Title: Wisconsin Department of Revenue v. Menasha Corporation
Citation: 2008 WI 88
Docket Number: 2004AP003239
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: July 11, 2008

2008 WI 88 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
CASE NO.: 
2004AP3239 
COMPLETE TITLE: 
 
 
Wisconsin Department of Revenue, 
          Petitioner-Respondent-Petitioner, 
     v. 
Menasha Corporation, 
          Respondent-Appellant. 
 
 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2007 WI App 20 
Reported at: 299 Wis. 2d 348, 728 N.W.2d 738 
(Ct. App. 2007-Published) 
 
 
OPINION FILED: 
July 11, 2008   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
November 29, 2007   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Dane   
 
JUDGE: 
Steven D. Ebert   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
CROOKS, J., concurs (opinion filed). 
PROSSER and ROGGENSACK, JJ., join the 
concurrence.   
 
DISSENTED: 
ABRAHAMSON, C.J., dissents (opinion filed). 
BRADLEY and BUTLER, JR., JJ., join the dissent. 
 
BRADLEY, J., dissents (opinion filed). 
BUTLER, JR., J., joins dissent.   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the petitioner-respondent-petitioner the cause was 
argued by F. Thomas Creeron III, assistant attorney general, 
with whom on the briefs was J.B. Van Hollen, attorney general. 
 
For the respondent-appellant there were briefs by Andrew L. 
Nelson, Michael B. Van Sicklen, and Foley & Lardner LLP, 
Madison, and Maureen A. McGinnity and Foley & Lardner LLP, 
Milwaukee, and oral argument by Maureen A. McGinnity. 
 
An amicus curiae brief was filed by Rebecca Kathryn Mason, 
Brady Williamson, and Godfrey & Kahn, S.C., Madison, on behalf 
of Wisconsin Manufacturers & Commerce. 
 
 
2008 WI 88
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2004AP3239  
(L.C. No. 
2003CV3922) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Wisconsin Department of Revenue, 
 
          Petitioner-Respondent-Petitioner, 
 
     v. 
 
Menasha Corporation, 
 
          Respondent-Appellant. 
 
FILED 
 
JUL 11, 2008 
 
David R. Schanker 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
ANNETTE KINGSLAND ZIEGLER, J.   This is a review of a 
published court of appeals' decision,1 which reversed the 
decision of the Dane County Circuit Court, Steven D. Ebert, 
Judge.  In the underlying dispute between Menasha Corporation 
(Menasha) and the Wisconsin Department of Revenue (DOR), the 
Wisconsin Tax Appeals Commission2 (Commission) concluded that the 
                                                 
1 DOR v. Menasha Corp., 2007 WI App 20, 299 Wis. 2d 348, 728 
N.W.2d 738.  
2 The Wisconsin Tax Appeals Commission decision, Menasha 
Corp. v. DOR, Wis. Tax Rptr. (CCH) ¶400-719 (WTAC 2003) is also 
available 
as 
Docket 
No. 
01-S-72 
(filing 
12/01/03) 
at 
http://www.wisbar.org/AM/CustomSource/ASPCode/caseindex.asp?Area
=4 (last visited 07/01/08). 
No. 
2004AP3239   
 
2 
 
"R/3 System," which Menasha purchased from SAP, was a custom 
computer program under Wis. Admin. Code § Tax 11.71(1)(e) (Sept. 
2006),3 and thus, the R/3 System was exempt from sales and use 
tax.  See Wis. Stat. § 77.51(20) (2003-04).4  The DOR appealed 
                                                 
3 All subsequent references to the Wisconsin Administrative 
Code are to the September 2006 version unless otherwise 
indicated. 
4 All subsequent references to the Wisconsin Statutes are to 
the 2003-04 version unless otherwise indicated.  
Wisconsin Stat. § 77.51(20) provides: 
"Tangible 
personal 
property" 
means 
all 
tangible 
personal property of every kind and description and 
includes electricity, natural gas, steam and water and 
also leased property affixed to realty if the lessor 
has the right to remove the property upon breach or 
termination of the lease agreement, unless the lessor 
of the property is also the lessor of the realty to 
which the property is affixed.  "Tangible personal 
property" also includes coins and stamps of the United 
States sold or traded as collectors' items above their 
face 
value 
and 
computer 
programs 
except 
custom 
computer programs. 
Wisconsin Admin. Code § Tax 11.71(1)(e) provides: 
"Custom 
programs" 
mean 
utility 
and 
application 
software which accommodate the special processing 
needs of the customer. The determination of whether a 
program is a custom program shall be based upon all 
the facts and circumstances, including the following: 
1. The extent to which the vendor or independent 
consultant engages in significant presale consultation 
and analysis of the user's requirements and system. 
2. Whether 
the 
program 
is 
loaded 
into 
the 
customer's computer by the vendor and the extent to 
which the installed program must be tested against the 
program's specifications. 
No. 
2004AP3239   
 
3 
 
that decision to the Dane County Circuit Court.  The circuit 
court reversed the Commission's decision and concluded that the 
R/3 System was a non-custom software program and thus was 
taxable as tangible property.  Menasha then appealed that 
decision to the court of appeals.  The court of appeals reversed 
the 
circuit 
court's 
decision 
and 
therefore 
affirmed 
the 
Commission's initial decision that the R/3 System was custom and 
thus exempt from sales and use tax.  We affirm the court of 
appeals' decision. 
¶2 
This appeal presents the following two issues: (1) 
what is the proper level of deference that this court should 
give to the Commission's decision; and (2) did the Commission 
reasonably conclude that the R/3 System was a custom program and 
therefore not subject to sales and use tax. 
                                                                                                                                                             
3. The extent to which the use of the software 
requires 
substantial 
training 
of 
the 
customer's 
personnel and substantial written documentation. 
4. The extent to which the enhancement and 
maintenance support by the vendor is needed for 
continued usefulness. 
5. There is a rebuttable presumption that any 
program with a cost of $10,000 or less is not a custom 
program. 
6. Custom 
programs 
do 
not 
include 
basic 
operational programs or prewritten programs. 
7. If 
an 
existing 
program 
is 
selected 
for 
modification, there must be a significant modification 
of that program by the vendor so that it may be used 
in the customer's specific hardware and software 
environment.  
No. 
2004AP3239   
 
4 
 
¶3 
As to the first issue, we consider the level of 
deference that this court must give to the Commission's 
interpretation of the statute and the administrative rule.  As a 
part of that determination, we also consider whether the 
Commission 
was 
required 
to 
give 
deference 
to 
the 
DOR's 
interpretation of Wis. Admin. Code § Tax 11.71(1)(e).  We 
conclude that the Commission's statutory interpretation of Wis. 
Stat. § 77.51(20) is entitled to due weight deference and that 
its rule interpretation of Wis. Admin. Code § Tax 11.71(1)(e) is  
entitled to controlling weight deference.  We further conclude 
that when a DOR decision is appealed by the taxpayer to the 
Commission, the Commission is not required to give deference to 
the DOR's interpretation of Wis. Admin. Code § Tax 11.71(1)(e) 
when deciding that appeal.    
¶4 
The second issue this court must decide is whether the 
Commission reasonably concluded that the R/3 System was a custom 
program and therefore not subject to sales and use tax.  We 
conclude that when applying the controlling weight deference 
standard to the Commission's interpretation of Wis. Admin. Code 
§ Tax 11.71(1)(e), the Commission reasonably interpreted the 
rule and concluded that the R/3 System was custom.  
¶5 
This decision has great import to the average taxpayer 
in this state.  More typically, it is the individual taxpayer 
who seeks a fair and neutral hearing before the Commission when 
that person believes that he or she has been taxed incorrectly 
by the DOR.  If the Commission must defer to the DOR, the 
average taxpayer does not receive a fair hearing before a 
No. 
2004AP3239   
 
5 
 
neutral tribunal.  Although the Commission is subject to 
judicial 
review, the legislature specifically charged the 
Commission as "the final authority for hearing and determination 
of all questions of law and fact" under the tax code.  We must 
not second guess that act of the legislature. 
No. 
2004AP3239   
 
6 
 
I. UNDISPUTED FACTS 
¶6 
The Commission made the following findings of fact in 
the underlying dispute:5  Menasha is a Wisconsin corporation with 
headquarters in Neenah, Wisconsin.  It has more than 5,700 
employees and maintains 63 business locations in 20 states and 8 
countries. 
 In 1993, Menasha, in an effort to address 
shortcomings in its systems, hired an independent accounting 
firm to evaluate its business and accounting software systems.  
Menasha sought an application software system that would 
accommodate its special processing needs.  The independent 
consultant recommended that Menasha "standardize its systems by 
implementing a single business software environment to serve as 
the foundation information system for all of [Menasha's] 
                                                 
5 At 
summary 
judgment 
before 
the 
Commission, 
Menasha 
submitted its proposed Undisputed Material Facts.  In response, 
the DOR agreed with the bulk of Menasha's submissions and 
submitted additional proposed Undisputed Material Facts.  On 
facts with which the parties agree, the Commission treated the 
agreements as a stipulation of facts.  Where disagreements 
arose, the Commission addressed the differences and resolved any 
disagreements.  Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) ¶400-
719, at 32,849-54 (WTAC 2003).  At the court of appeals, the DOR 
argued that there were genuine issues of material fact and thus 
summary judgment was improperly granted.  The DOR challenged two 
undisputed facts at the court of appeals.  However, the court of 
appeals affirmed the Commission's conclusions and stated, "we 
agree with the commission that the arguments the DOR raises in 
relation to Undisputed Material Facts #29 and #47 are either 
unsupported by the evidence or do not otherwise create a genuine 
issue of material fact."  Menasha, 299 Wis. 2d 348, ¶41.  Thus, 
the court of appeals concluded that summary judgment was proper.  
The DOR did not raise this argument with this court, although it 
did comment on the Commission's action regarding some facts in 
its statement of the case.  Accordingly, we treat the facts 
found by the Commission as undisputed.   
No. 
2004AP3239   
 
7 
 
business 
locations." 
 
The 
independent 
consultant 
also 
recommended that another consulting firm conduct feasibility 
studies to determine if a software system could integrate all of 
Menasha's subsidiaries.  With its consultants, Menasha concluded 
that "one" global application software system was feasible for 
Menasha's needs, but "this conclusion was predicated on locating 
a software system which would allow custom modification to meet 
[Menasha's] unique business requirements." 
¶7 
In April of 1995, Menasha began discussions with SAP 
regarding its R/3 System and made it clear that "a critical 
factor in its selection of a software system was one that could 
be customized to fit its business needs."  The initial R/3 
System consists of more than 70 software modules each of which 
is designed to "provide a rudimentary business and accounting 
computer software system for a segment of the client's business" 
such as "accounting and finance" or "personnel."  The client, in 
this case Menasha, can select the modules it wishes to use.  SAP 
provides a company, such as Menasha, with CD-ROMs containing all 
of the R/3 System modules, but SAP provides the client with the 
access codes only for modules that the client licenses for its 
particular business operation.   
¶8 
"As provided, the basic modules of the R/3 System 
contain a business and accounting system that must be customized 
to fit a client's business operations."  "It is only after this 
customization process is completed that the client has a usable 
software system that will serve its business and accounting 
needs."  In other words, the system is not usable to a client as 
No. 
2004AP3239   
 
8 
 
sold and must be modified to fit a client's business operations.  
By use of a computer language——ABAP/4——the R/3 System is 
customized.  However, "the ABAP programming is part of a larger 
development environment within the R/3 System called the 
Development Workbench, which offers many tools for customizing 
the R/3 System to fit a customer's business needs."  SAPScript 
is used, within the Development Workbench, to create client-
specific forms.  Data Dictionary Objects "is used for changing 
and adding fields to tables provided by the basic R/3 System 
modules," and Data Dictionary Objects "is also used to create 
search helps" and "to create indices to make table access times 
more efficient."  
¶9 
"The two most common uses for ABAP are to permit the 
design of custom reports and to develop custom interfaces for 
the R/3 System."  However, the ABAP programming is also used in 
the "creation of conversion programs that change data into a 
format usable by the R/3 System, and the creation of custom 
programs to run parallel to the R/3 System to fulfill business 
functions not provided by the R/3 System."  By virtue of the 
licensing of the R/3 System, SAP customers "almost always retain 
either SAP or SAP's designated consultants to assist" in 
customizing the basic R/3 System. 
¶10 When arguing to the Commission, the parties disagreed 
over how to characterize the sophistication of the initial or 
basic R/3 System modules that are provided to all customers.  
Menasha argued that the R/3 System provided "only a very basic" 
business and accounting system.  The DOR, on the other hand, 
No. 
2004AP3239   
 
9 
 
argued that the modules provided a "sophisticated" business and 
accounting 
system. 
 The DOR cited to two treatises on 
implementing the R/3 System for its assertions regarding the 
sophistication of the R/3 System.  The Commission, however, 
concluded that excerpts from the treatises that the DOR cites to 
"appear to describe the overall R/3 System and do not 
specifically address the [initial or basic] R/3 System modules."  
Furthermore, the Commission concluded that the "sophistication 
of the modules is largely immaterial because both parties agree 
that the R/3 System modules are only usable once the software 
system has been customized." 
¶11 On April 20, 1995, SAP conducted a demonstration of 
its R/3 System.  Following the initial demonstration, SAP was 
asked to conduct a demonstration with sample data from Menasha.  
Prior to preparing the demonstration, SAP spent a number of days 
at Menasha collecting information regarding Menasha's business 
operations, and SAP had extended conversations with Menasha's 
officers and employees regarding its diverse operations.  It 
took SAP four weeks to prepare the demonstration.  Menasha 
subsequently 
requested 
additional 
explanations 
and 
clarifications 
on 
the 
modification 
tools 
and 
techniques 
available within the R/3 System and a demonstration of the ABAP 
programming tools used to make modifications to the system. 
¶12 Menasha understood that the requisite customization 
process could take years to complete and would cost tens of 
millions of dollars.  Menasha's budget for purchasing the R/3 
System included the costs that it expected to pay both SAP and 
No. 
2004AP3239   
 
10 
 
SAP's 
designated 
consultants 
for 
the 
configuration, 
modification, and customization of the R/3 System.  In addition, 
Menasha understood that "without this customization, the system 
would be of no value to its operations."  "The customization was 
necessary to justify any amount spent on the licensing of the 
basic R/3 System modules."  Menasha's board of directors 
approved the licensing of the R/3 System acknowledging that the 
projected 
cost 
of 
implementation 
would 
be 
approximately 
$46,575,000. 
¶13 Menasha purchased the R/3 System from SAP on September 
27, 1995, for $5.2 million.  The licensing agreement contained 
no provision for customization of the R/3 System by SAP.  
However, 
SAP 
had 
advised 
Menasha 
during 
the 
course 
of 
demonstrations that because of the complexities of the system 
and substantial customization necessary to make the R/3 System 
usable, 
Menasha 
would 
be 
required 
to 
retain 
either 
SAP 
consultants or a consultant designated by SAP.  Because SAP was 
unable to supply all of the necessary consultants for the 
installation and customization of the R/3 System, Menasha would 
have to work with one of the SAP designated consultants.  
Menasha 
chose 
ICS 
Deloitte 
(ICS) 
as 
its 
designated 
SAP 
consultant. 
¶14 From September 1995 until March 1996, Menasha worked 
with ICS to analyze Menasha's systems, prepare Menasha's 
hardware for installation, and begin introducing Menasha's 
technology team to the intricacies of customizing the R/3 
System.  During the pre-installation phase, SAP representatives 
No. 
2004AP3239   
 
11 
 
provided training and other support such as: providing a single 
point 
of 
contact 
for 
all 
questions, 
concerns, 
and 
communications; keeping abreast of project plans and status; 
providing SAP issue resolution and escalation; providing input 
as an implementation consultant; scheduling of professional 
services from SAP; assisting in creating a training curriculum; 
assisting with the planning and execution of the project plans; 
and communicating SAP product information.   
¶15 The R/3 System was delivered to Menasha on multiple 
CD-ROM disks.  Initial installation began on March 25, 1996, and 
downloading was complete on March 27, 1996.  A former employee 
of SAP loaded the R/3 System onto a new computer purchased by 
Menasha.  This former SAP employee was retained for the specific 
purpose of providing support in the initial installation of the 
system.  During this time, SAP's former employee had access to 
SAP's online support system. 
¶16 The R/3 System, upon delivery, did not provide 
adequate processing for Menasha.  Each subsidiary put together 
an implementation team consisting of Menasha's information 
support personnel, SAP representatives, ICS representatives, and 
other 
third-party 
consultants. 
 
