The Wisconsin Tax Appeals Commission held that a taxpayer could not look through an intermediary and source receipts to the location of software use by end-users.

The taxpayer created database management system software to be used by the software developers. Epic Systems Corporation (Epic), a Wisconsin-based software developer, created and licensed software used in the healthcare community. The taxpayer’s agreement with Epic granted Epic the right to use taxpayer’s database software in developing Epic’s own software. The taxpayer’s database software was used in conjunction with Epic’s healthcare software.

The parties agreed that amounts Epic paid to the taxpayer for Epic’s use of the internal development licenses should be sourced to Wisconsin, but the dispute related to amounts paid to the taxpayer that were generated as part of Epic’s sale of Epic’s own healthcare software to end-users. End-users purchasing Epic’s healthcare software were required as part of their purchase to acquire the separate right to use taxpayer’s database software in order for Epic’s software to function. The department framed this transaction as Epic selling a sublicense of the taxpayer’s database software to its end-users, and therefore, the department argued, the state sourcing provision focusing on the end-users of software did not apply as it only relates to licensors and licensees, instead of sub-licensors and sub-licensees. The taxpayer countered that, because Epic did not have the authority to independently issue license keys, end-users had a direct relationship with the taxpayer, and therefore receipts from these transactions should be sourced to the location where the software was used by end-users. The Commission determined that since there was no valid contract between the taxpayer and end-users, the end-users of Epic’s software were not licensees of the taxpayer, and therefore sourcing receipts to their location of use was inappropriate. Instead, the Commission determined that because Epic was billed at a Wisconsin address, this income was appropriately sourced to Wisconsin under the second and third factors of the provisions for sourcing royalties and intangible property (i.e., billing address and commercial domicile, respectively).

Intersystems, Docket No. 20W174 (Wis. Tax Appeals Comm’n Nov. 20, 2025).