We are a Utah LLC providing SAAS (software as service) on cloud available to all US market.

Wisconsin Dept of Rev. has assessed our LLC for partnership income tax, because they claim our company has nexus for income tax based on fact that our company provides service that is used by or benefits a Wisconsin-based company and (that is considered "doing business in their state".)

Tax 2.82(4)(b)

  1. Regularly performing services outside Wisconsin for which the benefits are received in Wisconsin.
  2. Regularly engaging in transactions with customers in Wisconsin that involve intangible property and result in receipts flowing to the corporation from within Wisconsin.

In our defense, we responded that we are not doing business in their state (WI) but rather conducting business on the cloud (in UT) and Wisconsin customers are purchasing from us here in Utah.

Our appeal was denied simply because of: Tax 2.82(4)(b)2. 2. Regularly selling products or services of any kind or nature to customers in Wisconsin that receive the product or service in Wisconsin.

(Just because we are on the cloud does that mean we are subject to income tax in every state that our customers use our services? That seems absurd but I am not a tax attorney).

  • Has anyone in this forum encountered such a far reaching statute?
  • Do you have any suggestions as to what to state in our appeal to the WI Commission?

2 Answers 2


I wouldn't be surprised to see other states and jurisdictions with similar statutes.

Fortunately, in the United States, there is a safe harbor against demands for state income taxes: For every dollar of taxable income, you can only be taxed by one state. (This was affirmed by the Supreme Court in 2015 in Comptroller of the Treasury of Maryland v. Wynne.) Therefore, if you show that the LLC (or its members if it's a pass-through) paid taxes to another state on the income in question (e.g., by sending a copy of the tax return), that's legally the end of the matter.


They certainly can and many do, especially after the Supreme Court's Wayfair decision. Your LLC will probably have to file tax returns in each state in which the LLC has customers (if the state has adopted a similar law) and the LLC members will probably have to file non-resident tax return in each of those states. Your home state (Utah) will probably give the LLC members credit against Utah taxes for taxes paid on the same income to the other states.

BTW, if I understand correctly, Utah has a similar law and probably would do the same to a Wisconsin LLC selling SAAS to Utah customers...

Edit: For those who still don't think this is a serious problem, I suggest referring to this review from BDO as well as to this one from the NYSSCPA. The only way to systematically address the issue is by new Federal legislation, and I don't believe one is coming in the foreseeable future.

  • 1
    Wayfair addressed sales tax. The question is about income tax.
    – feetwet
    Mar 9, 2019 at 6:58

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