewritten portions of computer software does not cause the combination to be other than "prewritten computer software." "Prewritten computer software" includes software designed and developed by the author or other creator to the specifications of a specific purchaser if it is sold to a person other than the specific purchaser. If a person modifies or enhances computer software of which the person is not the author or creator, the person is the author or creator only of the person's modifications or enhancements. "Prewritten computer software" or a prewritten portion of computer software that is modified or enhanced to any degree, with regard to a modification or enhancement that is designed and developed to the specifications of a specific purchaser, remains "prewritten computer software," except that if there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for the modification or enhancement, the modification or enhancement is not "prewritten computer software."

(L) "Processing a client's data" means the developing of original information from raw data furnished by a client. Automatic data processing operations which develop original information include summarizing, computing, extracting, sorting, sequencing, or the updating of a continuous file of information maintained for a client by a service bureau.

(m) "Program" means the complete plan for the solution of a problem, i.e., the complete sequence of automatic data processing equipment instructions necessary to solve a specific problem. It includes both systems and application programs and subdivisions, such as assemblers, compilers, routines, generators, and utility programs. For purposes of this section a program is either a prewritten or custom program.

(n) "Reformatting of data" means the rearranging of data by mechanical or electronic equipment.

(o) "Service bureau" means a business rendering automatic data processing services.

(p) "Source document" means a document from which basic data are extracted, such as a sales invoice.

(2) TAXABLE RECEIPTS. Receipts from the following transactions involving automatic data processing equipment, computer software, output, and services are taxable:

(a) The retail sale, license, lease, or rental of new or used automatic data processing equipment and charges for the installation, service, and maintenance of this equipment. In this subsection, the following applies to licenses, leases, and rentals:

1. License, lease, or rental includes a contract by which a licensee or lessee, for a consideration, obtains the full or partial use of equipment if the licensee's or lessee's employees operate the equipment. License, lease, or rental does not include obtaining remote access to equipment by telephone or other means when that person's employees do not operate the equipment or control its operations. License, lease, or rental also does not include any transaction in which the licensor or lessor of the equipment provides the operator of the equipment and the operator does more than maintain, inspect, or set up the equipment.

2. Subleasing receipts are taxable without any deduction or credit for sales or use tax paid by the original lessee to the lessor if the original lessee uses the equipment in addition to subleasing it. If the original lessee uses the equipment solely for lease or rental to others, the lessor's charge to the original lessee is exempt as a purchase for resale.

(b) The retail sale, lease, rental, or license to use prewritten computer software, regardless of how it is delivered to the purchaser. The tax applies to the total charge for prewritten computer software, including:

1. The consideration received for the temporary transfer of possession of prewritten computer software for the purpose of direct use or to be recorded by the customer.

2. The consideration received for prewritten computer software in the form of license fees or royalty payments, present or future, whether for a minimum use or for extended periods.

3. The consideration received for designing, producing, implementing, testing, and installing the prewritten computer software.

(bm) The sale of computer software maintenance contracts for prewritten computer software, unless the sale, license, lease, or rental in Wisconsin of the software to which the maintenance contract relates is or was exempt from tax to the purchaser of the contract.

(c) The sale of training materials, such as books and manuals, including digital books and manuals furnished to trainees for a specific charge. However, separately stated training services are not taxable, unless they are a service necessary to complete the sale of a taxable product.

Examples:

1) Company A sells prewritten computer software to Customer B for $1,000. Company A also offers optional training on how to use the prewritten computer software for an additional $100. Customer B chooses to purchase the training service. The $1,000 sale of the prewritten computer software is subject to Wisconsin sales tax but the $100 charge for the training is not subject to tax since the training was not required by the seller or the purchaser as a service necessary to complete the sale.

2) Company C sells prewritten computer software to Customer D for $1,000. In addition, Company C also requires that any customer that purchases the prewritten computer software, must also purchase the training services on how to use the software for $100. Since Company C requires that Customer D purchase the training services as a part of the sale of the prewritten computer software to Customer D, the training services are a service necessary to complete the sale and Company C must charge Wisconsin sales tax on the entire $1,100 it charges Customer D.

(d) The charge for additional copies of records, reports, or tabulations, including copies produced by means of photocopying, multi-lithing, or by other means. "Additional copies" means all the copies in excess of copies produced on multipart carbon paper simultaneous with the production of the original and on the same printer, whether the copies are prepared by rerunning the same program, by using multiple simultaneous printers, by looping a program so that a program is run continuously, by using different programs to produce the same output product, or by other means.

(e) The sale of mailing lists as set forth in s. Tax 11.82, including listings in the form of mailing labels produced as result of a computer run. However, the tax does not apply to the charge for addressing material to be mailed with names and addresses furnished by a customer, or maintained by a service bureau for the customer, by the use of automatic data processing equipment.

(3) NONTAXABLE COMPUTER AND DATA PROCESSING SERVICES. The sales price from the following computer or data processing services are not taxable:

(a) Processing a client's data.

