Colorado and Wisconsin Offer Conflicting Sales Tax Views of Taxpayer’s Online Learning Platform

March 30, 2022

By: Betsy Goldstein, SALT Manager

At a glance

  • The main takeaway: An online learning platform was subject to three different sales tax treatments by multiple states for the same six products and service offerings.
  • Assess the impact: These three rulings illustrate the subjective freedom that each state possesses to deliver different sales tax treatments in relation to the same or extremely similar facts, making sales tax compliance very onerous for taxpayers.
  • Take the next step: Aprio’s State and Local Tax (SALT) Team can help you review rulings from different states to accurately classify your products and services.

Schedule a free consultation today to learn more!

The full story:

In the July 2021 issue of our SALT Newsletter, we reported on an Iowa Department of Revenue declaratory order issued on a request submitted by Study.com.

As a quick refresher, Study.com (“the petitioner”) requested guidance from Iowa as to whether its six online learning platforms were subject to sales tax. The petitioner offers six learning plans that are only accessible through its online platform. The platform is a virtual learning environment that offers users access to thousands of on-demand digital courses that teach academic subjects, professional topics and vocational licensure preparation. 

Each of the six learning plans has slightly different features and target users (which include college and college-bound students, vocational students and teachers). Generally, those features include access to the materials, course questions, interactive quizzes, online proctored exams, grading information, online tutoring and guidance counselors. Access to tutoring and guidance counselors may be limited depending on the plan, but additional tutoring interactions may be purchased. All tutoring interactions are conducted through the platform’s communication portal, which functions like an email inbox, since tutoring interactions do not occur in real-time.

The petitioner earns revenue from monthly subscriptions to its platform, the price for which varies depending on the learning plan chosen by the user. Users subscribe and can access the platform using their computer or mobile device (the mobile app itself is free). The courses are not available to download, but in some cases, they may be temporarily cached.

The Iowa Department determined that all the petitioner’s subscription revenues are taxable as Software as a Service (SaaS) because the platform is hosted on the petitioner’s servers and is accessed by customers via the internet.

Recent guidance out of Colorado and Wisconsin

Interestingly, Colorado and Wisconsin have each recently issued guidance responding to ruling requests related to the taxability of the same six online learning plans.[1] What is noteworthy about these rulings is that each state views the petitioner’s platform differently for sales tax purposes.

In the Colorado ruling, the state concluded that all six online learning plans were taxable tangible personal property. Colorado imposes a sales tax on sales of tangible personal property and certain enumerated services, and the method of delivery (e.g., electronic download, internet streaming, etc.) does not impact whether an item is viewed as tangible personal property.[2] Like many states, Colorado uses a true-object test to determine the overarching objective of a transaction, which involves both the sale of tangible goods and services (often referred to as a “bundled transaction”).[3]

Regarding the online learning plans, Colorado determined that the true object of the learning plan and what makes it valuable is the pre-produced course materials such as videos and online course transcripts, and therefore, the transaction is more analogous to taxable tangible personal property.

In the Wisconsin ruling, we saw yet again a different take on the same six learning plans. Wisconsin taxes specified digital goods, including digital audiovisual works, but such items are not taxable if they are transferred incidentally with an educational service. Therefore, the state determined that Learning Plans A and B, which include evaluation by an instructor, are nontaxable educational services. Learning Plan F, which solely provides access to a tutor, is also a nontaxable service.

However, for Learning Plans C, D and E there are components of taxable digital goods (e.g., video lessons, online quiz, etc.) as well as nontaxable products (e.g., historical record of course completion, access to tutoring sessions, etc.). Since those learning plans are offered for one non-itemized price, the entire charge may be subject to sales tax as a bundled transaction of the taxable items make up more than 10% of the total sales price. However, if the seller can determine by reasonable and verifiable standards using its books and records the portion of the sale price attributable to the nontaxable items, it may collect sales tax only on the taxable portion.[4]

Each of these rulings (including the one from Iowa) illustrates that states can come to different subjective determinations as they relate to the same exact or extremely similar facts. For example, unlike Iowa, neither Colorado nor Wisconsin viewed the Study.com platform as SaaS, presumably because neither state taxes SaaS. 

The bottom line

Therefore, as tax professionals, even though we understand the types of goods or services that are taxable in each state, we often do not know how a state will classify a particular product or service. As a result, we encourage taxpayers to seek rulings from multiple states, such as those obtained by Study.com, and our SALT team can assist your business with this process. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

This article was featured in the March 2022 SALT Newsletter.

For more information, contact Betsy Goldstein at [email protected] or call 770-353-7119 or contact Jeff Glickman at [email protected] or call 770-353-4791


[1] Colorado Private Letter Ruling PLR 21-005, July 21, 2021; Wisconsin Ruling No. W2201001, October 13, 2021 (published in Wisconsin Tax Bulletin, January 2022 – Number 216, page 18).

[2] See 1 CCR 201-4 – Sales and Use Tax – 39-26-102(15)(4).

[3] See 1 CCR 201-4 – Sales and Use Tax – 39-26-102(15)(5).

[4] See Wis. Stats. §§ 77.51(f) and 77.52(20)

Disclosure

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.