Wisconsin Administrative Fees

Article ID: 900001
Category: Other
Date Added: 4/26/2019
Date Updated: 11/23/2019
Untitled Document

In 2018, the Wisconsin Department of Revenue (DOR) chose to designate Gladstone Inc (ShoWorks) as a Wisconsin Nexus - which is vaguely defined as having business activity of such a degree that the state or foreign country has jurisdiction to impose an income tax or franchise tax measured by net income, basically engaging in business as if it were physically present in the state of Wisconsin. With this designation, Wisconsin is taxing all of Gladstone's income (not to be confused with sales tax) from Wisconsin sales as if it were a Wisconsin located business. Additionally, any shareholder of such company is now asked to file (and pay) the same personal state income tax forms as Wisconsin residents, even if he or she does not set foot in the state. The state also pursued taxes from Gladstone retroactively to the maximum statute from 2012 onward and attempted to apply penalties and interest which was later successfully appealed. Further to note is that Wisconsin is the only state of the 48 that use ShoWorks which has engaged with and pursued Gladstone for state income taxes.

This claim could not be further from reason as Gladstone is a Texas company with no employees nor physical location in Wisconsin.

According to Public Law 86-272 "a state can't impose an income tax or franchise tax based on net income on a corporation selling tangible property if the corporation's only activity in the state is the solicitation of orders, which orders are approved outside the state and are filled by delivery from a point outside the state." See https://www.revenue.wi.gov/Pages/faqs/ise-crpappnx.aspx#crpappnx3 While software such as that which Gladstone provides, is considered a 'tangible' item at the federal level and all other states, Wisconsin ignores and differs by focusing on the 'licensing' of the software, claiming that this 'intangible' item is how the revenue is accounted for instead of the product itself, regardless of the mainstream acceptance and spirit of the above law that was written pre-Internet.

Simply, the State of Wisconsin, in contrast to all other states including the federal government, has chosen to tactfully disregard the intent of a specific law — a law written to protect commerce and thus the consumer, and written prior to an unforseen technology development at the time (software sales) — and capitalize on a loophole that clearly is being respected in all other states, solely for the gain of tax revenue.

Gladstone has undertaken significant legal, accounting and counsel and administrative expense in complying and appealing to the State to reconsider the economic impact and precedence it sets to ask small software businesses like Gladstone to be considered a Nexus in Wisconsin. Should all other states follow suit, it would be impractical if not impossible to continue operating and filing almost 50 state income tax returns (including any shareholder to file almost 50 personal income tax returns yearly). This type of radical pursuit of state income taxing outside the state borders threatens all small businesses who engage in interstate transactions.

In spring of 2019, Gladstone filed a formal appeal to the State of Wisconsin DOR to reconsider its designation as a Nexus. Not only did the State of Wisconsin DOR deny the appeal, but using the information that Gladstone submitted on the appeal form in good faith, instead aggressively expanded their reach for back income taxes which originally only asked for 2016 onward, to 2012 onward to make a total of 7 years of taxes due. To add to this inexplicable act, the DOR also attempted to charge interest on the demanded taxes for all of the past 7 years (which we remind the reader that the DOR only first contacted us in 2018). Furthermore, the DOR gave Gladstone only 30-days to create, file and pay these added 4 years (including personal returns).

Gladstone is currently applying an administrative fee to Wisconsin customers to help assist in the added expenses (mentioned above) in doing business in this state. Should the Wisconsin Department of Revenue come to reason by removing this designation, Gladstone will immediately remove this fee. It is deeply troubleing that the fairs, who already face an adversity of changing times and budget concerns, are caught in the middle of a radical overreach of a state government that is out of touch with the long standing economic strain on agricultural fairs, the community, and small businesses who support them.

Fairs, including the people of Wisconsin can help by voicing their concern to their state congress and elected officials (see contact info below) to review the overreach of Forms 5S and Form PW-1 for small businesses selling 'canned' software who have no business operations out of their state and should be protected under P.L. 86-272. Again, if all other almost 50 states placed the same burden to any small business that engaged in interstate commerce from an origin of only one state, that business would quickly close their doors and everyone would lose.

Thank you all again for your support,

Michael Hnatt - Founder/Owner of Gladstone

Contacts to voice your concern:

Matthew Venz
Revenue Management Supervisor
Wisconsin Department of Revenue
Mail Stop 2-233
P.O. BOX 8906
2135 Rimrock Road
Madison, WI 53708-8906

Ka Vang
Nexus Auditor
Wisconsin Department of Revenue
Mail Stop 2-233
P.O. BOX 8906
2135 Rimrock Road
Madison, WI 53708-8906

Tammy Baldwin
U.S. Senator for Wisconsin
709 Hart Senate Office Building
Washington, DC 20510
(202) 224-5653
633 West Wisconsin Ave, Suite 1920
Milwaukee, WI 53203
(414) 297-4451

Ron Johnson
U.S. Senator for Wisconsin
328 Hart Senate Office Building
Washington, DC 20510
(202) 224-5323
517 East Wisconsin Avenue
Suite 408
Milwaukee, WI 53202
(414) 276-7282

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