"The 
members 
of 
the 
implementation team worked under the direction of SAP and ICS [] 
to determine the operational and functional needs of each of 
[Menasha's] subsidiaries in order to configure and customize the 
basic modules of the R/3 System to fit the needs of each 
subsidiary."  If the implementation team was not able to 
configure and modify the R/3 System, the team would refer the 
No. 
2004AP3239   
 
12 
 
problem——described 
as 
a 
"functional 
gap"——to 
the 
ABAP 
programming team.  "The programming team's job was to draft ABAP 
code to fill the functional gaps or to integrate the R/3 System 
with other systems that could provide the functionality required 
by the subsidiary."  The ABAP programming team was directed by 
SAP and ICS and included people from Menasha and third-party 
consultants.  Menasha contracted with SAP to provide an on-site 
programmer who worked with the ABAP programming team and became 
a member of a subsidiaries programming team.   
¶17 The implementation and ABAP programming team members 
worked to customize the R/3 System from March 27, 1996, to 
January 1, 1997, in order to meet Menasha's functional needs.  
"[T]he ABAP programming team created codes for hundreds of user 
exits to the R/3 System to integrate external programs with the 
R/3 System."  In addition, "the ABAP programming team created 
new subsystems to run parallel to the R/3 System for operations 
that were not available within the R/3 System, but were critical 
to [Menasha's] business."  The ABAP programming team customized 
fields and reports within the R/3 System.   
¶18 In total, more than 3,000 modifications were made to 
Menasha's R/3 System by the implementation and programming 
teams.  Throughout, SAP representatives provided both off- and 
on-site technical and functional support to Menasha directly and 
through ICS.  SAP also provided "patches" for the R/3 System to 
correct functional gaps.  "Some of these patches included new 
source code written specifically for [Menasha's] system, to 
No. 
2004AP3239   
 
13 
 
address the shortfalls of the R/3 System as it applied to 
[Menasha's] business."   
¶19 Once customization was completed, Menasha worked with 
SAP and ICS to test the R/3 System to ensure it complied with 
Menasha's operations requirements.  Testing lasted three to four 
months and included running real data through the system to 
determine 
whether 
it 
was 
operational 
in 
accordance 
with 
Menasha's required specifications.  During testing, SAP, either 
directly or through ICS, provided off- and on-site technical 
support to Menasha and assisted in trouble-shooting problems 
during testing.   
¶20 After testing was complete, all relevant employees 
from all subsidiaries were required to attend two- to five-day 
classes provided by ICS and Menasha's information support staff.  
ICS and Menasha's information support staff prepared extensive 
written materials for training Menasha's employees.  Information 
support staff was also required to attend additional training 
classes for maintaining and making modifications to trouble-
shoot problems once the R/3 System was in use.  SAP provided 
Menasha and ICS with extensive material for the running and 
maintenance of the R/3 System. 
¶21 Once training was completed, Menasha began to switch 
to the new R/3 System.  Because further customization for each 
subsidiary was required, Menasha elected to implement the R/3 
System on a subsidiary-by-subsidiary basis.  The implementation 
of the R/3 System took nearly seven years.  SAP representatives 
and ICS provided support to Menasha and assisted in solving any 
No. 
2004AP3239   
 
14 
 
operational problems that occurred.  At least 23 different SAP 
consultants were involved in the on-site installation and 
implementation.  Menasha continues to contact SAP on a weekly 
basis for assistance and support.  In addition, SAP provides 
Menasha with upgrades, new releases, and patches to the R/3 
System on at least a quarterly basis. 
¶22 The installation and customization of the R/3 System 
cost more than $23 million of which $5.2 million was for the 
core R/3 System.  To customize the system for Menasha's 
business, Menasha paid SAP $2.5 million, ICS approximately $13 
million, and third-party consultants approximately $775,000.   
¶23 In 1998, the DOR audited SAP.  In that audit, the DOR 
determined that the R/3 System was non-custom and thus taxable.  
SAP did not dispute that determination.6  Separately, SAP and 
Menasha entered into an agreement whereby Menasha would pay 
$342,614.45 in sales tax for the R/3 System but that Menasha 
would dispute that payment and file a claim for a refund.  The 
                                                 
6 While SAP agreed with the DOR——during the course of an 
audit——that the R/3 System was non-custom and thus subject to 
sales tax, the Commission found SAP's admission to be of "no 
value."  The Commission concluded, "SAP is not a party to this 
proceeding, and, therefore, its admission is neither binding nor 
probative in this case.  There may be any number of possible 
reasons why SAP elected to pay sales and use tax on its sale of 
the R/3 software, including reasons that may not reflect the 
merits of the issues raised in this case."  We agree.  SAP did 
not pay Menasha's taxes.  SAP's agreement with the DOR has no 
precedential effect in this case.  One's decision not to contest 
a matter is not binding on another who wishes to have its case 
heard 
and 
receive 
a 
full 
determination 
on 
the 
merits.  
Accordingly, we conclude that the Commission's conclusions were 
reasonable. 
No. 
2004AP3239   
 
15 
 
Commission found the following undisputed facts regarding that 
audit: 
65. During 
1998, 
[DOR] 
audited 
the 
American 
subsidiary of SAP for liability under Wisconsin's 
sales and use taxes for the period 1991 through 1997. 
66. In the course of the audit, SAP and [DOR] 
agreed that SAP's sales of R/3 software in Wisconsin 
were subject to Wisconsin's sales tax as sales of 
noncustom software.  [DOR] reached this determination 
for [reasons including R/3 sales being (1) "off-the-
shelf" standardized software, i.e., written before the 
sale and intended for a wide variety of customers; (2) 
lack of pre-shipment modification to R/3 modules; (3) 
the delivery of existing R/3 software modules to all 
customers regardless of individual contracts; (4) 
SAP's delivery of "keys" to customers that would 
access 
particular 
modules 
delivered; 
(5) 
that 
development tools like ABAP/4 were only enhancements 
which did not change the R/3 source code; (6)-(7) that 
the implementation of original base modules is a 
complex, 
lengthy 
process 
with 
many 
stages 
and 
processes; (8)-(9) that it is rare for customers to 
implement R/3 on their own, so customers have the 
option of hiring SPA [sic] consultants or logo 
partners to help with implementation; (10) that "SAP 
keeps the licensing and maintenance agreement separate 
for many contracts and/or agreements for consulting 
services;" (11) that SAP's transactions with Menasha 
were similar to other R/3 sales, "and in each case, 
SAP agreed that the sale was of noncustom software"; 
(12) that SAP's release of software upgrades, routine 
maintenance updates, and patches, are general in 
nature; 
and 
(13) 
changes 
to 
customer-specific 
functionality and user exit type programs are the 
customer's responsibility]. 
67. As a consequence of the agreement by SAP that 
sales of the R/3 program modules were taxable, SAP 
paid [DOR] more than $1.9 million in tax and interest 
for sales to Wisconsin customers and agreed to collect 
sales and use tax thereafter.  This figure did not 
include sales to [Menasha because Menasha] provided 
SAP with a statement that [it] would directly pay the 
sales tax, which [it] did. . . .  
No. 
2004AP3239   
 
16 
 
DOR v. Menasha Corp., 2007 WI App 20, ¶17, 299 Wis. 2d 348, 728 
N.W.2d 738 (citing Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 
¶400-719, at 32,847-48 (WTAC 2003)). 
II. PROCEDURAL FACTS 
¶24 Although the date is unknown from the record before 
us, Menasha initially paid sales and use tax for the R/3 System.  
However, on June 30, 1998, Menasha filed a refund claim with the 
DOR in the amount of $342,614.45 for the sales and use tax it 
had paid.7  On April 28, 1999, the DOR denied Menasha's refund 
claim.  Menasha then petitioned the DOR for a redetermination.  
On March 1, 2001, the DOR denied that request, and as a result, 
on April 27, 2002, Menasha requested that the Commission review 
the DOR's determination.  Appearing before the Commission, both 
Menasha and the DOR filed separate motions for summary judgment.  
Accordingly, both parties submitted briefs, proposed findings of 
fact, affidavits, and exhibits.  On December 1, 2003, the 
Commission granted Menasha's motion for summary judgment and 
denied the DOR's motion for summary judgment.  The Commission, 
thereby, reversed the DOR's denial of Menasha's petition for 
redetermination and granted Menasha's refund claim.  The 
Commission concluded that the R/3 System was custom and not 
subject to sales and use tax.  The DOR then petitioned the Dane 
County 
Circuit 
Court 
for 
review 
pursuant 
to 
Wis. 
Stat. 
§§ 73.015(2), 227.52 and 227.53.  Both parties again moved for 
                                                 
7 This refund claim is based upon the tax that Menasha paid 
on the basic R/3 System that it purchased from SAP for $5.2 
million. 
No. 
2004AP3239   
 
17 
 
summary judgment and submitted briefs, affidavits, and exhibits.  
The Dane County Circuit Court vacated the Commission's decision 
and reinstated the DOR's determination that the refund should be 
denied because the R/3 System was not custom.  Menasha appealed 
the circuit court's decision.  The court of appeals reversed the 
circuit court's decision and affirmed the Commission's decision, 
which granted Menasha a refund for sales and use tax paid on the 
R/3 System because it was custom.   
A. Tax Appeals Commission's Decision 
¶25 Menasha petitioned the Commission for review of the 
DOR's determination.  The DOR had determined that the R/3 System 
was not custom and, therefore, it was subject to sales and use 
tax.8  Both parties moved for summary judgment and submitted 
briefs, proposed findings of facts, affidavits, and exhibits.  
Thus, both parties, Menasha and the DOR, had the opportunity to 
present their respective arguments to the Commission.  The 
Commission concluded that no genuine issues of material fact 
existed, and as a result, decided the matter at summary 
judgment.  The Commission concluded that the R/3 System was "a 
custom program because of the significant investment [Menasha] 
made in presale consultation and analysis, testing, training, 
written documentation, enhancement, and maintenance support, and 
because it [was] not a prewritten program."  As a result, it 
                                                 
8 The Commission's Practice and Procedures is available at 
http://www.wisbar.org/AM/Template.cfm?Section=Legal_Research&Tem
plate=/CM/ContentDisplay.cfm&ContentID=32054 
(Last 
visited 
07/01/08). 
No. 
2004AP3239   
 
18 
 
found the R/3 System exempt from sales and use tax.  The 
Commission turned to the definition of "custom" in Wis. Admin. 
Code § Tax 11.71(1)(e).  That definition instructs one to 
consider "all the facts and circumstances," and it recites seven 
factors to be considered.  The Commission concluded that every 
factor need not be met for the program to be deemed custom, but 
rather, it determined that the factors in the rule are to be 
weighed along with all the other facts and circumstances.9   
¶26 The Commission considered each factor.  Under the 
first factor, regarding presale consultation, the Commission 
found the DOR had conceded that significant presale consultation 
and analysis occurred.  Under the second factor, regarding 
loading and testing of the software, the Commission found that a 
former SAP employee loaded the software and thus, "[a]rguably, 
this part of the factor is a draw," but "the fact that a former 
SAP employee loaded the software weighs in favor of finding that 
the software at issue is custom software."  Factor two also 
includes testing as a consideration and the Commission concluded 
that the testing——regardless of who conducted the testing——took 
three to four months, and thus, the second factor supported the 
conclusion that the software was custom. 
¶27 Under the third factor, regarding training and written 
documentation, the Commission found that the DOR conceded that 
substantial training and written documentation was required.  
Under the fourth factor, regarding enhancement and maintenance 
                                                 
9 See Wis. Admin. Code § Tax 11.71(1)(e). 
No. 
2004AP3239   
 
19 
 
support, the Commission found that the DOR conceded that the R/3 
System needed enhancement and maintenance support.  Under the 
fifth factor, regarding a rebuttable presumption that a program 
is not custom if it cost $10,000 or less, the Commission 
concluded that factor five did not apply because the cost 
greatly exceeded $10,000. 
¶28 The Commission determined, with regard to factor six, 
that "[t]his case hinge[d] on whether the R/3 System [was] a 
prewritten program."  "The other factors set forth in the rule 
either lead to a conclusion that the R/3 System is custom 
software or are neutral."  The Commission concluded that the R/3 
System was not a prewritten program under the rule's definition 
of "prewritten."  Wisconsin Admin. Code § Tax 11.71(1)(k) 
states:  
"Prewritten programs", often referred to as "canned 
programs", means programs prepared, held or existing 
for general use normally for more than one customer, 
including programs developed for in-house use or 
custom program use which are subsequently held or 
offered for sale or lease. 
(Emphasis added.) 
¶29 The Commission utilized the rule's definition of 
"prewritten" and reasoned that the R/3 System was not prepared, 
held or existing for general use.  The DOR urged the Commission 
to consider the dictionary definition of "prewritten," but the 
Commission rejected this argument because the definition of 
"prewritten" was provided by the rule.   
¶30 The DOR also utilized "numerous descriptions of the 
R/3 System as providing standard solutions or being a standard 
No. 
2004AP3239   
 
20 
 
package" (emphasis omitted).  The Commission, however, concluded 
the DOR "appears to equate the rule's phrase 'general use' with 
standard.  This misses the point."  The Commission reasoned that 
"[t]he issue is not whether the end result is a program that 
provides 
standard 
business 
applications, 
but 
rather 
the 
obstacles one must overcome to get to apply the software."  
Thus, the Commission declined to construe the phrase "general 
use" with the word "standard" as the DOR repeatedly described 
the R/3 System as "providing standard solutions or being a 
standard package." "What matters[, the Commission concluded,] is 
the process by which the application is accomplished, regardless 
of whether the application is standard or not."   
¶31 Under the DOR's analysis, the Commission stated, "a 
vendor 
could 
develop 
a 
software 
program 
completely 
from 
scratch . . . , and if the resulting program provided standard 
business 
applications, 
the 
software 
would 
not 
be 
custom 
software."  This, however, the Commission concluded "does not 
make sense." 
¶32 The Commission stated that "even the [DOR] concedes 
the following" facts: 
1. The basic modules of the R/3 System must be subject 
to a certain degree of customization, and it is 
only after this customization process is complete 
that the client has a usable software system; 
2. As delivered, the R/3 System was inadequate for 
petitioner's use; 
3. Members of petitioner's implementation team working 
with 
SAP 
and 
ICS 
Deloitte 
determined 
the 
No. 
2004AP3239   
 
21 
 
operational and functional needs of each subsidiary 
in order to configure and customize the system; 
4. The implementation team worked to configure and 
modify the R/3 System to adapt the system to each 
subsidiary's identified needs; 
5. The implementation and ABAP programming teams 
worked to customize the R/3 System to meet 
petitioner's functional needs; 
6. The ABAP programming teams created codes for 
hundreds of user exits to integrate external 
programs with the R/3 System, so that petitioner 
was able to realize the functionality needed for 
its unique business while preserving the functional 
efficiencies of the R/3 System; 
7. The ABAP programming teams created new subsystems 
to run parallel to the R/3 System for operations 
not available within the R/3 System more critical 
to petitioner's business; 
8. The ABAP programming teams customized fields and 
reports within the R/3 System to insure it produced 
output to be useful to petitioner's business; 
9. SAP provided petitioner with patches to correct 
functional gaps identified during implementation, 
some of which included new source code written to 
address shortfalls of the R/3 System; 
10. 
In total, more than 3,000 modifications were made 
to petitioner's R/3 System. 
Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) ¶400-719, at 32,855-
56 (WTAC 2003). 
¶33 Therefore, 
the 
Commission 
concluded, 
it 
took 
a 
significant amount of time, effort, and resources to make the 
R/3 System usable for Menasha.  "The distinction between custom 
and prewritten programs hinges on the amount of effort necessary 
to get the software operational for the particular customer's 
needs."  Because of the substantial amount of resources, time, 
No. 
2004AP3239   
 
22 
 
and effort needed to make the R/3 System usable, the Commission 
stated, "we cannot conclude that the software at issue is 
prewritten."  The Commission reasoned that if a program exists 
for general use, it will take little effort for it to be put in 
place for any user, whereas, if a program is useful only after a 
significant 
investment 
in 
"planning, 
testing, 
training, 
enhancement, and maintenance, then the software cannot be said 
to be prepared, held or existing for general use." 
¶34 Under factor seven, regarding significant modification 
to an existing program, the Commission concluded that this 
factor did not apply in this case because the R/3 System was a 
custom program rather than an existing program.  The Commission 
stated, "[t]his factor only makes sense in the overall scheme 
presented by [Wis. Admin. Code] section Tax 11.71(1)(e) if one 
concludes that 'existing program' means an 'existing program for 
general use' as that phrase is used in the definition of 
'prewritten 
programs' 
in 
[Wis. 
Admin. 
Code] 
section 
Tax 
11.71(1)(k)."    
¶35 Finally, because all facts and circumstances must be 
considered, the Commission considered the cost of the software.  
It reasoned that because there is a presumption that anything 
under $10,000 is not custom, cost could be considered.  The 
Commission concluded that the significant cost, $5.2 million, 
favored a conclusion that the R/3 System was custom. 
B. Dane County Circuit Court's Decision10 
                                                 
10 While we review only the Commission's decision, we detail 
the circuit court's decision in the interest of completeness.  
No. 
2004AP3239   
 
23 
 
¶36 The DOR petitioned the Dane County Circuit Court for 
review of the decision by the Commission, and both parties again 
filed 
cross-motions 
for 
summary 
judgment. 
 
