In a recent decision, the Wisconsin Tax Appeals Commission drew a bright line for sourcing receipts from software for sales factor apportionment purposes: without a contract with the end-user, a company cannot source receipts from software to the end-user’s location.
The taxpayer in the case, InterSystems, was a Massachusetts company that licensed its Caché software to “application partners” that in turn incorporated it into their own products. One such application partner was Epic, a Wisconsin-based software company. Epic used Caché in certain software applications it developed and sold to end-users nationwide. Only a small percentage of end-users were located in Wisconsin.
The parties agreed that receipts from Epic’s internal development license from InterSystems were properly sourced to Wisconsin, but they disagreed on the proper sourcing of receipts attributable to end-users of Epic products that used Caché. InterSystems argued that these receipts should be sourced based on where the software was actually used, relying on Wisconsin’s statute that sources software receipts to the location of the purchaser or licensee’s use. The Department of Revenue argued that Epic was InterSystems’s only licensee and that the end-users were, at most, sublicensees with no direct relationship to InterSystems. On that basis, the Department argued that these receipts should be sourced to Wisconsin, Epic’s location.
The Commission sided with the Department, concluding that Wisconsin’s sourcing rule for software applies only when the taxpayer licenses software directly to the party using it. The Commission noted that Epic’s agreements with its customers did not grant the customers any direct rights in Caché apart from the right to use the software in conjunction with Epic’s applications. Epic was responsible for obtaining the necessary Caché licenses from InterSystems, and InterSystems did not negotiate license terms with Epic’s customers. The license fees Epic paid to InterSystems were calculated based on Epic’s own licensing metrics and were invoiced exclusively to Epic at its Wisconsin headquarters. There were no separate charges or billings from InterSystems directed to the end-users. Although end-users were required to agree to an InterSystems addendum, the Commission found that the addendum did not constitute a contract between InterSystems and the end-users.
Because InterSystems contracted with Epic, the Commission held that the software receipts sourcing statute did not permit looking through Epic to the end-users. The relevant sourcing inquiry stopped with Epic, the direct licensee. And without contracts between InterSystems and the end-users, the Commission concluded, there could be no licensor-licensee relationships.
The Commission’s decision is notable for two reasons. First, while look-through sourcing is becoming increasingly prevalent for business-to-business sales, the Commission’s strict, contract-based construction of the statute rejected its use. Second, the decision underscores that sourcing disputes can turn on the existence—and structure—of contracts. Taxpayers that want receipts to follow end-users should ensure their licensing arrangements clearly support that result.
The case is InterSystems Corporation v. Wisconsin Department of Revenue, No. 20-W-174 (Wisc. Tax Apps. Comm’n, Nov. 20, 2025), available at https://taxappeals.wi.gov/Documents/INTERSYSTEMS%2020W174%20112025%20TAC.pdf.