Court Error – Statutory Interpretation – Franchise Taxation

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WI Court of Appeals – District IV

Case Name: Wisconsin Department of Revenue v. Microsoft Corporation

Case No.: 2018AP2024

Officials: Fitzpatrick, P.J., Blanchard and Kloppenburg, JJ.

Focus: Court Error – Statutory Interpretation – Franchise Taxation

The Wisconsin Department of Revenue (DOR) appeals a Dane County Circuit Court order that affirmed a decision of the Tax Appeals Commission. The Commission determined that royalties Microsoft Corporation received from licensing its software to original equipment manufacturers (OEMs) that are not located in Wisconsin, but whose products are used in Wisconsin, should not be considered in calculating Microsoft’s franchise tax liability to the State of Wisconsin for the tax years 2006 to 2009 under WIS. STAT. § 71.25(9)(d) (2005-06). That statutory subpart concerns the franchise taxation of sales of intangibles if the income-producing activity occurs in Wisconsin. See § 71.25(9)(d). The DOR argues that the Commission erred in failing to apply a statutory exception to § 71.25(9)(d), under which franchise taxation of computer software occurs if a “licensee” uses the software in Wisconsin. See § 71.25(9)(df). According to the DOR, the § 71.25(9)(df) exception requires that the royalties Microsoft received from OEMs not located in Wisconsin must be considered in calculating Microsoft’s franchise tax liability because the persons who use those OEMs’ products in Wisconsin were, in effect, Microsoft’s licensees. We reject the DOR’s arguments and, therefore, affirm the circuit court’s order that affirmed the Commission’s decision.

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.