"Because 
the 
[circuit] court [found] error by the commission, the court 
vacate[d] the commission's decision and reinstate[d] DOR's 
determination" that sales and use tax must be paid on the R/3 
System.  The circuit court concluded that the Commission 
erroneously interpreted and applied the law to the facts, "as 
those facts are set forth in the commission's ruling." 
¶37 The circuit court applied a due weight deference 
standard to the Commission's interpretation and application of 
Wis. Admin. Code § Tax 11.71(1)(e).11  Thus, the circuit court 
stated 
it 
would 
"uphold 
the 
commission's 
reasonable 
interpretation 
unless 
the 
[circuit] 
court 
deems 
another 
interpretation more reasonable."  The circuit court concluded 
that due weight deference was appropriate because the Commission 
had not developed expertise that would necessarily place it in a 
better position than the court to make judgments about the 
administrative rule.   
¶38 The circuit court also concluded that because the DOR, 
and not the Commission, promulgated the administrative rule, the 
                                                 
11 The circuit court applied due weight deference to the 
Commission's 
interpretation 
of 
Wis. 
Admin. 
Code 
§ Tax 
11.71(1)(e).  However, when giving deference to the Commission's 
interpretation of a rule, the proper deference is either 
controlling weight deference or a de novo review.  Due weight 
deference is relevant only for an agency's interpretation of a 
statute.  See ¶¶58-60 for the appropriate deference regarding 
rule interpretation. 
No. 
2004AP3239   
 
24 
 
DOR's interpretation should be afforded controlling weight 
deference because "[a]n administrative agency's interpretation 
of its own rule is controlling unless plainly erroneous or 
inconsistent with that rule."  The circuit court, thus, 
disagreed with Menasha's argument that the Commission was under 
no obligation to give deference to the DOR's construction of 
Wis. Admin. Code § Tax 11.71(1)(e).   
¶39 While the circuit court found no error with the 
Commission's interpretation of the rule's introduction, it 
disagreed with the Commission's interpretation and application 
of some factors.  The circuit court concluded: 
The [circuit] court finds that [the R/3 System] 
was existing and prewritten when SAP sold it to 
Menasha 
because 
1) 
while 
there 
may 
have 
been 
significant presale consultation and analysis, and 
significant testing of the customized system, the fact 
that a former SAP employee installed it rather than 
SAP weighs in favor of deeming R/3 prewritten; 2) 
while DOR conceded the third, fourth, and fifth 
factors, R/3 fits the definition of a prewritten 
program because a) it was already prepared and 
available for general consumption prior to the sale 
thereof to Menasha, b) it was held by SAP to be 
licensed to thousands of world-wide customers as 
requested, and c) it was not written solely for 
Menasha upon Menasha's request therefore; and finally 
3) given that R/3 was an existing program, the seventh 
factor does apply, and the facts as set forth by the 
commission 
do 
not 
show 
that 
SAP 
performed 
the 
significant modification of R/3 that was required to 
make it useful to Menasha.   
 . . . . 
. . . Where the software selected for purchase is 
an already existing program available for general use, 
significant modification must be made by the vendor 
for the software to be deemed custom.  Thus, Menasha's 
No. 
2004AP3239   
 
25 
 
purchase of R/3 did not involve the purchase of custom 
software. . . .    
C. Court of Appeals' Decision 
¶40 Menasha appealed the circuit court's decision, and the 
court of appeals concluded that the program was custom under 
Wis. Admin. Code § Tax 11.71(1)(e).  Citing to Caterpillar,12 the 
court of appeals stated, "'[b]ecause the commission is the final 
administrative authority that reviews the decisions of the DOR, 
any deference that might be due to the decision of an 
administrative agency is due to the commission, not to the 
DOR.'"  Menasha, 299 Wis. 2d 348, ¶23 (citing Caterpillar, 241 
Wis. 2d 282, ¶6 n.3). 
[B]oth Wis. Stat. § 73.01(4) and the [] case law 
plainly establish that the commission is the final 
authority on all the facts and questions of law 
regarding the tax code; the DOR is not.  Any deference 
due to an administrative agency's decision in this 
context is given to the commission, not the DOR.  Our 
deference is based on the commission's extensive 
expertise achieved by discharging its legislative duty 
as the final authority on the facts and questions of 
law in resolving tax disputes. . . . 
Menasha, 299 Wis. 2d 348, ¶24. 
¶41 The court of appeals concluded that the Commission's 
decision was entitled to due weight deference.  It stated: 
In addition to being designated the final authority on 
all questions of law involving taxes, the commission 
has generated and employed its substantial experience 
discharging its duty in construing the rules governing 
the taxability of tangible property since Wis. Stat. 
§ 77.51(20) was enacted.  
                                                 
12 DOR 
v. 
Caterpillar, 
Inc., 
2001 
WI 
App 
35, 
241 
Wis. 2d 282, 625 N.W.2d 338.  
No. 
2004AP3239   
 
26 
 
Id., ¶29. 
¶42 Applying the due weight deference standard, the court 
of appeals concluded that the Commission's interpretation was 
reasonable and consistent with the plain language of the rule, 
and the DOR failed to offer a more reasonable interpretation of 
the rule.13  The court of appeals reasoned that the DOR "appears 
to ignore the first five factors" of the rule and instead 
focuses solely on factors six and seven.  The DOR argued that 
factors six and seven "are mandatory and provide no exceptions, 
and therefore, [they] trump the other factors set forth in [Wis. 
Admin. Code] § Tax 11.71(1)(e)1-5."  However, the court of 
appeals, citing to the Commission, concluded that "all the facts 
and circumstances" must be considered under Wis. Admin. Code 
§ Tax 11.71(1)(e).  "Aside from its narrow and unreasonable 
interpretation of [the rule], the DOR offers no reason for why 
[one] should ignore the commission's determination that the tax 
rule shall be considered in its entirety in determining whether 
a computer program is customized."  Id., ¶49. 
¶43 The court of appeals concluded: 
                                                 
13 While the court of appeals' decision stated that it 
applied 
the 
due 
weight 
deference 
standard 
to 
the 
rule 
interpretation, 
in 
reality 
it 
applied 
controlling 
weight 
deference. 
 
Due 
weight 
deference 
applies 
to 
statutory 
interpretation.  Under rule interpretation, deference is either 
controlling weight deference or it is a de novo review.  The 
court of appeals did apply the correct standard given that it 
concluded that the Commission's interpretation was reasonable 
and consistent with the plain language of the rule.  See ¶¶58-60 
for the appropriate deference regarding rule interpretation.   
No. 
2004AP3239   
 
27 
 
We agree with the commission's conclusion that § Tax 
11.71(1)(e)6. should not be considered in isolation of 
the other factors in the rule.  When the factors are 
read together, the most reasonable construction of the 
rule 
is 
that 
the 
definitions 
of 
"custom" 
and 
"prewritten" software in § Tax 11.71[(1)](e) and (k) 
are informed in large part by consideration of the 
first 
five 
factors 
of 
§ Tax 
11.71(1)(e). 
 
The 
commission reasonably concluded that the more effort 
required making the software usable, the more likely 
it is custom software.  This conclusion is consistent 
with the plain language of the rule. . . . 
Id., ¶58. 
III. STANDARD OF REVIEW 
¶44 This case requires interpretation of both Wis. Stat. 
§ 77.51(20) and Wis. Admin. Code § Tax 11.71(1)(e).  The 
application of a statute and application of an administrative 
rule to undisputed facts are questions of law that we review 
de novo.  DaimlerChrysler v. LIRC, 2007 WI 15, ¶10, 299 
Wis. 2d 1, 727 N.W.2d 311; see also Orion Flight Servs., Inc. v. 
Basler Flight Serv., 2006 WI 51, ¶18, 290 Wis. 2d 421, 714 
N.W.2d 130.   
¶45 "[W]hen interpreting administrative regulations, we 
use the same rules of interpretation as we apply to statutes."  
DaimlerChrysler, 299 Wis. 2d 1, ¶10.  "Interpretations of code 
provisions, and the determination as to whether the provision in 
question is consistent with the applicable statute, are subject 
to principles of statutory construction."  Orion Flight, 290 
Wis. 2d 421, ¶18 (citations omitted).  "'If a rule is ambiguous, 
we may resort to extrinsic aids to determine agency intent.'"  
Id. (citation omitted).  "In resolving the ambiguity, this court 
gives deference to an agency's settled 'interpretation and 
No. 
2004AP3239   
 
28 
 
application of its own administrative regulations unless the 
interpretation 
is 
inconsistent 
with 
the 
language 
of 
the 
regulation or is clearly erroneous.'"  Id. (citations omitted).  
"When an administrative agency promulgates regulations pursuant 
to a power delegated by the legislature, we construe those 
regulations 'together with the statute to make, if possible, an 
effectual piece of legislation in harmony with common sense and 
sound reason.'"  DaimlerChrysler, 299 Wis. 2d 1, ¶10 (citation 
omitted). 
¶46 In a case such as this, we review the Commission's 
decision rather than the decision of the circuit court.  Racine 
Harley-Davidson, Inc. v. Wis. Div. of Hearings & Appeals, 2006 
WI 86, ¶8 n.4, 292 Wis. 2d 549, 717 N.W.2d 184; DOR v. 
Caterpillar, Inc., 2001 WI App 35, ¶6, 241 Wis. 2d 282, 625 
N.W.2d 338.  While we are not bound by an agency's——like the 
Commission's——conclusions 
of 
law, 
we 
may 
defer 
to 
the 
Commission's 
legal 
conclusions. 
 
Id. 
 
The 
specific 
characterization of deference given to an agency is dependent 
upon whether the agency is interpreting a statute or a 
regulation.  See DaimlerChrysler, 299 Wis. 2d 1, ¶¶13-18.14 
                                                 
14 In Racine Harley-Davidson, we stated: 
By granting deference to agency interpretations, 
the court has not abdicated, and should not abdicate, 
its authority and responsibility to interpret statutes 
and decide questions of law.  Some cases, however, 
mistakenly fail to state, before launching into a 
discussion of the levels of deference, that the 
interpretation and application of a statute is a 
question of law to be determined by a court.  In any 
event, it is the court's responsibility to decide 
No. 
2004AP3239   
 
29 
 
A. Deference to the Commission's Interpretation of the Statute 
¶47 This court has articulated three possible levels of 
deference for an agency's interpretation of a statute: great 
weight, due weight, and no deference.  Racine Harley-Davidson, 
292 Wis. 2d 549, ¶12; DOR v. River City Refuse Removal, Inc., 
2007 WI 27, ¶¶32-35, 299 Wis. 2d 561, 729 N.W.2d 396.  
¶48 Great weight deference is given to the agency's 
statutory interpretation when each of the following requirements 
are met: (1) the agency is charged by the legislature with the 
duty of administering the statute; (2) the agency interpretation 
is one of long standing; (3) the agency employed its expertise 
or specialized knowledge in forming its interpretation; and (4) 
the 
agency's 
interpretation 
will 
provide 
uniformity 
and 
consistency in the application of the statute.  Racine Harley-
Davidson, 292 Wis. 2d 549, ¶16.  When great weight deference is 
appropriate, a reviewing court should sustain the agency's 
reasonable statutory interpretation even if the court concludes 
                                                                                                                                                             
questions of law and determine whether deference is 
due and what level of deference is due to an agency 
interpretation and application of a statute.  The 
court determines the appropriate level of deference by 
comparing 
the 
institutional 
qualifications 
and 
capabilities 
of 
the 
court 
and 
the 
agency 
by 
considering, for example, whether the legislature has 
charged the agency with administration of the statute, 
whether the agency has expertise, whether the agency 
interpretation is one of long standing, and whether 
the agency interpretation will provide uniformity and 
consistency. 
Racine Harley-Davidson, Inc. v. Wis. Div. of Hearings & Appeals, 
2006 WI 86, ¶14, 292 Wis. 2d 549, 717 N.W.2d 184. 
No. 
2004AP3239   
 
30 
 
that another interpretation is equally reasonable, or even more 
reasonable, than the agency's interpretation.  Id., ¶17.   
¶49 Due 
weight 
deference 
is 
given 
to 
the 
agency's 
statutory interpretation when the agency has some experience in 
an area but has not developed the expertise that necessarily 
places it in a better position than a court to make judgments 
regarding the interpretation of the statute.  Id., ¶18.  "Due 
weight deference is based on the fact that the legislature has 
charged the agency with the enforcement of the statute in 
question, not on the expertise of the agency."  Id.  When this 
court applies due weight deference, it will sustain an agency's 
statutory interpretation if the interpretation is not contrary 
to the plain meaning of the statute, and the court does not 
determine that a more reasonable interpretation exists.  Id. 
¶50 No deference is given to the agency's statutory 
interpretation when the issue is one of first impression, the 
agency has no experience or expertise in deciding the legal 
issue presented, or the agency's position on the issue has been 
so inconsistent as to provide no real guidance.  Id., ¶19. 
¶51 In the case at hand, we afford the Commission due 
weight deference on its statutory interpretation of Wis. Stat. 
§ 77.51(20).  The legislature designated the Commission as the 
final authority on all questions of law and fact arising under 
the tax statutes——although, the Commission's decision is still 
subject 
to 
judicial 
review. 
 
Wis. 
Stat. 
§ 73.01(4).  
Additionally, the Commission has experience interpreting and 
applying Wis. Stat. § 77.51(20).  All City Commc'n Co., Inc. v. 
No. 
2004AP3239   
 
31 
 
DOR, 2003 WI App 77, ¶11, 263 Wis. 2d 394, 661 N.W.2d 845 
(stating that "the commission has experience determining whether 
property is [tangible] personal property for purposes of 
imposing sales and use taxes"); Menasha, 299 Wis. 2d 348, ¶29 
(citing to other Wisconsin court decisions and stating that "the 
commission has generated and employed its substantial experience 
discharging its duty in construing the rules governing the 
taxability of tangible property since Wis. Stat. § 77.51(20) was 
enacted.  See, e.g., DOR v. River City Refuse Removal, Inc., 
2006 WI App 34, ¶¶12, 14, 289 Wis. 2d 628, 712 N.W.2d 351, 
review granted, 2006 WI 108, 292 Wis. 2d 409, 718 N.W.2d 723 
(No. 2004AP2468); All City Commc'n Co. v. DOR, 2003 WI App 77, 
¶¶6, 11, 263 Wis. 2d 394, 661 N.W.2d 845"). 
¶52 While we afford the Commission due weight deference on 
its interpretation of the statute, this case centers on the 
Commission's interpretation of the regulation or rule, Wis. 
Admin. Code § Tax 11.71(1)(e).  The statute in question defines 
tangible——and 
thus 
taxable——personal 
property 
as 
including 
"computer programs except custom computer programs."  Wis. Stat. 
§ 77.51(20) (emphasis added).  The statute, however, does not 
define "custom programs"; rather, the regulation defines the 
phrase 
"custom 
programs." 
 
As 
a 
result, 
the 
statutory 
interpretation is dependent upon the interpretation of the 
regulation.  Thus, while we have articulated the proper standard 
for reviewing the statute in this case, the statute is 
attenuated as to the issue before this court because it is the 
No. 
2004AP3239   
 
32 
 
Commission's interpretation of the rule, Wis. Admin. Code § Tax 
11.71(1)(e), that is at issue. 
B. Deference to Commission's Interpretation of the Regulation 
¶53 "An administrative agency's interpretation of its own 
rules or regulations is controlling unless 'plainly erroneous or 
inconsistent with the regulations.'"  DaimlerChrysler, 299 
Wis. 2d 1, ¶11.  However, in this case, as in DaimlerChrysler, 
the adjudicative body did not promulgate the rule, i.e., in this 
case the Commission did not promulgate the rule.  See, e.g., id.  
Rather, the rule was promulgated by the DOR.  However, if the 
Commission reasonably interpreted the rule, the interpretation 
was not inconsistent with the language of the rule or clearly 
erroneous, and the Commission was charged with being the final 
authority on the rule at issue, we must afford the Commission 
controlling weight deference.  See id., ¶13 (affording the Labor 
and 
Industry 
Review 
Commission 
(LIRC) 
controlling 
weight 
deference 
when 
interpreting 
the 
Department 
of 
Workforce 
Development's (DWD) rule).   
¶54 When applying controlling weight deference, we ask 
"whether 
the 
agency's 
interpretation 
is 
reasonable 
and 
consistent with the meaning or purpose of the regulation."  Id., 
¶19.  Despite the different terminology, "controlling weight 
deference is similar to great weight deference," the latter 
associated with deference given to an agency when interpreting a 
statute as opposed to a rule interpretation.  Id.  Thus, we may 
consider that standard's language; as such, under controlling 
weight deference, a court should "refrain from substituting its 
No. 
2004AP3239   
 
33 
 
view 
of 
the 
law 
for 
that 
of 
an 
agency 
charged 
with 
administration of the law, and will sustain the agency's 
conclusions of the law if they are reasonable."  Id., ¶16.  "We 
will sustain an agency's conclusions of law even if an 
alternative view of the law is just as reasonable or even more 
reasonable." 
 
Id. 
 
