Department of Revenue oversteps its authority

By Jeff Schoepke

Businesses need certainty in order to operate. The rules of commerce must be clear to be fair. Unfortunately, the Wis-consin Department of Revenue all too often makes up the rules as it goes along when it comes to collecting taxes.

In late January, a unanimous Court of Appeals opinion said the DOR overstepped its authority in taxing customized software purchased by the Menasha Corp. The court ruled that DOR misinterpreted the tax code to try to require the company to pay taxes it clearly didn't owe under state law.

In the Menasha case, DOR argued the company had purchased taxable, pre-written computer software. The company argued the software was tax-exempt because customized software is explicitly exempt in state statutes. The Tax Appeals Commission had ruled that the software was tax exempt, but a Dane County court judge ruled the software was taxable. The appeals court - in a ruling written by Judge Paul Higginbotham - ruled DOR incorrectly taxed the software.

Now, DOR is asking the Wisconsin Supreme Court if the agency can continue to collect this tax it has no authority to assess. The Supreme Court should either not take the case at all because of the strong ruling from the appeals court, or the high court should uphold the appeals court ruling.

The Appeals Court decision is not only important for businesses but for all other taxpayers as well. The court ruling requires DOR to follow the law and not try to expand the tax code beyond the Legislature's intent through creative interpretation.

Unfortunately, Menasha is not a unique case. For years, the DOR has tried to collect taxes on a wide range of goods and services that were never subject to taxation under any laws passed by any Legislature or signed by any governor. Temporary services and income from bank subsidiaries are just two recent examples.

That needs to change. That's why Wisconsin Manufacturers and Commerce and businesses throughout Wisconsin are urging the Legislature and Governor Jim Doyle to support a broad series of reforms aimed at adding certainty to our tax collection system.

The DOR tax collection practices were the subject of
a lengthy report by WMC titled "Tax Collection in Wisconsin: Providing Fairness for Taxpayers." The report details numerous examples of the DOR trying to force businesses to pay taxes on income and transactions not covered by the tax code.

The report recommended a series of reforms, some of
which passed the Assembly last session in AB 968. That bill would require the DOR to publish clear guidance as to what is taxable and what is not, restore the
balance of power between taxpayers and tax collectors during audits, and streamline taxpayer appeals processes. A full copy of the report is available at www.wmc.org.

WMC will continue to promote tax collection reforms in Wisconsin.

Jeff Schoepke is the Director of Tax and Corporate Policy at Wisconsin Manufacturers and Commerce

Department of Revenue oversteps its authority

By Jeff Schoepke

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