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State Supreme Court decision punches another hole in state budget

A ruling on Friday by the State Supreme Court in favor of Menasha Corp., could worsen the state's budget woes.

The ruling involved the collection of sales tax on computer software purchased by Menasha Corp.

State law exempts custom software from sales and use tax, but the Wisconsin Department of Revenue claimed that the software purchased by the company was not custom software even though Menasha paid $17 million to customize it.

The Wisconsin Tax Appeals Commission initially ruled in favor of the company, but the state then appealed that decision to the Dane County Circuit Court where Judge Steven Ebert overturned the appeals commission ruling.

According to the non-partisan Legislative Fiscal Bureau the ruling could mean that the state would lose $300 million in sales tax refunds to companies which had already paid similar claims and in diminished sales tax collections.

"How it (ruling) will impact the budget depends on the timing of the distribution of refunds," said Bob Lang, LFB director.

Lang said that immediately they will have to eliminate $28-$29 million in sales tax collections the state won't be able to make.

According to Lang the state currently has a gross balance of $106 million, but the loss of sales tax revenues brings it down to approximately $77 million.

On top of that Lang said the state will need to pay out $265 million in refunds to the companies who were incorrectly taxed.

"The Department of Revenue is looking at how we can pay those off," Lang said.

The head of the Wisconsin Department of Administration said he is working with the DOR secretary to see what impact there will be on the state budget.

"The timing and extent of impacts of today's Supreme Court decision regarding corporate tax law exemptions are still being reviewed by the Department of Revenue and will likely take months to resolve," said Michael Morgan in a released statement.

Morgan added that with the current budget surplus he doesn't believe any immediate Legislative action will be needed. The Assembly Speaker agreed.

"Because of this timeline, the as-of-yet uncertainty of the refund process and the funding available in the current state budget, I do not anticipate that the Legislature will have to reconvene before the start of the next session," said Rep. Mike Huebsch, R-West Salem.

Under the ruling companies will have up to six months to apply for refunds, according to Lang.

The head of Wisconsin Manufacturer's and Commerce hailed the decision as a victory for taxpayers.

"This ruling tells tax collectors that they need to follow the law, apply the decisions of the tax appeals commission and they can't make up new law based on bureaucratic fiat," said James Haney, WMC president, in a statement released immediately following the ruling.

There is yet another case which may also impact the state budget.

Earlier this year the Wisconsin Medical Society filed a lawsuit against the state to stop a raid of $200 million from the state's patients' compensation fund to the general fund.

The fund was created in 1975 and helps lower malpractice insurance costs for doctors in the state by providing excess medical malpractice coverage.

The fund's payments cover medical bill and replace lost income for injured patients.

All physicians and certain other health care providers in the state are required to pay into the fund each year.

WMS claims the state can't take money out of the fund because the money is not taxpayers' money.

Contact Brady Bautch at