Accordingly, 
if 
the 
Commission's 
interpretation is reasonable and consistent with the meaning or 
purpose of the rule, then we uphold the Commission's decision 
rather 
than 
substitute 
our 
judgment 
for 
that 
of 
the 
Commission's. 
¶55 Because the legislature has subjected the Commission's 
decision to judicial review, it is the Commission's decision, 
rather than the DOR's decision, to which we must give deference.  
Kamps v. DOR, 2003 WI App 106, ¶26, 264 Wis. 2d 794, 663 
N.W.2d 306; 
see 
also 
Wis. 
Stat. 
§ 73.015(2); 
Wis. 
Stat. 
§ 227.57.  Even if disagreement between the Commission and the 
DOR arises over the rule's meaning, courts give deference to the 
Commission rather than the DOR.  See, e.g., Caterpillar, 241 
Wis. 2d 282, ¶6 n.3 (stating that when there is a conflict 
between the DOR and the Commission, any deference that might be 
due is given to the Commission because it is the final 
administrative authority that reviews the DOR's decisions); 
River City Refuse Removal, 299 Wis. 2d 561, ¶59 (concluding that 
No. 
2004AP3239   
 
34 
 
deference 
should 
be 
given 
to 
the 
Commission; 
the 
DOR's 
interpretation was not more reasonable than the Commission's).15  
¶56 While the DOR concedes that courts must review the 
Commission's decision and not the DOR's decision, it argues that 
the Commission should at least give deference to or address the 
DOR's construction of its rule.  Because the Commission did not 
defer or specifically refer to the DOR's construction, the DOR 
argues that this court should conduct a de novo review of the 
Commission's rule interpretation.  We decline that request. 
¶57 The DOR asserts several arguments in favor of its 
conclusion that the Commission must give deference to the DOR.  
While we address those specific arguments below, in short, the 
DOR fails to articulate any reason that persuades us to conclude 
that the Commission must defer to the DOR's interpretation of 
its rule.   
¶58 The legislature designated the Commission as the final 
authority on all tax questions.  Requiring the Commission to 
grant deference to the DOR would undermine the Commission's 
authority to review tax questions.  By virtue of creating the 
Commission and identifying it as the agency charged with 
interpreting questions that arise under our tax code, the 
legislature has divided the agencies' duties with regard to the 
                                                 
15 While Caterpillar and River City Refuse Removal involve 
the interpretation of a statute and not a rule, the Commission 
is still the final authority on all tax questions in the state 
of Wisconsin.  See Wis. Stat. § 73.01(4).  Thus, even when 
disputes arise, we must still defer to the Commission's decision 
if deference is to be given. 
No. 
2004AP3239   
 
35 
 
tax code.  The DOR may promulgate rules and even issue private 
letter 
rulings 
or 
interpretations 
that 
give 
guidance 
to 
taxpayers, but the Commission is the final authority.  Thus, it 
is for the Commission to interpret those rules.  The legislature 
has designated the Commission, not the DOR, as the final 
authority on all tax questions.  It is within the province of 
the legislature to enact the law. 
¶59 Requiring the Commission to give deference to the DOR 
not only undermines the Commission's authority, it is troubling 
for the taxpayer who appeals the DOR's decision.  The Commission 
hears and decides disputes between the DOR and individual 
taxpayers or entities.  If the Commission, which serves a quasi-
judicial function, must defer to one party——namely, the DOR——how 
does the taxpayer receive a fair hearing?  The taxpayer brings 
his 
or 
her 
appeal 
to 
the 
Commission 
at 
a 
significant 
disadvantage if the Commission must defer to the taxpayer's 
opponent, the DOR.   
¶60 While the Commission may find it useful to consider 
the DOR's construction of its rule by reviewing such things as 
published tax releases, technical information memorandums, and 
private letter rulings, it need not ultimately "defer" to the 
DOR's interpretation, nor must it specifically refer to the 
DOR's construction in its decision.  In this case, while the 
Commission did not specifically refer by name to the DOR's 
published tax releases, technical information memorandums, and 
private letter rulings, these materials were submitted to the 
Commission.  Moreover, the DOR submitted briefs, proposed 
No. 
2004AP3239   
 
36 
 
findings of fact, affidavits, and exhibits.  The Commission 
states 
in 
its 
written 
decision 
that 
"[b]ased 
upon 
the 
submissions of the parties and the entire record in this matter, 
the 
Commission 
hereby 
rules 
and 
orders 
as 
follows[]."  
Therefore, the Commission did consider the DOR's submissions 
since the DOR was a party.       
¶61 No authority exists for requiring the Commission to 
defer to the DOR's construction of its rule.  The legislature 
does not mandate such a requirement, and we decline the 
opportunity to create one.  The DOR's deference argument is 
intriguing because the DOR promulgated this rule, and thus, it 
is, at least arguably, reasonable to argue that the Commission 
should give the DOR deference.  However, this would ignore the 
boundaries that the legislature created when it gave the 
Commission final authority over all tax questions.   
¶62 The DOR, citing to Hillhaven,16 argues that an agency's 
interpretation of its own rule is controlling unless plainly 
erroneous or inconsistent with the rule's language.  Thus, 
according to the DOR, the Commission should afford the DOR 
deference because the DOR promulgated the rule at issue.  As a 
general rule, that is correct.  However, the DOR fails to 
acknowledge 
a 
critical 
difference 
between 
this 
case 
and 
Hillhaven.  In Hillhaven, no adjudicative agency body was 
charged with reviewing the Department of Health and Family 
                                                 
16 Hillhaven Corp. v. DHFS, 2000 WI App 20, ¶12, 232 
Wis. 2d 400, 606 N.W.2d 572. 
No. 
2004AP3239   
 
37 
 
Services' decision.  The department's decision was appealed 
directly to the circuit court.  In the case at issue, the 
Commission 
reviews 
the 
DOR's 
decisions, 
and 
it 
is 
the 
Commission's decision, not the DOR's, that is appealed to the 
circuit court.  It is significant that the legislature, in this 
case, designated an "intermediary"——the Commission——to review 
the DOR's decision and to be the final authority on tax 
questions.  Again, it is the Commission's decision that is 
subject to judicial review and to which we must give deference, 
if deference is to be given. 
¶63 The DOR, citing to State ex rel. Griffin,17 argues that 
the goal when interpreting a rule is to discern the intent of 
the rule maker.  Presumably, the DOR is arguing that the 
Commission must defer to the DOR's construction in an effort to 
discern the intent of the rule maker.  However, the meaning of 
the rule may also be discerned from the rule's language.  See 
State ex rel. Kalal v. Circuit Court for Dane County, 2004 WI 
58, ¶45, 271 Wis. 2d 633, 681 N.W.2d 110.  The Commission's 
decision relies heavily on the rule's language.  The DOR had an 
opportunity to express the rule's meaning when it drafted the 
rule.  We say this not to discourage the production of private 
letter rulings or other guiding documents, which greatly assist 
the public in interpreting tax rules, but to simply state that 
the meaning of the rule can be expressed in the rule's language.  
                                                 
17 State ex rel. Griffin v. Smith, 2004 WI 36, ¶19, 270 
Wis. 2d 235, 677 N.W.2d 259.  
No. 
2004AP3239   
 
38 
 
Here, the Commission reasonably relied on the rule's language to 
discern its meaning. 
¶64 The DOR also relies on Griffin to further argue that 
by declining to require the Commission to give deference to the 
DOR, the Commission is given more power than Wisconsin courts 
because courts must defer to an agency's interpretation of its 
rule unless the agency's interpretation is plainly erroneous or 
inconsistent with the regulations.  Courts give deference to an 
agency, either a line agency or an adjudicative agency, because 
the agency is in a better position to interpret the rule than 
the court; the agency has significant and continual experience 
with the area of law in question.18   
¶65 However, when, as in this case, the Commission reviews 
the DOR's decision, the Commission need not rely on the DOR's 
expertise because the Commission itself is experienced with 
interpreting and applying the tax code, and is, in fact, the 
final authority on all tax questions.  See DOR v. Heritage Mut. 
Ins. Co., 208 Wis. 2d 582, 589, 561 N.W.2d 344 (Ct. App. 1997) 
(stating that the Commission possesses expertise and experience 
in construing the tax laws generally).  The Commission has 
                                                 
18 See, e.g., Salvatore Massa, The Standards of Review for 
Agency Interpretations of Statutes in Wisconsin, 83 Marq. L. 
Rev. 597, 599 (2000) (stating "[I]nstitutions, courts and 
agencies each have strengths and weaknesses which may place one 
institution in a better position to resolve a particular case.  
An agency has significant and constant oversight of a body of 
regulatory law that a court lacks."); Racine Harley-Davidson, 
292 Wis. 2d 549, ¶¶13-14 (stating that "levels of deference take 
into account the comparative institutional qualifications and 
capabilities of the court and the administrative agency"). 
No. 
2004AP3239   
 
39 
 
extensive experience with interpreting and applying this state's 
tax laws.  As a result, it need not rely on the DOR for 
assistance, although it certainly may consider the DOR's 
publications, which articulate the DOR's interpretation of a 
rule.  Therefore, it is not that the Commission has more power 
than a court, but rather, it is that, unlike the courts, the 
Commission is better suited and less likely to need assistance 
with interpreting and applying the tax rules that it is charged 
with interpreting and applying.   
¶66 The DOR, citing to Pfeiffer,19 argues that because it 
"performed all of the[] legislative functions, it necessarily 
'knows 
the 
specific 
purposes 
of 
the 
regulations 
it 
has 
promulgated' and 'is in the best position to interpret its own 
regulations in accordance with their underlying purposes.'"  
However, Pfeiffer and other cases cited by the DOR do not 
consider how the quasi-judicial function of the Commission 
alters this analysis.  While it remains true that the agency 
that promulgates the rule should be given controlling weight 
deference, 
this 
is 
altered 
here 
because 
the 
legislature 
designated an agency, the Commission, with the task of reviewing 
decisions and being the final authority.  In DaimlerChrysler, we 
stated that "[a]n administrative agency that regularly works 
with the rules and regulations of another agency, whose actions 
it is authorized by the legislature to review, is in the best 
                                                 
19 Pfeiffer v. Bd. of Regents of Univ. of Wisconsin Sys., 
110 Wis. 2d 146, 155, 328 N.W.2d 279 (1983). 
No. 
2004AP3239   
 
40 
 
position to interpret such rules and regulations because the 
agency knows the specific purposes of the rules and regulations 
that have been promulgated, and has expertise in the area the 
agency is called upon to review."   DaimlerChrysler, 299 
Wis. 2d 1, ¶22. 
¶67 The DOR argues that "[n]owhere does DaimlerChrysler 
state that LIRC would have reasonably interpreted DWD's rule if 
LIRC had either failed to accord controlling weight to DWD's 
construction of DWD's own rule or had failed to address DWD's 
prior official constructions of its rule. . . ."  However, 
nowhere in DaimlerChrysler does the court suggest that giving 
deference to or addressing the DWD's construction was critical 
to its conclusion that the LIRC reasonably interpreted the 
regulation in question.  In fact, the LIRC's interpretation was 
afforded 
controlling 
weight 
deference 
"because 
the 
LIRC 
reasonably interpreted a rule adopted by the DWD, the LIRC's 
interpretation was not inconsistent with the language of the 
rule or clearly erroneous, and the LIRC was charged by the 
legislature with the duty of reviewing decisions . . . of the 
DWD, and does so frequently."  Id., ¶13.   
¶68 The DOR, citing to River City Refuse Removal,20 argues 
that the Commission should not have been afforded any deference 
because it had not issued prior decisions construing the 
substantive provisions of the DOR's rule.  However, in so 
                                                 
20 DOR v. River City Refuse Removal, Inc., 2007 WI 27, ¶35, 
299 Wis. 2d 561, 729 N.W.2d 396. 
No. 
2004AP3239   
 
41 
 
arguing, the DOR utilizes the standards of review for statutory 
interpretation instead of rule interpretation.  While this 
argument may apply to statutes, as articulated in River City 
Refuse Removal, it does not necessarily follow that it applies 
to interpretation of rules.  No deference is due when an 
agency's statutory interpretation is one of first impression.  
River City Refuse Removal, 299 Wis. 2d 561, ¶35 (emphasis 
added).  However, the case at hand is based upon a rule 
interpretation rather than a statutory interpretation.  
¶69 In any event, the Commission does have some experience 
with 
the 
factors 
articulated 
in 
Wis. 
Admin. 
Code 
§ Tax 
11.71(1)(e).  See, e.g., IBM Corp. v. DOR, Wis. Tax Reptr. (CCH) 
¶202-854 (WTAC 1987); Health Micro Data Sys., Inc. v. DOR, Wis. 
Tax Reptr. (CCH) ¶203-062 (WTAC 1989).  While, in these cases, 
the Commission did not "apply" the Wis. Admin. Code § Tax 
11.71(1)(e) and (k) factors as it did in this present case, the 
decisions do reference the factors and do consider, at the very 
least, the ideals contained within the formalized factors.  
Thus, the DOR seems to overstate the Commission's inexperience 
and does not acknowledge the Commission's general experience 
with interpreting and applying the tax statutes and rules.  See 
Heritage, 208 Wis. 2d at 589; see also Telemark Dev., Inc. v. 
DOR, 218 Wis. 2d 809, 820, 581 N.W.2d 585 (Ct. App. 1998) 
(stating that deference is not dependent on whether a specific 
factual scenario has been heard but rather on the Commission's 
experience with the statutory scheme).  In this case, it is not 
as though the Commission never saw these particular factors 
No. 
2004AP3239   
 
42 
 
until it was called upon to decide this case.  After all, these 
factors have been in existence since 1985. 
¶70 Finally, the DOR argues that the acquiescence and 
nonacquiescence provisions of Wis. Stat. §§ 73.01(4)(e)21 and 
73.015(2)22 apply to the case at hand.23  In short, the DOR argues 
                                                 
21 Wisconsin Stat. § 73.01(4)(e) provides in relevant part:  
The decision or order of the commission shall become 
final and shall be binding upon the petitioner and 
upon the department of revenue for that case unless an 
appeal is taken from the decision or order of the 
commission under s. 73.015.  Except in respect to 
small claims decisions, if the commission construes a 
statute adversely to the contention of the department 
of revenue: 
1. Except for hearings on ss. 341.405 and 341.45 
and except as provided in subd. 2., the department of 
revenue 
shall 
be 
deemed 
to 
acquiesce 
in 
the 
construction so adopted unless the department of 
revenue seeks review of the order or decision of the 
commission so construing the statute.  For purposes of 
this subdivision, the department of revenue has sought 
review of the order or decision if it seeks review and 
later settles the case or withdraws its petition for 
review or if the merits of the case are for other 
reasons not determined by judicial review.  The 
construction so acquiesced in shall thereafter be 
followed by the department of revenue. 
22 Wisconsin Stat. § 73.015(2) provides:  
Any adverse determination of the tax appeals 
commission is subject to review in the manner provided 
in ch. 227.  If the circuit court construes a statute 
adversely to the contention of the department of 
revenue, the department shall be deemed to acquiesce 
in the construction so adopted unless an appeal to the 
court of appeals is taken, and the construction so 
acquiesced in shall thereafter be followed by the 
department. 
No. 
2004AP3239   
 
43 
 
that when the DOR does not petition for judicial review and does 
not file a notice of nonacquiescence after the Commission's 
decision, the DOR has determined that the Commission has 
correctly construed the statutes or rules at issue.  On the 
other hand, the DOR argues that when it petitions for judicial 
review or files a notice of nonacquiescence, the DOR has 
determined that the Commission has incorrectly construed the 
statutes or rules at issue.  As a result, the DOR argues that in 
such cases, the Commission's decision should be subject to 
de novo review. 
¶71 We, however, are persuaded by Menasha's argument that 
the acquiescence and nonacquiescence provisions of Wis. Stat. 
§§ 73.01(4)(e) and 73.015(2) do not apply to the case at bar.  
The acquiescence rules, in general, expand the binding effect of 
the Commission's decision.  While the Commission's decision is 
always binding on the parties of a particular dispute, the 
Commission's decision binds the DOR on other potential disputes 
only if the DOR does not appeal or file a notice of 
nonacquiescence.  The acquiescence rules ensure stability in tax 
matters because they allow taxpayers to rely on the Commission's 
decisions and interpretations unless notice to the contrary is 
                                                                                                                                                             
23 The DOR's arguments are in response to an order this 
court issued on March 21, 2008, asking the parties to discuss, 
"[w]hat impact, if any, do the acquiescence and non-acquiescence 
provisions of Wis. Stat. §§ 73.01(4)(e)1 and 73.015(2) (2003-04) 
have on the standard of review and degree of deference to be 
accorded the Department of Revenue and Tax Appeals Commission in 
the instant matter?"   
No. 
2004AP3239   
 
44 
 
given——by appeal or nonacquiescence——that the DOR does not 
intend to follow the Commission's interpretations in subsequent 
taxpayer disputes.  See DOR v. U.S. Shoe Corp., 158 Wis. 2d 123, 
136-37, 462 N.W.2d 233 (Ct. App. 1990).  If no appeal or notice 
of nonacquiescence is filed, then the DOR is estopped from re-
litigating the Commission's interpretation when the same issue 
arises with another taxpayer.  In the case at hand, the 
acquiescence rules do not apply because here we are reviewing 
the Commission's decision.  We are procedurally beyond the point 
where acquiescence or nonacquiescence has any relevance.  The 
acquiescence and nonacquiescence provisions simply cannot be 
read to require a de novo review of the Commission's decision.  
They have no relationship to the standard of review.  
¶72 Accordingly, 
we 
give 
the 
Commission's 
statutory 
interpretation 
due 
weight 
deference, 
and 
we 
give 
the 
Commission's rule interpretation controlling weight deference.  
While the statute uses the word "custom," that word is defined 
only by the rule.  Therefore, it is the rule interpretation that 
controls in this case.  Under controlling weight deference, we 
ask whether the agency's interpretation is reasonable and 
consistent with the meaning or purpose of the regulation.  If 
the Commission's interpretation is reasonable and consistent 
with the meaning or purpose of the rule, then we uphold the 
Commission's decision rather than substitute our judgment for 
that of the Commission's. 
IV. APPLICATION OF WIS. ADMIN. CODE § TAX 11.71(1)(e) 
TO THE R/3 SYSTEM 
No. 
2004AP3239   
 
45 
 
¶73 Tangible personal property is subject to Wisconsin 
sales and use tax.  Wis. Stat. §§ 77.51(20), 77.52(1), 77.53(1).  
"'Tangible 
personal 
property' means all tangible personal 
property 
of 
every 
kind 
and 
description 
and 
includes . . . computer 
programs 
except 
custom 
computer 
programs."  Wis. Stat. § 77.51(20).  "Custom programs" is 
defined in Wis. Admin. Code § Tax 11.71(1)(e).  It provides: 
"Custom 
programs" 
mean 
utility 
and 
application 
software which accommodate the special processing 
needs of the customer.  The determination of whether a 
program is a custom program shall be based upon all 
the facts and circumstances, including the following: 
1. The extent to which the vendor or independent 
consultant engages in significant presale consultation 
and analysis of the user's requirements and system. 
2. Whether 
the 
program 
is 
loaded 
into 
the 
customer's computer by the vendor and the extent to 
which the installed program must be tested against the 
program's specifications. 
3. The extent to which the use of the software 
requires 
substantial 
training 
of 
the 
customer's 
personnel and substantial written documentation. 
4. The extent to which the enhancement and 
maintenance support by the vendor is needed for 
continued usefulness. 
5. There is a rebuttable presumption that any 
program with a cost of $10,000 or less is not a custom 
program. 
6. Custom 
programs 
do 
not 
include 
basic 
operational programs or prewritten programs. 
7. If 
an 
existing 
program 
is 
selected 
for 
modification, there must be a significant modification 
of that program by the vendor so that it may be used 
in the customer's specific hardware and software 
environment. 
No. 
2004AP3239   
 
46 
 
Wis. Admin. Code § Tax 11.71(1)(e) (emphasis added). 
¶74 The Commission concluded that Wis. Admin. Code § Tax 
11.71(1)(e) instructs one to consider "all the facts and 
circumstances," including the seven factors listed in the rule.  
The factors, the Commission concluded, are not elements that 
must be met for a program to be deemed custom, but rather, the 
factors in the rule are to be weighed along with the other facts 
and circumstances.  As a result, when considering all seven 
factors and all the facts and circumstances, the Commission 
concluded that the R/3 System was "a custom program" because of 
the significant investment Menasha made in "presale consultation 
and 
analysis, 
testing, 
training, 
written 
documentation, 
enhancement, and maintenance and support, and because [the R/3 
System] is not a prewritten program." 
¶75 The DOR disagrees with the Commission's interpretation 
of Wis. Admin. Code § Tax 11.71(1)(e).  It argues that the R/3 
System "was an existing set of prewritten, pre-engineered 
noncustom program modules" that was in general use in 1995.  
Thus, under the mandatory language of factor six of § Tax 
11.71(1)(e), the R/3 System is prewritten and thus not custom.  
The DOR further argues that factor seven cannot be ignored 
because it contains mandatory language regarding existing 
programs.  Therefore, the DOR argues that, under factor seven, 
the R/3 System was an existing program that SAP did not modify 
for Menasha prior to or even subsequent to delivering the R/3 
System. 
 