Note: A contract to process a client's data by the use of computer software or through an electrical accounting machine programmed by a wired plugboard will usually include receiving the client's source documents, recording data in machine readable form such as in punch cards or on magnetic media, making corrections, rearranging or creating new information as the result of the processing, and then providing tabulated listings or recording output on other media. This service is not taxable, even though the total charge is broken down into specific charges for each step.

Note: If a client furnishes data and computer software for processing the data and the processing is under the direction and control of the person providing the service, the processing service is not taxable, even though charges for the service may be based on computer time. The true object of this arrangement is considered to be a service, even though some tangible personal property may be incidentally transferred to the client.

(b) Providing computer software that is not prewritten computer software.

(c) Providing program technical support, error correction services, and maintenance and enhancement to computer software that is not prewritten computer software.

(d) Providing time-sharing services which permit persons at different locations to access the same computer through remote access by telephone lines, microwave, or other means. Nontaxable time-sharing exists when a person or that person's employees, who have access to the equipment, are not located on the premises where the equipment is located and do not operate the equipment or control its operation.

(e) Miscellaneous services which are not part of the sale of prewritten computer software or other tangible personal property, or items, property, or goods under s. 77.52(1) (b), (c), or (d), Stats., including:

1. Designing and implementing computer systems including determining equipment and personnel required and how they will be utilized.

2. Designing storage and data retrieval systems including determining what data communications and high-speed input-output terminals are required.

3. Consulting services including study of all or part of a data processing system.

4. Feasibility studies including studies to determine what benefits would be derived if procedures were automated.

5. Evaluation of bids including studies to determine which proposal for computer equipment would be most beneficial.

(f) Keypunching and keystroke verifying services, including:

1. Keypunching only, keypunching and keystroke verification, or keypunching and providing a proof list or verification data, or both. Charges for these services are not taxable, whether the cards or tapes are furnished by the customer or by a service bureau.

2. Recording data from source documents directly on magnetic tape, off-line. This operation may include keystroke verifying or proof listing of data, or both, and is comparable to the punch card operation.

3. Imprinting characters on a document to be used as the input medium in an optical character recognition system, whether paper tape or other media are used in the operation.

4. Reformatting of data.

Wis. Admin. Code Department of Revenue Tax 11.71

Cr. Register, February, 1986, No. 362, eff. 3-1-86; am. (1) (e) 6., (2) (a) (intro.), 1. and (b) (intro.), Register, April, 1993, No. 448, eff. 5-1-93; EmR0924: emerg. am. (1) (b), (2) (intro.), (a) (intro.), 1., (b) to (d), (3) (intro.), (b) to (e) (intro.), (f) 1. and 2., r. (1) (c), (g) and (n), renum. (1) (d), (h) to (j) and (o) to (q) to be (1) (c), (g) to (i) and (n) to (p) and am. (1) (g), (h) and (p), cr. (1) (d), (em), (j) and (2) (bm), r. and recr. (1) (e) and (k), eff. 10-1-09; CR 09-090: am. (1) (b), (2) (intro.), (a) (intro.), 1., (b) to (d), (3) (intro.), (b) to (e) (intro.), (f) 1. and 2., r. (1) (c), (g) and (n), renum. (1) (d), (h) to (j) and (o) to (q) to be (1) (c), (g) to (i) and (n) to (p) and am. (1) (g), (h) and (p), cr. (1) (d), (em), (j) and (2) (bm), r. and recr. (1) (e) and (k) Register May 2010 No. 653, eff. 6-1-10, CR 12-014: am. (2) (c) (Example 2) Register August 2012 No. 680, eff. 9-1-12.

Section Tax 11.71 interpretss. 77.51(1n), (1p), (1pd), (7), (7g), (10r), (14) (h) and (j), and (20) and 77.52(1) and (2) (a) 10. and 13m., Stats.

The interpretations in s. Tax 11.71 are effective under the general sales and use tax law on and after September 1, 1969, except that (a) Computer and data processing services were taxable under s. 77.52(2) (a) 13., Stats., Laws of 1977, from August 1, 1977, through June 30, 1978; (b) The definition of prewritten computer software became effective March 6, 2009, pursuant to 2009 Wis. Act 2; (c) The definitions of computer, computer software, computer software maintenance contract and load and leave became effective October 1, 2009, pursuant to 2009 Wis. Act 2; and (d) The change of the term "gross receipts" to "sales price" and the separate impositions of tax on coins and stamps sold above face value under s. 77.52(1) (b), Stats., certain leased property affixed to real property under s. 77.52(1) (c), Stats., and digital goods under s. 77.52(1) (d), Stats., became effective October 1, 2009, pursuant to 2009 Wis. Act 2.

In Janesville Data Center, Inc. v. Department of Revenue (1978), 84 Wis. 2d 341, the Wisconsin Supreme Court held that the transfer of customer data onto tangible personal property and the verification of customer data is not subject to the sales and use tax as a transfer of tangible personal property or a taxable service.