Thursday, May 31, 2007

Really, Really, Really Big Case for WI Supremes

This is a major case. Watch it carefully.

The Wisconsin Supreme Court agreed Wednesday to decide whether the state incorrectly charged sales tax on a companywide software package installed by the Menasha Corp. in the 1990s, a widely followed case that could result in hundreds of millions of dollars of refunds to firms across the state.

That'll blow a hole in DarthDoyle's Fantasyland budget...about $350 million worth.

The case is a test of the definition of modified software under Wisconsin law.

Modified software is not subject to sales tax, whereas off-the-shelf programs, such as those sold in boxes at retail outlets, are taxed.

In the Menasha case, the company purchased a multimillion-dollar software package from the German company SAP in the mid-1990s and then adapted it for its own uses.

Menasha, based in Neenah, is a privately held company that has sales of about $850 million annually making packaging at plants across the United States.

The state imposed a sales tax on the purchase, which Menasha paid and then appealed. The state Tax Appeals Commission ruled in favor of Menasha, but Dane County Circuit Judge Steven D. Ebert later ruled that the Wisconsin Department of Revenue was correct in assessing the sales tax.

Earlier this year, the Court of Appeals in Madison reversed Ebert's ruling and said the tax should not have been assessed.

Menasha contends that its modifications were substantial enough so that "package" does not apply. This ain't like TurboTax. SAP software requires significant tailoring for most installations; IIRC, a Milwaukee-area company spent over 4 years rewriting and tweaking code to get the system up and running.


M.Z. said...

I hope the court has some technical expertise to aid in deciding this. I've never done an SAP installation. I've never done an ERP installation for that matter. For a local company, I have heard it took 2 years to get everything flowing well, so your friend is definately correct that this isn't Turbo Tax.

SAP definitely sells an ERP product. The software (from my understanding) has very loose hooks into it so that all the production software can plug into it. If I were to guess, I would say it is about 80% product and 20% custom creation. The only similar thing I can think of would be bundling a web server with a web site design. The parallel breaks down on several levels though.

Dad29 said...

"Loose hooks" are useful if the processes actually match the SAP design.

Menasha is really a processor, not a "BOM"-style manufacturer. And, of course, in this case, we don't know if Menasha's prior production s/w was ditched or retained.

Don't even know if it was Mainframe or mid-range (AS400)--or even if they were running Big Blue.