Menasha, 
on 
the 
other 
hand, 
argues 
that 
the 
Commission's consideration of "all the facts and circumstances" 
No. 
2004AP3239   
 
47 
 
was appropriate, and the DOR's interpretation excludes factors 
one through five from consideration. 
¶76 Under the standard of review governing this case, we 
conclude that the Commission's interpretation is reasonable and 
consistent with the rule's language and the purpose of the 
regulation.  The rule is instructive; a determination of whether 
a program is custom "shall be based upon all the facts and 
circumstances including" the seven factors listed in the rule.  
Because all the facts and circumstances must be considered, the 
factors are not elements to be satisfied but are factors that 
should be weighed along with all the facts and circumstances.  
Under the standard of review, we must now turn to the 
Commission's consideration of the seven factors and all the 
facts and circumstances. 
¶77 Under 
the 
first 
factor, 
regarding 
presale 
consultation, the Commission concluded that the DOR conceded 
that significant presale consultation and analysis had occurred.  
Presale consultation began in 1993 with the analysis of 
Menasha's then current software, continued through 1995 when 
Menasha began discussions with SAP in April, and purchasing the 
license for the R/3 System in September of 1995.  Presale 
consultation with SAP included SAP evaluating and collecting 
data from Menasha and SAP performing a sample demonstration for 
Menasha.  Thus, factor one weighs in favor of the R/3 System 
being a custom program. 
¶78 Under the second factor, regarding loading and testing 
of the R/3 System, the Commission concluded that even though the 
No. 
2004AP3239   
 
48 
 
vendor did not load the software, a former SAP employee, who was 
retained by Menasha specifically for providing support during 
the installation, loaded the software.  As a result, the 
Commission concluded that this weighs in favor of the software 
being custom.  While we acknowledge that the rule's language in 
factor two specifically refers to whether the vendor loaded the 
software, it was reasonable——even if it is not conclusive——for 
the Commission to consider under all the facts and circumstances 
that a former SAP employee installed the software. 
¶79 The second factor also requires consideration of 
whether the newly installed program must be tested against the 
program's specifications.  The Commission concluded that the DOR 
conceded that after installation and customization was complete, 
the R/3 System was tested for three to four months.  As a 
result, the Commission reasonably concluded that factor two 
weighs in favor of the R/3 System being a custom program. 
¶80 Under the third factor, regarding whether substantial 
training and written documentation was required to use the 
software, the Commission concluded that the DOR conceded that 
substantial training and written documentation was needed.  All 
employees were required to attend two- to five-day classes.  
Extensive written materials were prepared by ICS and Menasha's 
support staff.  Additionally, Menasha's information support 
staff attended additional training focused on maintaining, 
modifying, and trouble-shooting problems once the R/3 System was 
in use.  Thus, the Commission reasonably concluded that factor 
three weighs in favor of the R/3 System being a custom program.  
No. 
2004AP3239   
 
49 
 
¶81 Under factor four, regarding the extent to which the 
software requires enhancement and maintenance support by the 
vendor, the Commission concluded and the DOR conceded that the 
R/3 System needed enhancement and maintenance support.  Menasha 
continues to contact SAP on a weekly basis for assistance and 
support.  In addition, SAP provides Menasha with upgrades, new 
releases, and patches to the R/3 System on at least a quarterly 
basis.  Thus, the Commission reasonably concluded that factor 
four weighs in favor of the R/3 System being a custom program. 
¶82 Under factor five, regarding a rebuttable presumption 
that any program is not custom if it costs $10,000 or less, the 
Commission concluded this factor did not apply because the cost 
greatly exceeded $10,000.  However, after its discussion of the 
seven factors, the Commission did consider the cost of the R/3 
System when considering "all the facts and circumstances."  In a 
footnote, the court of appeals' opinion expressed concern 
because no other portion of the rule indicates that cost of the 
program should be a factor in determining whether a computer 
program is a custom program.  It, however, makes sense that cost 
can 
be 
evaluated 
when 
considering 
all 
the 
facts 
and 
circumstances.  As addressed in factor five, cost is a factor, 
but not determinative.  The Commission concluded that factor 
five should not apply in this case because "the R/3 System 
greatly exceeded [the] threshold" of $10,000 or less, but it 
reasonably 
concluded 
that 
cost 
could 
be 
considered 
when 
evaluating all the facts and circumstances.  In the end, the 
Commission reasonably considered cost. 
No. 
2004AP3239   
 
50 
 
¶83 The DOR's argument relies on factors six and seven.  
In fact, the DOR not only argues that these two factors weigh in 
its favor, but it argues that these factors contain mandatory 
language that could render a program non-custom regardless of 
the 
other 
factors. 
 
Under 
factor 
six, 
regarding 
basic 
operational or prewritten programs not being custom, the 
Commission concluded that the R/3 System was not a prewritten 
program.  "Prewritten" is defined as:  
"Prewritten programs", often referred to as "canned 
programs", means programs prepared, held or existing 
for general use normally for more than one customer, 
including programs developed for in-house use or 
custom program use which are subsequently held or 
offered for sale or lease. 
Wis. Admin. Code § Tax 11.71(1)(k). 
¶84 The 
Commission 
concluded 
that 
"[t]he 
distinction 
between custom and prewritten programs hinges on the amount of 
effort 
necessary 
to 
get 
the 
software 
operational 
for 
a 
particular customer's needs."  Because of the substantial amount 
of resources, time, and effort needed to make the R/3 System 
usable, the Commission stated it could not conclude that the R/3 
System was prewritten.  A prewritten program would "require 
relatively little effort to be put in place for any user."   
¶85 The Commission's conclusions based upon factor six and 
Wis. Admin. Code § Tax 11.71(1)(k), which defines "prewritten 
programs," are reasonable and consistent with the rule's 
language.  The Commission reasoned that the first four factors 
"hinge[] on the degree to which the software is ready for use 
off-the-shelf," and as a result, this supported the Commission's 
No. 
2004AP3239   
 
51 
 
distinction between prewritten and custom as determined by the 
amount of effort needed to bring software online for a 
particular customer.24  The DOR takes issue with the Commission's 
reasoning and argues that factor six contains mandatory language 
that if a program is prewritten then it is not custom regardless 
of the effort required to make it usable. 
¶86 We conclude that the Commission's overall conclusions 
regarding factor six are reasonable.  We agree that the R/3 
System was not a prewritten program.  A program is prewritten 
and thus perhaps not custom if the program is "prepared, held or 
existing for general use."  In other words, a prewritten program 
is ready to be used by those who purchase it.  Thus, this factor 
"hinges" on whether a program is available for general use right 
off-the-shelf.  While the purchaser of a prewritten program may 
make some minor changes in an effort to make it more efficient 
or to simply set it up, a prewritten program does not require 
significant modifications in order for one to make any use out 
of the program.  In this case, the DOR concedes that the R/3 
                                                 
24 While factors one and two may hinge on the degree to 
which the software is ready to go off-the-shelf, that reasoning 
does not follow with factors three and four.  In consideration 
of factor three, a very complicated non-custom program that is 
ready to go off-the-shelf may require substantial training even 
though it is ready for use.  In consideration of factor four, 
whether programs need enhancement and maintenance has little to 
do with whether a program is ready for use directly off-the-
shelf.  While the Commission's language is somewhat perplexing, 
its reasoning is sound.  In short, the Commission reasonably 
states that the more effort it takes to make a program usable, 
the more likely——even if not necessarily dispositive——that the 
program is custom, rather than canned or prewritten.  
No. 
2004AP3239   
 
52 
 
System must be subjected to a certain degree of customization 
before it is even usable by a client and it concedes that the 
implementation teams worked to identify and meet the specific 
needs of each subsidiary, which included: 
• Members 
of 
petitioner's 
implementation 
team 
working with SAP and ICS Deloitte determined the 
operational 
and 
functional 
needs 
of 
each 
subsidiary in order to configure and customize 
the system; 
• The implementation team worked to configure and 
modify the R/3 System to adapt the system to each 
subsidiary's identified needs; 
• The implementation and ABAP programming teams 
worked to customize the R/3 System to meet 
petitioner's functional needs; 
• The ABAP programming teams created codes for 
hundreds of user exits to integrate external 
programs with the R/3 System, so that petitioner 
was able to realize the functionality needed for 
its 
unique 
business 
while 
preserving 
the 
functional efficiencies of the R/3 System; and 
• The ABAP programming teams created new subsystems 
to run parallel to the R/3 System for operations 
not available within the R/3 System more critical 
to petitioner's business. 
¶87 Moreover, the DOR conceded that more than 3,000 
modifications were made to the R/3 System.  The R/3 System is 
not prewritten because it is not available for general use; in 
fact, it could not be used unless and until it was customized. 
¶88 What makes factor six arguable is that the R/3 System 
exists and can be sold to everyone in the same form, i.e., all 
purchasers seem to receive disks, and they select specific 
modules and make other changes in order to make the R/3 System 
No. 
2004AP3239   
 
53 
 
fit their needs.  We acknowledge the DOR's arguments that the 
basic R/3 System was existing rather than created and that it 
was to some extent already encoded rather than built entirely 
from scratch.  These considerations could weigh in the DOR's 
favor in that at least this initial program is non-custom and 
thus its $5.2 million cost should be taxable.   
¶89 However, when we consider that this initial or basic 
R/3 System is useless until modified, that customization is 
time-consuming and expensive and thus significant, and that 
every purchaser must have the R/3 System modified in order to 
make use out of it, we cannot conclude that this is a prewritten 
program under factor six.  It is not available for general use——
in fact no one can use it without modifications——and thus, it is 
not canned or prewritten.  Rather, the basic R/3 System modules 
are 
available 
to 
become 
a 
custom 
program. 
 
Thus, 
the 
Commission's conclusion was reasonable. 
¶90 This is unlike a program such as Microsoft Excel.  
While a purchaser may wish to modify Excel so as to make it more 
efficient or enhance its capabilities, the program can and is 
used "right out of the box" by a number of purchasers.  The R/3 
System is not such a prewritten program.        
¶91 The DOR argues that factor six contains mandatory 
language, which is controlling over the more general language of 
factors one through five.  However, this is not consistent with 
other language in the rule.  The rule instructs that all facts 
and circumstances shall be considered including the seven 
factors in the rule.  It does not say that all factors may be 
No. 
2004AP3239   
 
54 
 
considered but one or even two of the factors can be 
dispositive. 
 
The 
DOR 
argues 
that 
the 
Commission's 
interpretation renders factor six surplusage, but the DOR's 
interpretation could render the other factors and portions of 
the rule surplusage except for factor six.  The reasonable 
approach is to consider all of the factors and all the facts and 
circumstances.  The Commission did just that, and it is not for 
this court to override that decision if the Commission's actions 
were reasonable.  
¶92 Additionally, because we agree with the conclusion 
that, under subsection (k) of factor six, this is not prewritten 
or canned, this factor alone does not control the analysis.  It 
is worth noting, however, that under the current language, it 
would be difficult to conclude that a program is custom even 
when factors one through four weigh in favor of finding it 
custom but it is clearly prewritten or canned under factor six.  
Perhaps then, factor seven becomes crucial to the analysis. 
Today, however, this scenario is not before us. 
¶93 The 
DOR 
also 
argues 
that 
the 
Commission's 
interpretation ignores the rule-making process.  One definition 
of "prewritten" that was suggested but rejected was prewritten 
is 
"intended 
for 
general 
use 
and 
mass 
distributions 
as 
prepackaged ready-to-use programs."  The DOR rejected this 
definition 
because 
there 
are 
situations 
where 
prewritten 
programs may not be mass produced.  Presumably, the DOR takes 
issue with the following sentences in the Commission's decision:  
No. 
2004AP3239   
 
55 
 
Our 
conclusion 
that 
the 
distinction 
between 
"prewritten programs" and "custom programs" hinges on 
the amount of effort needed to bring software online 
for a particular customer is consistent with the first 
four factors and consistent with the definition of 
"prewritten programs."  With respect to the latter, if 
a program is prepared, held or existing for general 
use normally for more than one customer, then the 
program will require relatively little effort to be 
put in place for any user.  If, on the other hand, a 
program like the R/3 System is useful only after a 
significant 
investment 
of 
resources 
in 
planning, 
testing, training, enhancement, and maintenance, then 
the software cannot be said to be prepared, held or 
existing for general use.   
Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) ¶400-719, at 32,856 
(WTAC 2003) (footnotes omitted). 
¶94 The DOR seems to overstate the Commission's position.  
The Commission simply reasons that the more effort it takes to 
get a program up and running, the more likely the program is not 
prewritten or canned and thus not available for general use.  It 
does not, however, naturally follow from this proposition that 
the Commission has concluded that prewritten programs must be 
mass produced.  In fact, a prewritten program could be utilized 
by only a few customers.  If a program is available for general 
use, however, it is more likely——even if it is not dispositive——
that a program does not require substantial effort, cost, and 
modifications to get a program up and running.  While some of 
the Commission's reasoning regarding factor six is confusing, 
its overall conclusion was reasonable.  The R/3 System is not a 
prewritten program because it is not available for general use.     
¶95 Under factor seven, regarding an "existing program [] 
selected for modification," the Commission concluded that factor 
No. 
2004AP3239   
 
56 
 
seven did not apply "given the Commission's conclusion that the 
R/3 System is a custom program."  The Commission stated, "[t]his 
factor only makes sense in the overall scheme presented by [Wis. 
Admin. Code §] Tax 11.71[(1)](e) if one concludes that 'existing 
program' means an 'existing program for general use' as that 
phrase is used in the definition of 'prewritten programs' in 
[Wis. Admin. Code] section Tax 11.71(1)(k)."  While the 
Commission could have used different language rather than 
stating that factor seven does not apply because it has 
determined the software is custom, the Commission's overall 
reasoning regarding factor seven is reasonable.   
¶96 Instead of stating that factor seven does not apply 
because the program is custom, perhaps the Commission should 
have stated that factor seven does not apply because the program 
was not prewritten and thus not an existing program.  "Existing 
program" under factor seven must refer to prewritten or canned 
programs because otherwise "existing programs" would include 
custom programs.  The DOR states that "the sale of an 'existing' 
program is a sale of tangible personal property" and thus 
taxable, which means it is not custom.  Prewritten or canned 
programs are available for general use.  Thus, it makes sense 
that "existing program" means existing program for general use.   
¶97 Factor seven should not be completely disregarded 
merely because other factors suggest that a program is custom.  
Factor seven, just like all the other factors and the facts and 
circumstances, should be used to determine whether a program is 
custom.  While the Commission may not have selected the same 
No. 
2004AP3239   
 
57 
 
language that this court would have selected, the Commission's 
subsequent statements and reasoning are sound.  Factor seven 
considers existing programs for general use, and because the 
Commission reasonably concluded that this program did not exist 
for general use, factor seven does not apply.   
¶98 The DOR, however, argues that factor seven does apply 
and that the R/3 System was prewritten and not modified by SAP 
before shipping it to Menasha, which the DOR determines to be 
critical to the application of factor seven.  Because the 
Commission reasonably concluded that factor seven does not apply 
and we must be mindful of the deference we owe to the 
Commission, we reject the DOR's arguments.  The Commission 
reasonably concluded that the R/3 System was not available for 
general use and therefore not canned or prewritten.  Factor 
seven applies only when a program is an existing program, i.e., 
canned or prewritten, and thus existing for general use.  The 
R/3 System did not exist for general use even though it did 
"exist," and thus, factor seven does not apply.       
¶99 The DOR also argues that factor seven contains 
mandatory language and that the Commission's interpretation 
renders factor seven surplusage.  For the reasons stated in our 
discussion of factor six, we reject the DOR's mandatory language 
and surplusage arguments.  See ¶¶85-91. 
¶100 Lastly, under all the facts and circumstances, the 
Commission considered the cost of the R/3 System, and it 
concluded that this weighed in favor of the R/3 System being a 
custom program.  Under all the facts and circumstances, it is 
No. 
2004AP3239   
 
