MILWAUKEE (CN) - A Wisconsin appeals panel ruled on Tuesday that online ticket sales platform StubHub is subject to a disputed state sales tax, saddling it with millions in unpaid taxes over five years and a 25% penalty.

The Wisconsin Department of Revenue audited StubHub in 2014 and notified the platform that it hadn't paid the 5% state sales tax applied to admissions to amusement, athletic and other entertainment events from 2008-2013.

StubHub appealed to the Tax Appeals Commission, which upheld the back taxes but did away with the 25% penalty initiated by the revenue department. Both parties sought review in the Dane County Circuit Court, which further muddied the waters by finding that StubHub wasn't subject to the sales tax on ticket transactions in the first place.

On Tuesday, the Wisconsin Appeals Court reversed course from the lower court and put the tax bill and the penalties back on the table for StubHub.

The company made nearly $154 million in statewide sales from 2008-2013. Following Tuesday's decision, StubHub is responsible once again for over $8 million in taxes for that period and another $8 million in penalties.  

StubHub largely argued that it didn't know that it was subject to the sales tax because it didn't know that it was a "seller" as defined by the tax code. StubHub ticket buyers pay the listing price plus any fees charged by StubHub, which the platform pockets before passing the rest to the ticketholder.

It characterizes itself as a facilitator to the ticket transaction between the ticketholder and the buyer - more like an auctioneer than a seller.

Appellate Judge Pedro Colon, writing for a three-judge panel, found this argument entirely unconvincing.

"StubHub processed the transaction, charged the ticket buyer's form of payment, deducted its fees from the payment, and then transferred the balance of that payment to the ticketholder. StubHub also provided the method and instruction for delivery of the tickets ... StubHub is in fact a seller," Colon wrote in the 18-page opinion.

The state revenue department left its argument to the dictionary, positing that a seller is someone who makes a sale, and purchasing a ticket from a website falls under the definition of a "sale."

The platform also argued that Wisconsin's Marketplace Provider Law - enacted in 2019 to clarify who is covered by the sales tax law in the face of growing litigation on the matter - is evidence that it was not subject to the law from 2008 to 2013.

The marketplace law defined "marketplace provider" as anyone who facilitates the retail sale by a seller by listing the item and a "marketplace seller" as someone who sells a product through a physical or electronic marketplace operated by the provider."

The law, Colon pointed out, was intended to clarify the intent of the sales tax law, not change it.  The revenue department approached the state Legislature with the clarification, citing several lawsuits by sellers like StubHub who claim not to be held to the sales tax law, according to Colon.

Colon also upheld the department's 25% penalty, despite arguments from StubHub that it wasn't aware it qualified as a "ticket broker" as defined by a 2011 tax bulletin.

However, the bulletin goes on to define ticket broker as someone who does not have possession of the tickets but has the right to sell them on behalf of the ticketholder and turns a profit on fees tacked onto the holder's price.

While the lower court had found the tax statute ambiguous, Colon wrote in Tuesday's opinion that the bulletin and marketplace clarification "clearly demonstrates" that StubHub is a ticket broker subject to the sales tax and willfully neglected to file sales tax returns.  

StubHub's debt to the Wisconsin Department of Revenue is just less than its total statewide sales in 2008, and nearly half of its statewide sales in 2013, its top year within the unpaid period.

The platform did not immediately respond for comment on whether it will appeal to the Wisconsin Supreme Court or pay the revenue department.

Source: Courthouse News Service