How freedom of choice and other factors impact sales tax – Wacky Tax Wednesday
Determining how sales tax applies to certain services can be tricky, particularly when they’re sold in conjunction with other challenging products, like digital goods and services, or software. Sometimes, the darndest things can make a typically taxable transaction exempt, or vice versa: freedom of choice, whether a live person is involved, and more.
Freedom of choice
The taxability of training services in Wisconsin can hinge on whether the training is mandatory, or if it’s bundled with a taxable sale. This frequently occurs when the training is for computer software. For example:
If you sell prewritten software to a Wisconsin customer and offer an optional training service for an additional charge, the prewritten computer software is taxable, but the optional training is exempt.
However, if the training must be purchased along with the prewritten software, sales tax applies to both the software and the training, whether the charges are bundled or separately stated.
Wisconsin sales tax applies to charges to install and set up computer hardware, devices (e.g., hard drives, modems, monitors, and printers), and prewritten computer software. This includes setting up hardware and prewritten computer software on a network.
However, charges to install computer software that isn’t prewritten are exempt.
In the flesh
The taxability of educational services in Wisconsin can depend on how those services are provided, whether live or pre-recorded. For example:
- The charge to view a live, in-person educational seminar is exempt.
- The charge to view a live digital online educational service is exempt.
- Charges for pre-recorded videos or webinars are generally taxable, whether downloaded or viewed online.
However, if the participants of a pre-recorded video or webinar are connected to other participants or the host, via the internet or another network, and therefore can ask questions, participate in a discussion, and receive feedback, the sale is considered exempt. In this scenario, the sale of the pre-recorded video or webinar is considered incidental to the sale of an exempt educational service.
The sale of a pre-recorded seminar or webinar would also be exempt in Wisconsin if the participant is evaluated by an instructor. The instructor must be a person for the exemption to apply — “evaluated by an instructor” doesn’t include being graded or evaluated by a computer program or another automated, interactive method.
Making it pretty
Design services provided in connection with the sale of computer hardware or prewritten computer software are generally taxable in Wisconsin.
However, charges to design home pages and websites are exempt (if the service isn’t primarily a photographic service). The exemption applies no matter how the completed design is transferred to the customer, even if via tangible means like a CD.
Charges to troubleshoot hardware problems or prewritten computer software problems are taxable whether they’re provided on-site or remotely (i.e., virtually, online).
However, charges to answer questions related to hardware and software are exempt.
Sales tax can be black and white, but more often it’s gray. When in doubt about whether a service is taxable or exempt in a state, reaching out to the state department of revenue is always a good option. Another is seeking advice from a professional. Automating sales tax calculation can also help.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.