58 
 
reasonable for the Commission to consider the cost of the R/3 
System.  While we acknowledge that a canned or prewritten 
program available for general use could be very expensive, cost 
is still a factor that may be considered by the Commission.  
Cost alone, however, is not dispositive.  The Commission 
reasonably concluded that under the rule's language, all the 
facts and circumstances along with all seven factors must be 
considered and thus cost, even when over $10,000 and thus not 
relevant under factor five, may be considered.    
¶101 We must afford the Commission's decision controlling 
weight deference if it reasonably interprets the rule at issue. 
DaimlerChrysler, 299 Wis. 2d 1, ¶22.   Our inquiry is whether 
the Commission's decision was reasonable and consistent with the 
meaning or purpose of the regulation.  In addition, under the 
controlling weight deference standard, a court should refrain 
from substituting its view of the law, and will sustain the 
agency's conclusions if they are reasonable.  We sustain an 
agency's conclusions even if an alternative view of the law is 
just as reasonable or even more reasonable.  Thus, if the 
Commission reasonably interprets the rule and its determination 
is consistent with the rule's meaning or purpose, we must afford 
the Commission controlling weight deference.  
¶102 The Commission concluded that the R/3 System was "a 
custom program because of the significant investment [Menasha] 
made in presale consultation and analysis, testing, training, 
written documentation, enhancement, and maintenance support, and 
because it [was] not a prewritten program."   
No. 
2004AP3239   
 
59 
 
¶103 We too are persuaded by the initial cost, the costs 
for modifications, the presale consultations over the span of a 
few years, the testing required once installed, the requisite 
training, the requisite enhancement and maintenance, and that 
the R/3 System cannot be used until modified——in this case some 
3,000 modifications.  As a result, we conclude that the 
Commission's conclusion that the R/3 System was custom is 
reasonable.  Accordingly, we will not substitute our judgment 
for that of the Commission's. 
¶104 While the program was not loaded by the vendor, and 
the vendor itself was not obligated pursuant to the licensing 
agreement to modify the R/3 System here, we still conclude that 
the R/3 System is a custom program.  Under the rule's current 
language, it is irrelevant whether the vendor or an independent 
consultant carries out the modifications, and it is irrelevant 
whether those modifications take place before or after it leaves 
the vendor.  The rule's language simply does not identify those 
as factors to be considered.  While who modifies an existing 
program, under factor seven, is relevant, this does not appear, 
under the rule's language, to extend to situations that do not 
involve prewritten or canned programs. 
¶105 The Commission reasonably concluded that all the facts 
and circumstances and all seven factors must be considered when 
determining whether a program is custom.  Applying this 
construction 
to 
the 
particular 
facts 
of 
this 
case, 
the 
Commission reasonably concluded that the R/3 System was a custom 
program. 
No. 
2004AP3239   
 
60 
 
¶106 Finally, 
a 
brief 
response 
to 
the 
dissents 
is 
warranted.  Once one sifts through the unnecessary rhetoric of 
the dissents, it is clear that the dissents are based on certain 
fundamental flaws.  For example, the dissents undertake a 
project to rewrite the law.  The legislature specifically 
designated the Commission as "the final authority for hearing 
and determination of all questions of law and fact" under the 
tax code.  The Commission's decision is entitled to deference.  
The Chief Justice's dissent dissects Wis. Admin. Code § Tax 
11.71(1)(e) in a manner that ignores the plain language of the 
entire rule, and instead, it creates a never before recognized 
or argued two-prong test.  See Chief Justice Abrahamson's 
dissent, ¶¶180-182.  Neither the DOR nor Menasha use this first 
sentence of the rule as the first prong of a two-prong test.  
Despite that dissent's assertions, the rule does not end with 
the first sentence.25  Rather, as Attorney McGinnity so aptly 
stated at the court of appeals' oral argument on November 17, 
2005: "The preface language in Sub (1)(e) talks about [a] custom 
program as being one that accommodates the special processing 
needs of the customer.  And then the rule goes forward with a 
                                                 
25 When the DOR has referenced the first sentence of the 
rule, it has been in tandem with the remainder of the rule.  See 
DOR briefs: at 27 and 33 of its brief in chief, at 11-12 of its 
response to the non-party brief, at 4 and 7 of its reply brief, 
DOR v. Menasha Corp., 2008 WI 88, __ Wis. 2d __, __ N.W.2d __ 
(No. 2004AP3239) (asserting the first sentence of the rule but 
in discussion with factors six or seven or subsection (k)).  The 
briefs can be viewed at the Wisconsin State Law Library, 120 
Martin Luther King Jr. Blvd., 2nd Floor, Madison, Wisconsin 
53707-7881.    
No. 
2004AP3239   
 
61 
 
number of factors as to how you figure out if it is a program 
that is accommodating the special processing needs of the 
customer."  This correct interpretation is also in conflict with 
Justice Bradley's interpretation of the rule.  See Justice 
Bradley's dissent, ¶¶217-225.  However, because the plain 
language 
of 
the 
rule 
specifically 
states 
that 
"[t]he 
determination of whether a program is a custom program shall be 
based upon all the facts and circumstances, including the 
following" seven factors, we disagree with Justice Bradley's 
interpretation.  As to the remaining arguments raised by the 
dissents, they have been otherwise addressed in the majority 
opinion.   
No. 
2004AP3239   
 
62 
 
V. CONCLUSION 
¶107 Accordingly, we affirm the court of appeals' decision. 
We conclude that the Commission's statutory interpretation of 
Wis. Stat. § 77.51(20) is entitled to due weight deference, and 
that 
its 
rule 
interpretation 
of 
Wis. 
Admin. 
Code 
§ Tax 
11.71(1)(e) is entitled to controlling weight deference.  We 
further conclude that when a DOR decision is appealed by the 
taxpayer to the Commission, the Commission is not required to 
give deference to the DOR's interpretation of Wis. Admin. Code 
§ Tax 11.71(1)(e) when deciding that appeal.    
¶108 Finally, 
we 
conclude 
that 
when 
applying 
the 
controlling weight 
deference standard to the Commission's 
interpretation of Wis. Admin. Code § Tax 11.71(1)(e), the 
Commission reasonably interpreted the rule and concluded that 
the R/3 System was custom.  
By the Court.—The decision of the court of appeals is 
affirmed.   
 
No.  2004AP3239.npc 
 
1 
 
¶109 N. PATRICK CROOKS, J.   (concurring).  While I join 
the majority opinion, I write separately to emphasize that 
resolving the issue of deference is key to a correct decision in 
this case.  Rules regarding deference are important limits that 
respect the different roles of the branches of government.  
Granting the appropriate level of deference to the Commission's 
interpretation of Wis. Admin. Code § Tax 11.71(1)(e) and (k)1  
                                                 
1 Wisconsin Admin. Code § Tax 11.71(1)(e) and (k) are found 
within the "Definition of Terms" subsection of the code relating 
to the computer industry.  They state:  
(e) 
"Custom 
programs" 
mean 
utility 
and 
application software which accommodate the special 
processing needs of the customer. The determination of 
whether a program is a custom program shall be based 
upon all the facts and circumstances, including the 
following: 
1. The extent to which the vendor or independent 
consultant engages in significant presale consultation 
and analysis of the user's requirements and system. 
2. Whether the program is loaded into the 
customer's computer by the vendor and the extent to 
which the installed program must be tested against the 
program's specifications. 
3. The extent to which the use of the software 
requires 
substantial 
training 
of 
the 
customer's 
personnel and substantial written documentation. 
4. The extent to which the enhancement and 
maintenance support by the vendor is needed for 
continued usefulness. 
5. There is a rebuttable presumption that any 
program with a cost of $10,000 or less is not a custom 
program. 
6. 
Custom 
programs 
do 
not 
include 
basic 
operational programs or prewritten programs. 
No.  2004AP3239.npc 
 
2 
 
and Wis. Stat. § 77.51(20),2 I concur that the Commission's 
decision should be upheld. 
¶110 The threshold question on the issue of deference is 
whether it is the DOR's interpretation or the Commission's 
interpretation of the statute and the rules that is entitled to 
deference.  I concur that it is the Commission's interpretation 
                                                                                                                                                             
7. If an existing program is selected for 
modification, there must be a significant modification 
of that program by the vendor so that it may be used 
in the customer's specific hardware and software 
environment.  
 . . . . 
(k) "Prewritten programs," often referred to as 
"canned programs," means programs prepared, held or 
existing for general use normally for more than one 
customer, including programs developed for in-house 
use or custom program use which are subsequently held 
or offered for sale or lease. 
 
2 Wisconsin Stat. § 77.52(1) imposes a tax on "the sale, 
lease or rental of tangible personal property . . . ."  
Wisconsin 
Stat. 
§ 77.51(20) 
defines 
tangible 
property 
as 
follows: 
"Tangible 
personal 
property" 
means 
all 
tangible 
personal property of every kind and description and 
includes electricity, natural gas, steam and water and 
also leased property affixed to realty if the lessor 
has the right to remove the property upon breach or 
termination of the lease agreement, unless the lessor 
of the property is also the lessor of the realty to 
which the property is affixed. "Tangible personal 
property" also includes coins and stamps of the United 
States sold or traded as collectors' items above their 
face 
value 
and 
computer 
programs 
except 
custom 
computer programs. 
No.  2004AP3239.npc 
 
3 
 
which is entitled to deference, while recognizing that the DOR's 
interpretation certainly must be carefully reviewed as well. 
¶111 In DaimlerChrysler v. LIRC, 2007 WI 15, 299 Wis. 2d 1, 
727 N.W.2d 311, we treated a rule promulgated by the DWD and 
reviewed by LIRC as the functional equivalent of LIRC's own rule 
for purposes of analyzing the level of deference due.  Id., ¶11 
(citations 
omitted). 
 
("Here, 
the 
LIRC 
reviewed 
a 
rule 
promulgated by the DWD, not the LIRC's own rule. The LIRC is an 
adjudicative body charged only with resolving certain disputes.  
. . . The LIRC does not make rules, except for rules governing 
its 
own 
procedures.") 
 
This 
court 
reasoned 
that 
"[a]n 
administrative agency that regularly works with the rules and 
regulations of another agency, whose actions it is authorized by 
the legislature to review, is in the best position to interpret 
such rules and regulations because the agency knows the specific 
purposes of the rules and regulations . . . and has expertise in 
the area the agency is called upon to review."  Id., ¶22 
(citation omitted).  That description applies with equal force 
to the relationship between the DOR and the Commission. 
¶112 Further, granting deference to the Commission is 
consistent with the analysis in Caterpillar, which, like this 
case, concerned a conflict between the DOR and the Commission.  
There the court of appeals found that "[b]ecause the commission 
is the final administrative authority that reviews the decisions 
of the DOR, any deference that might be due to the decision of 
an administrative agency is due to the commission, not to the 
DOR."  DOR v. Caterpillar, Inc., 2001 WI App 35, ¶6, n.3, 241 
No.  2004AP3239.npc 
 
4 
 
Wis. 2d 282, 625 N.W.2d 338, review denied, 2001 WI 43, 242 Wis. 
2d 545, 629 N.W.2d 784.  A fair reading of the DaimlerChrysler 
and Caterpillar cases leads to the conclusion that the agency 
whose interpretation is entitled to deference here is the 
Commission. 
¶113 The 
deference 
afforded 
to 
the 
Commission's 
interpretation of the administrative rules is significant in 
this case, since such rules are the functional equivalent of the 
Commission's rules.  "An administrative agency's interpretation 
of its own rules or regulations is controlling unless 'plainly 
erroneous 
or 
inconsistent 
with 
the 
regulations.'" 
DaimlerChrysler, 299 Wis. 2d 1, ¶11 (citations omitted). 
¶114 I concur with the majority that the Commission's 
interpretation 
of 
the 
relevant 
administrative 
rules——which 
contain the language crucial to resolving this case——is entitled 
to controlling weight deference. The Commission applied all 
seven factors in Wis. Admin. Code § Tax 11.71(1)(e), as well the 
definition of "prewritten programs" in Wis. Admin. Code § Tax 
11.71(1)(k) in determining whether the R/3 system here was a 
custom program or a prewritten program.  I am satisfied that the 
Commission’s 
decision 
is 
neither 
plainly 
erroneous 
nor 
inconsistent with the rules, and that it is reasonable. 
¶115 In their 
dissents, Chief Justice Abrahamson and 
Justice 
Bradley 
decline 
to 
defer 
to 
the 
Commission's 
interpretation on the grounds that the interpretation is 
inconsistent with the administrative rules.  Chief Justice 
Abrahamson's dissent, ¶143; Justice Bradley's dissent, ¶214.  
No.  2004AP3239.npc 
 
5 
 
That conclusion rests on an alternative interpretation that 
carves just eight words from a single sentence, taken from the 
definition of custom programs, designates those eight words as 
the relevant definition, and seemingly ignores the surrounding 
text.  Part of Wis. Admin. Code § Tax 11.71(1)(e) that is 
excised by such a reading expressly directs that such a 
determination be based on "all the facts and circumstances" and 
lays out the seven factors to determine whether a program is a 
custom program.  If a workable and complete definition could be 
garnered from the last eight words of the sentence, the rest of 
the definition would then be surplusage.  The seven factors and 
the language requiring consideration of "all the facts and 
circumstances" are there for a reason, and they make a 
difference here.  Ignoring the requirement that the factors 
shall be considered leaves the definition open to being read 
many different ways.  Ignoring those factors cannot be the 
correct approach because the rule says the determination "shall 
be based upon all the facts and circumstances, including [the 
seven factors] . . . ."  Wis. Admin. Code § Tax 11.71(1)(e).3 
                                                 
3 An inappropriately narrow focus on eight words in a single 
sentence in the Commission's extensive analysis (see Chief 
Justice Abrahamson's dissent, ¶168) ignores the Commission's 
analysis in the same way that the inappropriately narrow focus 
on those words in the administrative rule ignores the rest of 
the definition. The record clearly shows that the Commission 
started its analysis with the administrative rule's first 
sentence, designating it parenthetically as the definition's 
"intro." "Intro" clearly meant "introduction," which in turn 
clearly meant that it was prefatory material, indicative that 
something else follows. The Commission then proceeded to 
construe and apply the remainder of the definition section——in 
other words, the seven factors.  The Commission clearly 
indicated, by calling that portion the "intro," how it was 
No.  2004AP3239.npc 
 
6 
 
¶116 The error in both dissents comes in taking the last 
eight words of a sentence from the definition and saying it is 
the definition.  See Chief Justice Abrahamson's dissent, ¶148; 
Justice Bradley's dissent, ¶214.  The punctuation denotes the 
end of the sentence, not the end of the definition. Even within 
Wis. Admin. Code § Tax 11.71(1), a section setting forth the 
"Definitions of Terms," six of the subsections define terms with 
definitions that have more than one sentence. See § Tax 
11.71(1)(b), (c), (e), (i), (L), and (m). 
¶117 It was hardly "plainly erroneous or inconsistent with 
the 
regulations"——the 
standard 
we 
apply 
here 
concerning 
interpretation of these administrative rules——for the Commission 
to interpret the rules by reading the full text of the 
subsection and examining and applying each factor to the facts 
of this case.  The court of appeals rightly noted in its 
opinion,  
As the commission pointed out, Wis. Admin. Code 
§ Tax 
11.71(1)(e) 
requires 
that 
the 
commission 
consider "all facts and circumstances" in determining 
whether 
a 
computer 
program 
comports 
with 
the 
definition of a custom program, including factors 1.—
7. of the tax rule. We observe that the plain language 
of 
§ Tax 
11.71(1)(e) 
imposes 
this 
requirement. 
 . . . Aside 
from 
its 
narrow 
and 
unreasonable 
interpretation of § Tax 11.71(1)(e), the DOR offers no 
reason for why we should ignore the commission’s 
determination that the tax rule shall be considered in 
                                                                                                                                                             
proceeding. There is therefore no inconsistency in either the 
Commission's interpretation of the rule or my deference to it.  
(Justice Bradley cites to this paragraph and includes the 
Commission's parenthetical designation of the first sentence in 
Wis. Admin. Code § Tax 11.71(e) as the "intro," but she does so 
without 
acknowledging 
its 
significance. 
Justice 
Bradley's 
dissent, ¶221.) 
No.  2004AP3239.npc 
 
7 
 
its entirety in determining whether a computer program 
is customized.  
DOR v. Menasha Corp., 2007 WI App 20, ¶49, 299 Wis. 2d 348, 728 
N.W.2d 738. 
¶118 Controlling weight deference (similar to great weight 
deference applied to statutory interpretation (DaimlerChrysler, 
299 Wis. 2d 1, ¶15)) is appropriate here, because the Commission 
reasonably 
interpreted 
a 
rule 
adopted 
by 
the 
DOR, 
the 
Commission’s interpretation was not inconsistent with the rule's 
language or clearly erroneous, and the Commission was charged by 
the legislature with the responsibility of reviewing decisions 
of the DOR. Id., ¶13; see also Wis. Stat. § 73.01(4)(a).  The 
Commission regularly works with the rules and regulations of the 
DOR. 
¶119 Finally, under controlling weight deference, proposing 
an 
equally 
reasonable 
alternative 
interpretation 
of 
the 
administrative rules, or even an alternative interpretation that 
is more reasonable (Caterpillar, 241 Wis. 2d 282, ¶6), does not 
render the interpretation of the Commission plainly erroneous or 
inconsistent 
with 
the 
administrative 
rules. 
 
