The Wisconsin Tax Appeals Commission determined online ticket marketplace StubHub is responsible for collecting and remitting sales tax on secondary tickets for events held in the state. Based on a Wisconsin Department of Revenue audit, StubHub paid no sales or use tax from 2008 to 2013. The DOR found StubHub liable for paying more than $8,495,937 in owed sales taxes.
The Wisconsin DOR argued several points, first that StubHub functioned as a person under Wisconsin Statute section 77.51(10) and was therefore responsible for collecting and remitting. In response, StubHub claimed that their company functioned solely as a passive marketplace, allowing users to sell tickets to one another without heavy interference from StubHub itself.
StubHub also claimed that the ticketholders who used the sites were considered the sellers. The Wisconsin DOR responded by arguing that StubHub provides many services that are inherently related to selling. These actions include charging transaction fees, offering ticket delivery by mail, the generation of a QR codes for secondary sales of electronic tickets, and StubHub’s FanProtect Guarantee, which replaces or refunds any nonfunctional tickets. The extensivity of the services offered to the sellers operating on their ticket selling platform- did not allow StubHub to be defined as a passive marketplace, but rather a ‘person’ selling at retail in Wisconsin.
Not only did the Wisconsin DOR argue that StubHub was the seller, but under Wisconsin Statute section 77.52(14), a seller does not need to own the good or service being exchanged to still be liable for sales tax. The sole requirement for taxability is a transfer of ownership or enjoyment of services. While StubHub did not own the tickets being sold on their marketplace, they were still responsible for the exchange of goods that occurred.
However, the Wisconsin Tax Appeals Commission determined that StubHub did not have to pay the 25% negligence penalty. The basis of their decision was Wisconsin Tax Bulletin 114 and 172, which only applies to ticket brokers. According to the Commission, StubHub was not liable for the fee because they do not buy or hold an inventory of tickets.
There are a few takeaways from this case. First- a company who is generating income within a jurisdiction should consult legal and tax aid to determine how the jurisdiction would define them by their tax laws. What are the ins and outs of how the states in which they are active define major sellers, transactions, and any other terms relevant to your business? For instance, in Wisconsin the sales tax is a transaction tax- which means the true ownership of the tickets were not relevant in determining who was responsible for the transaction tax that occurred due to the shift of ownership which was facilitated by StubHub. Then depending upon that decision, it is vital to register for a seller’s permit, file returns, and pay sales and use tax in any state you do business and achieve nexus in. Wisconsin State Law defined StubHub both as a person and as a seller, which quickly shot down many of StubHub’s arguments used during the case.
(StubHub Inc. v. Department of Revenue)