Multiple 
interpretations may well be consistent with the rules and 
regulations.  That is why it is so important to get the 
deference analysis right here.  By applying controlling weight 
deference to the Commission's decision on the interpretation of 
the administrative rules involved, I am satisfied that its 
decision must be upheld.  The DOR has not established that the 
Commission's determinations are unreasonable, irrational, or 
plainly erroneous. 
No.  2004AP3239.npc 
 
8 
 
¶120 The statutory interpretation necessary in this case is 
at best perfunctory.  The relevant statutory language merely 
establishes that an exemption from tax exists for "custom 
computer programs." Under the statute, "'[t]angible personal 
property,'" i.e., taxable property, "includes . . . computer 
programs 
except 
custom 
computer 
programs." 
Wis. 
Stat. 
§ 77.51(20) (emphasis added).  Tax liability or lack thereof is 
certainly the heart of this case, but the dispute here is not 
centered on whether custom computer programs are exempted from 
tax under the statute.  The parties agree on that.  Thus, while 
it is necessary to acknowledge the statutory framework, the 
statute does not contain any language that is helpful to the 
resolution of the disputed matter.  As counsel for the DOR said 
in oral argument before this court, "The outcome of this case 
depends entirely upon the application of an administrative rule 
promulgated by the department.  That rule determines whether or 
not a software sale by a software vendor is subject to sales and 
use tax."  
¶121 To the extent that statutory interpretation comes into 
play it does so because "[w]hen an administrative agency 
promulgates regulations pursuant to a power delegated by the 
legislature, we construe those regulations 'together with the 
statute to make, if possible, an effectual piece of legislation 
in 
harmony 
with 
common 
sense 
and 
sound 
reason.'"  
DaimlerChrysler, 299 Wis. 2d 1, ¶10 (citation omitted).  While 
it is necessary to consult the statute involved (Wis. Stat. 
§ 77.51(20)) before moving on to parse the administrative rule 
No.  2004AP3239.npc 
 
9 
 
involved, it seems to me to be unnecessary to determine the 
level of deference due to the Commission’s interpretation of the 
statute. 
 
This 
case 
turns 
on 
the 
interpretation 
of 
administrative rules rather than on the statute. 
¶122 The majority discusses the three levels of deference——
great weight, due weight, and no deference——accorded an agency's 
interpretation of a statute, as well as the circumstances under 
which each is appropriate.  Majority op., ¶¶47-50.  I note that 
the majority applies due weight deference to the Commission's 
statutory interpretation, and I see no reason to take issue with 
that holding, since I believe such a determination is not 
required to resolve this case.  I recognize, however, that 
"[w]hen applying due weight deference, we will not overturn a 
reasonable agency interpretation that is consistent with the 
purpose of the statute, unless there is a more reasonable 
interpretation."  DaimlerChrysler, 299 Wis. 2d 1, ¶17 (citation 
omitted). 
¶123 Because the Commission's decision was consistent with 
the purpose of the statute——to exempt custom computer programs 
from tax——and because I do not think a more reasonable 
interpretation was set forth by the DOR, there certainly is no 
reason to overturn the decision based on the Commission's 
interpretation of the statute. 
¶124 As Chief Justice Abrahamson's dissent notes, the tax 
code is designed to ensure that taxpayers pay what they owe and 
no more.  Chief Justice Abrahamson’s dissent, ¶127.  What is 
owed is determined by Wisconsin statutes and administrative 
No.  2004AP3239.npc 
 
10 
 
rules and regulations.  The dispute as to the application of the 
relevant statute, and especially the interpretation of the 
rules, was adjudicated by the Commission.  Its interpretation is 
entitled to controlling weight deference.  Here, the tax rules 
and regulations were reasonably interpreted by the appropriate 
adjudicative body, authorized to do so by the legislature.  It 
was the Commission's considered and reasonable opinion, taking 
into account all the facts and circumstances as required by Wis. 
Admin. Code § Tax 11.71(1)(e), that Menasha's computer program 
was a custom computer program, not a prewritten program.  Since 
it was, therefore, not tangible personal property, it was not 
subject to the tax that the DOR attempted to impose.  Like all 
taxpayers, Menasha is required to pay the taxes on taxable 
purchases only——no more, no less. 
¶125 For these reasons, I respectfully concur. 
¶126 I am authorized to state that Justices DAVID T. 
PROSSER and PATIENCE DRAKE ROGGENSACK join this concurrence. 
 
No.  2004AP3239.ssa 
 
1 
 
¶127 SHIRLEY S. ABRAHAMSON, C.J.   (dissenting).  Each 
taxpayer should pay the taxes that he or she owes under the tax 
laws--no more, no less.  The majority opinion rewrites the plain 
language of the governing law and creates a new exemption in the 
tax laws that the legislature did not see fit to enact.   
¶128 The majority opinion states that its decision "has 
great import to the average taxpayer in this state."1  I agree.  
The fiscal implications of the new tax exemption created by the 
majority opinion are substantial: According to the Legislative 
Fiscal Bureau's January 30, 2007, revenue and expenditure 
projections, the state's projected loss in revenue as a result 
of the erroneous decision in the present case will exceed $277.6 
million prior to the end of the 2007-09 biennium and $28.3 
million annually thereafter.2  Wisconsin taxpayers will pick up 
the tab left by those who have escaped taxation as a result of 
the majority opinion.   
¶129 A court should not effectively override an enacted tax 
statute by imposing the court's views of economic policy or of 
the wisdom of a tax law.  With this principle in mind, I examine 
the text of the applicable statute and administrative rule. 
¶130 The legal question presented, and the facts, are 
really rather simple when stripped to their essence. 
                                                 
1 Majority op., ¶5.   
2 See letter from Robert Wm. Lang, Director, Legislative 
Fiscal Bureau, to Sen. Russell Decker & Rep. Kitty Rhoades, 
Chairs, Joint Committee on Finance (Jan. 30, 2007), available at 
http://www.legis.state.wi.us/lfb/Misc/2007_01_30_Revenue%20Estim
ates.pdf (last visited June 27, 2008). 
No.  2004AP3239.ssa 
 
2 
¶131 Here's a snapshot of the law:  Wisconsin taxes the 
sale, lease or rental of tangible personal property.3  "'Tangible 
personal property' . . . includes . . . computer programs except 
custom computer programs."  Wis. Stat. § 77.51(20) (2003-04).4     
¶132 A custom computer program is defined by the Department 
of Revenue's rule, Wis. Admin. Code § Tax 11.71(1)(e), (k), and 
(m), which everyone agrees governs the instant case.  According 
to the administrative rule, the words "custom computer program" 
mean "utility and application software which accommodate the 
special processing needs of the customer."5  The administrative 
rule 
also 
provides 
that 
custom 
programs 
do 
not 
include 
"prewritten programs" (sometimes also called "canned programs"),6 
which are "programs prepared, held or existing for general use 
normally for more than one customer . . . ."7  A program is 
                                                 
3 Wisconsin's retail sales tax applies to receipts from the 
sale, lease, or rental of tangible personal property.  See Wis. 
Stat. § 77.52(1) (providing in relevant part that "[f]or the 
privilege of selling, leasing or renting tangible personal 
property . . . at retail a tax is imposed upon all retailers at 
the rate of 5% of the gross receipts from the sale, lease or 
rental of tangible personal property . . . sold, leased or 
rented at retail in this state").    
Wisconsin's use tax applies to the use of tangible personal 
property purchased from a retailer.  See Wis. Stat. § 77.53(1) 
(providing in relevant part that "an excise tax is levied and 
imposed . . . on the storage, use or other consumption in this 
state of tangible personal property purchased from any retailer, 
at the rate of 5% of the sales price of that property . . ."). 
4 All references to the Wisconsin Statutes are to the 2003-
04 version unless otherwise indicated.     
5 Wis. Admin. Code § Tax 11.71(e) (Sept. 2006). 
6 Wis. Admin. Code § Tax 11.71(1)(e)6. (Sept. 2006). 
7 Wis. Admin. Code § Tax 11.71(1)(k) (Sept. 2006). 
No.  2004AP3239.ssa 
 
3 
either a (taxable) prewritten program or a (tax-exempt) custom 
program; it cannot be both.8 
¶133 Here's a snapshot of the facts:  In 1995 SAP leased 
its R/3 System to Menasha Corporation.  The R/3 System consists 
of some 70 software modules, each providing a rudimentary 
business and accounting software system for a customer's 
business.  The R/3 System is not designed specifically for any 
customer.  R/3 is a product that SAP leases in unmodified form 
to many customers.  In other words, the R/3 System is a platform 
that an individual business uses for creating its own customized 
business 
and 
accounting 
software. 
 
SAP's 
customers 
must 
undertake their own modification of the R/3 platform to 
customize it for their own business needs.     
¶134 By 1998 SAP had leased this same software to more than 
20,000 customers across the world.9  In 1997 Business Week noted 
that "SAP's R/3 runs the back offices of half of the world's 500 
top companies——scheduling the manufacture of washing machines at 
General Electric Co. and shipping soda pop on time at Coca-Cola 
Co."10  
¶135 The leasing arrangement between SAP and its customer 
(here Menasha Corporation) is separate and distinct from any 
                                                 
8 Wis. Admin. Code § Tax 11.71(1)(m) (Sept. 2006) ("For 
purposes of this section a program is either a prewritten or 
custom program.").   
9 Martin Campbell-Kelly, From Airline Reservations to Sonic 
the Hedgehog: A History of the Software Industry 196 (MIT Press 
2003).    
10 Campbell-Kelly, supra note 9, at 197 (quoting Gail 
Edmondson et al., "Silicon Valley on the Rhine," Business Week, 
Nov. 3, 1997, at 40, 42). 
No.  2004AP3239.ssa 
 
4 
arrangements the customer thereafter makes with any entity for 
modifying the R/3 System to meet the customer's particular 
software needs. 
¶136 The lease of the R/3 software by SAP to Menasha 
Corporation for $5.3 million (which did not oblige SAP to 
provide customization services) is the basis for the tax in the 
present case.  Relevant to the instant case, the Department of 
Revenue is not imposing a tax on expenditures of more than $16 
million that Menasha Corporation made over the next seven years 
to customize the R/3 System. 
¶137 In sum, the R/3 System was not written solely for 
Menasha Corporation or upon its request.  SAP had developed the 
R/3 System before meeting up with Menasha Corporation and has 
leased the same R/3 System to thousands of customers.  
¶138 The majority opinion agrees that "the R/3 System 
exists and can be sold to everyone in the same form."11   
¶139 Here's the legal question of statutory interpretation 
presented: Is the R/3 System of 70 modules leased by SAP to 
Menasha Corporation in 1995 a taxable "computer program" or a 
tax-exempt "custom computer program" as these words are defined 
in the administrative rule?   
¶140 Here's a snapshot of the majority opinion's answer to 
the legal question: The majority opinion hides behind the 
decision of the Tax Appeals Commission.  It cannot hide.  It 
bears full responsibility for the result. 
                                                 
11 Majority op., ¶88.   
No.  2004AP3239.ssa 
 
5 
¶141 Interpretation of a statute or a rule is a question of 
law determined by this court independently of other courts or 
administrative agencies.  In interpreting a statute or an agency 
rule, 
a 
court 
may, 
but 
need 
not, 
accord 
an 
agency's 
interpretation of a statute deference or weight.  The court 
reserves its authority to interpret the law.  Indeed, it is the 
court's responsibility to decide questions of law and to 
determine whether deference is due and what level of deference 
is due to an agency interpretation and application of a 
statute.12  By granting deference or weight to an agency 
interpretation, the court does not, and should not, abdicate its 
authority and responsibility to decide questions of law.13     
¶142 Furthermore, 
deference 
or 
weight 
is 
due 
to 
an 
administrative agency only when the agency's interpretation is 
consistent with the language, meaning, and purpose of the 
statute or rule and is reasonable.14  The court itself must 
                                                 
12 Racine Harley-Davidson, Inc. v. Wis. Div. of Hearings & 
Appeals, 2006 WI 86, ¶14, 292 Wis. 2d 549, 717 N.W.2d 184.   
13 Id. 
In several tax cases the court has stated that when the 
facts are undisputed, a court may substitute its judgment for 
that of the Department of Revenue or the Tax Appeals Commission 
regarding the interpretation and application of a statute to the 
undisputed facts.  See, e.g., DOR v. Bailey-Bohrman Steel Corp., 
93 Wis. 2d 602, 606-07, 287 N.W.2d 715 (1980); H. Samuels Co. v. 
DOR, 70 Wis. 2d 1076, 1083-84, 236 N.W.2d 250 (1975).  Later 
cases have moved away from these cases without explanation and 
without overruling these cases.   
14 Majority op., ¶¶53-54, citing DaimlerChrysler v. LIRC, 
2007 WI 15, ¶¶11, 13, 19, 299 Wis. 2d 1, 727 N.W.2d 311.  
No.  2004AP3239.ssa 
 
6 
always interpret the statute to determine the reasonableness of 
the agency determination.15   
¶143 In the present case, the Tax Appeals Commission's 
interpretation of the statute and rule governing computer 
software and custom computer software is inconsistent with the 
language, the meaning, and the purpose of the statute and 
administrative rule and is not reasonable.  The Tax Appeals 
Commission's determination therefore cannot be entitled to any 
deference or weight as this court determines the question of law 
presented.   
¶144 Nevertheless, the majority opinion hides behind the 
Tax Appeals Commission by spending many pages uselessly, 
confusingly, and often erroneously discussing whether the 
Department of Revenue's interpretation of its own rule or the 
Tax Appeals Commission's interpretation of the Department's rule 
should be given some kind of weight as the court determines the 
question of statutory interpretation presented.16  All of this 
                                                 
15 Racine Harley-Davidson, 292 Wis. 2d 549, ¶14.   
16 I do not reach the hypothetical issue whether deference 
would be due to the Tax Appeals Commission's interpretation of 
the administrative rule if the Commission's interpretation were 
reasonable.  I do, however, disagree with the majority opinion's 
discussion of the issue of deference in the instant case.  I 
note two obvious errors in the majority opinion.   
No.  2004AP3239.ssa 
 
7 
                                                                                                                                                             
First, it does not make sense for the majority opinion to 
conclude that although this court owes only "due weight" 
deference to the Tax Appeals Commission's interpretation of Wis. 
Stat. § 77.51, the court must give the Commission "controlling 
weight" deference insofar as the Commission interprets the 
Department of Revenue's administrative rule interpreting Wis. 
Stat. § 77.51.  See majority op., ¶53.  How can the majority 
opinion hold that the Commission's interpretation of the 
Department's interpretation of Wis. Stat. § 77.51 is entitled to 
a higher level of deference than the Commission's interpretation 
of the statute itself?   
Second, the majority opinion is incorrect to conclude that 
whether the Department of Revenue has acquiesced in the 
Commission's interpretation of a statute or administrative rule 
has "no relationship" to this court's determination whether 
deference is due (and how much deference may be due) to the 
Commission's interpretation.  See majority op., ¶71.  This court 
has previously recognized that whether an adjudicative agency's 
interpretation of a statute has been embraced by a line agency 
(the Department of Revenue in the instant case) may be relevant 
to the question what level of deference is due to the 
adjudicative agency's interpretation.  See Racine Harley-
Davidson, 292 Wis. 2d 549, ¶53 (stating that when the Division 
of Hearings and Appeals adjudicates disputes under certain 
statutes, the level of deference owed to the Division's decision 
depends 
upon 
whether 
the 
line 
agency 
sharing 
concurrent 
jurisdiction with the Division has adopted the Division's 
decision as its own). 
For the statutory provisions regarding the Department of 
Revenue's 
power 
to 
acquiesce 
or 
not 
acquiesce 
in 
the 
Commission's interpretation of a statute, see Wis. Stat. 
§ 73.01(4)(e)1. and § 73.015(2) (providing that the Tax Appeals 
Commission's interpretation of a statute is not binding upon the 
Department in future cases when the Department seeks review of 
the order or decision of the Commission construing the statute); 
Wis. Stat. § 73.01(4)(e)2. (providing that even when the 
Department does not seek review of the Commission's decision or 
order, the Department may issue a "notice of nonacquiescence," 
the effect of which is that "although the decision or order is 
binding on the parties for the instant case, the commission's 
conclusions of law, the rationale and construction of statutes 
in the instant case are not binding upon or required to be 
followed by the department of revenue in other cases.").   
No.  2004AP3239.ssa 
 
8 
discussion in the majority opinion is beside the point, given 
that 
the 
Commission's 
interpretation 
is, 
in 
any 
case, 
unreasonable and should be given no deference at all.       
¶145 The majority opinion does not take seriously its duty 
to render its own interpretation of the administrative rule and 
to 
scrutinize 
the 
reasonableness 
of 
the 
Commission's 
interpretation.  Although conceding numerous imperfections in 
the Tax Appeals Commission's Ruling and Order,17 the majority 
opinion does its best to paper over, or to ignore, the 
Commission's obvious failures to remain faithful to the clear 
text of Wis. Admin. Code § Tax 11.71(1).  The majority opinion 
abandons its responsibility as the ultimate authority to decide 
issues of law, perfunctorily and unpersuasively concluding that 
the decision of the Tax Appeals Commission is consistent with 
the administrative rule and is reasonable. 
¶146 Here's a snapshot of the Tax Appeals Commission's 
erroneous reasoning (upon which the majority opinion erroneously 
                                                                                                                                                             
The Internal Revenue Service similarly may acquiesce or not 
acquiesce in decisions of the United States Tax Court.  Susan A. 
Berson, Federal Tax Litigation § 1.01[7], at 1-13 (2008).  In 
reviewing decisions of the United States Tax Court, the federal 
courts owe no deference to the Tax Court's interpretation of the 
Internal Revenue Code, or to the Tax Court's interpretations of 
the law generally.  3 Laurence F. Casey, Federal Tax Practice 
§ 9.06, 9-13 to 9-14 (2007).   
17 See, e.g., majority op., ¶78 (acknowledging that a 
portion of the rule's text conflicts with the Commission's 
application of the rule); majority op., ¶85 n.24 ("While the 
Commission's language is somewhat perplexing . . ."); majority 
op., ¶96 (raising a question about the Tax Appeals Commission's 
interpretation 
of 
Wis. 
Admin. 
Code 
Tax 
§ 11.71(1)(e)7.); 
majority op., ¶95 ("While the Commission could have used 
different language . . .").   
No.  2004AP3239.ssa 
 
9 
rests): The Tax Appeals Commission makes two critical errors in 
interpreting and applying Wis. Admin. Code § Tax 11.71(1).   
¶147 First, 
and 
most 
importantly, 
the 
Tax 
Appeals 
Commission 
utterly 
disregards 
the 
administrative 
rule's 
definition of nontaxable "custom programs" as "utility and 
application software which accommodate the special processing 
needs of the customer."  Nowhere in its opinion does the Tax 
Appeals Commission apply the rule's definition to the facts of 
the present case.  The Commission's opinion effectively repeals 
the administrative rule's clear language setting forth this 
definition. 
¶148 The R/3 System that SAP leased to Menasha clearly does 
not fit within the rule's definition of "custom programs."  
Everyone agrees that the R/3 System that Menasha Corporation 
acquired from SAP did not "accommodate the special processing 
needs of" Menasha.  Everyone agrees that the R/3 System is 
leased in unmodified form to many customers and that the R/3 
System does not meet the special processing needs of any 
particular customer.  The Tax Appeals Commission and the 
majority opinion could not possibly have reached a contrary 
conclusion if they had honored the text of the administrative 
rule defining "custom programs."          
¶149 Second, the Tax Appeals Commission misconstrues the 
administrative 
rule's 
definition 
of 
taxable 
"prewritten 
programs," adding words and ideas to the plain language of the 
rule that cannot be found in the rule's text.  Prewritten 
programs 
are 
defined 
in 
relevant 
part 
as 
"programs . . . existing for general use."   The Commission 
No.  2004AP3239.ssa 
 
10 
erroneously converts the words "existing for general use" in the 
administrative rule to read "ready for use off the shelf without 
any modification."     
¶150 The essence of the Tax Appeals Commission's decision 
is that because Menasha Corporation had to customize the R/3 
System after the Corporation acquired it, the R/3 System is a 
custom computer program, not a prewritten program existing for 
general use.  According to the Tax Appeals Commission, the 
distinction between custom computer programs and prewritten 
programs hinges on the amount of effort necessary to get the 
software operational for a particular customer's needs.  The 
Commission concludes that the R/3 System does not "exist for 
general use," because it is, in the Commission's view, "useful 
only after a significant investment of resources in planning, 
testing, training, enhancement, and maintenance . . . ."18  
¶151 The plain language of the administrative rule does not 
support the Tax Appeals Commission's interpretation.  The 
administrative rule does not define a prewritten program as one 
that requires no additional investment from the customer after 
its acquisition.  The rule requires only that a prewritten 
program is "prepared, held or existing for general use," not 
that the program is ready for use right off the shelf without 
any modification.  The phrase "for general use" does not include 
any mention of the amount of time necessary to get the program 
up and running for the individual customer.  
                                                 
18 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,856 (WTAC 2003). 
No.  2004AP3239.ssa 
 
11 
¶152 Nor does the fact that the R/3 System is not ready for 
use off the shelf without any modification mean that the program 
is not of use or useful in the unmodified state in which SAP 
leases the program to its customers.  Of course the unmodified 
R/3 System is used and is useful.  The R/3 System is used and 
useful as, in the Tax Appeals Commission's own words, "a 
rudimentary 
business 
and 
accounting 
computer 
software 
system[.]"19  SAP's customers use this rudimentary business and 
accounting computer software system to advance their abilities 
to build the business and accounting programs that will meet 
their own particular needs.  SAP's customers do not, as the 
Commission implies, pay millions of dollars to acquire something 
that has no use.     
¶153 When 
the 
administrative 
rule's 
definition 
of 
"prewritten program" is applied as written, not as rewritten by 
the Tax Appeals Commission and the majority opinion, the R/3 
System that SAP leased to Menasha clearly fits within the 
definition of "prewritten program."  The R/3 System is an 
existing program that Menasha Corporation acquired in unmodified 
form, not a program that SAP created or modified at Menasha 
Corporation's request.  The R/3 is suitable for general use; it 
is used by many customers other than Menasha Corporation.  The 
program thus is a prewritten program "existing for general use 
normally for more than one customer."   
¶154 In sum, the Tax Appeals Commission ignores the 
administrative 
rule's definition of "custom programs" and 
                                                 
19 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,843 (WTAC 2003). 
No.  2004AP3239.ssa 
 
12 
rewrites the rule's definition of "prewritten programs."  The 
majority opinion seriously errs in adopting the Commission's 
interpretation as its own, when the Commission's interpretation 
is so plainly inconsistent with the rule's language, meaning, 
and purpose.   
¶155 This court should, in my opinion, follow the excellent 
memorandum decision of Judge Steven Ebert of the Dane County 
Circuit Court, which reversed the deeply flawed decision of the 
Tax Appeals Commission.     
¶156 I shall first set forth the undisputed facts, then the 
applicable administrative rule, and finally I shall apply the 
statute and rule to these undisputed facts in greater detail 
than presented in the snapshots above. 
I 
¶157 SAP leased its R/3 software to Menasha Corporation for 
a license fee of approximately $5.3 million.20  SAP's lease of 
                                                 
20 See majority op., ¶20; Menasha Corp. v. DOR, Wis. Tax 
Rptr. (CCH) 400-719, at 32,845, 32,847 (WTAC 2003).  
In 1995, Menasha Corporation agreed to lease the R/3 
software from SAP for approximately $5.2 million dollars.  In 
1997, Menasha Corporation then made an additional payment of 
$100,000 in licensing fees to SAP, bringing the total sum that 
Menasha Corporation paid for the lease of SAP's R/3 software to 
approximately $5.3 million.   
The record does not make clear what Menasha Corporation 
received in consideration for the additional $100,000 in 
licensing fees that it paid to SAP in 1997.  The parties do not 
seem 
to 
distinguish between Menasha Corporation's initial 
payment of $5.2 million and its subsequent payment of $100,000.  
Thus, I assume for purposes of this opinion that the additional 
payment of $100,000 was, like the initial payment of $5.2 
million, for the lease of the R/3 software. 
No.  2004AP3239.ssa 
 
13 
its R/3 software to Menasha Corporation was routine in nature 
and similar to the circumstances of its R/3 sales to its other 
customers.21  
¶158 The R/3 System is a software product that SAP leases 
in unmodified form to many customers.22  SAP's leases of R/3 
System software are sales of "off-the-shelf" standardized 
software; the program is written before the sale and is sold to 
                                                                                                                                                             
SAP's transaction with Menasha Corporation is denominated a 
"license" agreement, not a "lease" agreement.  However, the term 
"lease," as it is defined for purposes of Wis. Stat. §§ 77.51-
.66, 
"includes 
rental, 
hire 
and 
license." 
 
Wis. 
Stat. 
§ 77.51(7).  Thus, for purposes of this opinion, I make no 
distinction between an agreement to "lease" and an agreement to 
"license."  Software license agreements are also ordinarily 
referred to as "sales."  See United States v. Oracle Corp., 331 
F. Supp. 2d 1098, 1101 (N.D. Ca. 2004) ("These copyrighted 
software programs are licensed ('sold' is the term applied to 
these license transactions) . . . .").   
21 See Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, 
at 32,845 (WTAC 2003).     
22 See Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, 
at 32,847-32,848 (WTAC 2003).  See also Campbell-Kelly, supra 
note 9, at 196-97.   
Professor Campbell-Kelly explains that although SAP once 
operated "as a 50-person custom programming outfit rather than a 
software products firm," SAP's "switch to a software products 
firm came in 1978," when "SAP decided to rewrite its software as 
R/2 [a predecessor of R/3], with the medium-term aim of turning 
it into a product."  Campbell-Kelly, supra note 9, at 193.   
Professor Campbell-Kelly's history of the software industry 
is accepted as an authoritative text.  The United States 
District Court for the Northern District of California relied 
upon Professor Campbell-Kelly's book when deciding the much-
publicized case about Oracle Corporation's efforts to acquire 
the stock of PeopleSoft, Inc.  See United States v. Oracle 
Corp., 331 F. Supp. 2d 1098, 1101, 1004 (N.D. Ca. 2004). 
No.  2004AP3239.ssa 
 
14 
a wide variety of customers.23  SAP does not modify the existing 
software modules before shipment to customers.24  SAP and Menasha 
Corporation's agreement made no provision for customization of 
the R/3 System software by SAP.25  The customer must implement 
the R/3 System on its own or hire SAP consultants or SAP 
approved 
independent 
consultants.26 
 
SAP 
keeps 
the 
lease  
agreement separate from any agreement relating to consulting and 
maintenance services.27  
¶159 In other words, the R/3 System is not designed 
specifically for any customer.  SAP itself agreed in a Wisconsin 
Department of Revenue audit that R/3 is subject to Wisconsin 
sales tax as "off-the–shelf" standardized software written 
before the time of the sale and intended to be sold to a wide 
variety of customers.28  According to the Tax Appeals Commission, 
                                                 
23 See Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, 
at 32,845 (WTAC 2003). 
24 See Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, 
at 32,845 (WTAC 2003). 
25 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,845 (WTAC 2003). 
26 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,848 (WTAC 2003). 
27 Id.  
SAP's business practice is to distinguish between and to 
separate the sale of its R/3 software and any sale of consulting 
services to its customers.  Thus SAP keeps its licensing 
agreement separate from any agreement for consulting services.  
The licensing agreement did not obligate SAP to modify the 
software 
to 
suit 
Menasha 
Corporation's 
particular 
work 
environment as part of the 1995 license transaction.  
28 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,847 (WTAC 2003). 
No.  2004AP3239.ssa 
 
15 
SAP admitted that the R/3 System is prewritten and paid the 
Department of Revenue more than $1.9 million in tax and interest 
for sales to Wisconsin customers; SAP further agreed to collect 
sales and use taxes thereafter.29        
¶160 The R/3 System is an example of Enterprise Resource 
Planning (ERP) software, that is, "generalized, integrated 
software that [can] be customized for virtually any large 
business."30  The R/3 System contains a basic business and 
accounting system that did not meet Menasha Corporation's (or 
any entity's) particular needs for a business and accounting 
software system.31  SAP markets the R/3 System not as software 
that is customized to the needs of SAP's customers but rather as 
software that is customizable to the customer's needs.   
¶161 Like 
SAP's 
other 
customers, 
Menasha 
Corporation 
acquired the R/3 System from SAP to customize it to meet Menasha 
Corporation's needs.32  After licensing the R/3 System from SAP, 
Menasha Corporation expended a large sum of money over seven 
years to customize the software to fit its business needs.  All 
told, Menasha Corporation paid approximately $16,275,000 in 
consulting fees for the purpose of customizing the R/3 software: 
$13 million to ICS Deloitte (an SAP "logo partner" that Menasha 
Corporation elected to hire); $2.5 million to SAP; and $775,000 
                                                 
29 Id. at 32,848.   
30 Campbell-Kelly, supra note 9, at 172.   
31 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,843 (WTAC 2003).  
32 Campbell-Kelly, supra note 9, at 172.   
No.  2004AP3239.ssa 
 
16 
to consultants associated with neither ICS Deloitte nor SAP.33  
SAP was one of at least five different groups of personnel 
involved in the implementation team that modified R/3 to meet 
Menasha Corporation's needs.  
¶162 The Department of Revenue imposed $265,093 in sales or 
use taxes on the $5.3 million that Menasha Corporation paid to 
SAP for the lease of the R/3 software.34  It is this tax that is 
at issue in the present case.35  Menasha Corporation's refund 
                                                 
33 See majority op., ¶22; Menasha Corp. v. DOR, Wis. Tax 
Rptr. (CCH) 400-719, at 32,847 (WTAC 2003).    
34 $265,093 is approximately 5% of $5.3 million.     
Both Menasha Corporation and the Tax Appeals Commission are 
not consistent in referring to the taxes at issue as "sales" 
taxes or "use" taxes.  The Tax Appeals Commission variously 
characterizes Menasha Corporation's claim as one for the refund 
of "use tax" payments, "sales tax" payments, and "sales and use 
tax" payments.  Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-
719, at 32,843, 32,848, 32,857 (WTAC 2003).  
The retail sales tax ordinarily is imposed on the retailer, 
in this case SAP.  Wis. Stat. § 77.52(1).  However, Menasha 
Corporation apparently contracted with SAP to pay any retail 
sales tax arising from SAP and Menasha Corporation's lease 
agreement for the R/3 software.  See majority op., ¶30; Menasha 
Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 32,848 (WTAC 
2003). 
35 Menasha 
Corporation 
initially 
sought 
a 
refund 
of 
$342,614.45.  Majority op., ¶24; Menasha Corp. v. DOR, Wis. Tax 
Rptr. (CCH) 400-719, at 32,843 (WTAC 2003).  However, the 
$342,614.45 figure represented not only the $265,093 that 
Menasha Corporation paid in sales or use taxes on the lease 
transaction but also an additional $77,521 in tax payments on 
$1,550,424 that Menasha Corporation paid to SAP for maintenance 
of the R/3 software.  These facts are set forth in the petition 
for review (and its appendices) that Menasha Corporation filed 
with the Tax Appeals Commission. 
No.  2004AP3239.ssa 
 
17 
claim pertains solely to the $265,093 in sales or use tax 
payments arising from Menasha Corporation and SAP's $5.3 million 
transaction for the acquisition of SAP's R/3 software.  The 
present case has nothing to do with the nontaxable $16,275,000 
in consulting fees that Menasha Corporation paid in various 
transactions over the course of seven years for the purpose of 
customizing the R/3 software.    
¶163 Those are the undisputed facts.  I turn to the law and 
its application to the undisputed facts. 
II 
¶164 The Department of Revenue promulgated Wis. Admin. Code 
§ Tax 11.71 under its rule making authority.36  Section 11.71, 
entitled "Computer industry," restates (among other matters) 
Wis. Stat. § 77.51(20) to provide that the receipts of the 
retail lease of "computer programs, except custom programs," are 
taxable37 and defines terms relevant to taxation of the computer 
industry.  Like the Tax Appeals Commission and the majority 
                                                                                                                                                             
The 
$77,521 
in 
tax 
payments 
arising 
from 
Menasha 
Corporation and SAP's transactions for maintenance of the R/3 
software is no longer at issue.  The parties settled their 
dispute about Menasha Corporation's liability for these taxes 
while proceeding before the Tax Appeals Commission.  See Menasha 
Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 32,848 (WTAC 
2003).  Under the parties' settlement agreement, Menasha 
Corporation received a partial refund of $38,760.   
36 Wisconsin Stat. § 277.11(2) and (2)(a) authorize an 
agency such as the Department of Revenue to "promulgate rules 
interpreting 
the 
provisions 
of 
any 
statute 
enforced 
or 
administered by it, if the agency considers it necessary to 
effectuate the purposes of the statute . . . ." 
37 Wis. Admin. Code § Tax 11.71(2). 
No.  2004AP3239.ssa 
 
18 
opinion, I look to the administrative rule to answer the legal 
question posed in the present case.   
¶165 Section 11.71(1)(e), (k) and (m) of the Wisconsin 
Administrative Code (Tax) defines the words "custom program" as 
used in § Tax 11.71 (and thus Wis. Stat. § 77.51(20)) as 
follows:   
(e) "Custom programs" mean utility and application 
software which accommodate the special processing 
needs of the customer. The determination of whether a 
program is a custom program shall be based upon all 
the facts and circumstances, including the following: 
1. The extent to which the vendor or independent 
consultant engages in significant presale consultation 
and analysis of the user's requirements and system. 
2. Whether the program is loaded into the customer's 
computer by the vendor and the extent to which the 
installed program must be tested against the program's 
specifications. 
3. The extent to which the use of the software 
requires 
substantial 
training 
of 
the 
customer's 
personnel and substantial written documentation. 
4. The extent to which the enhancement and maintenance 
support 
by 
the 
vendor 
is 
needed 
for 
continued 
usefulness. 
5. There is a rebuttable presumption that any program 
with a cost of $10,000 or less is not a custom 
program. 
6. Custom programs do not include basic operational 
programs or prewritten programs. 
7. 
If 
an 
existing 
program 
is 
selected 
for 
modification, there must be a significant modification 
of that program by the vendor so that it may be used 
in the customer's specific hardware and software 
environment. 
. . . . 
No.  2004AP3239.ssa 
 
19 
(k) 
"Prewritten programs", often referred to as 
"canned programs", means programs prepared, held or 
existing for general use normally for more than one 
customer, including programs developed for in-house 
use or custom program use which are subsequently held 
or offered for sale or lease. 
. . . . 
(m) . . . For purposes of this section a program is 
either a prewritten or custom program.38  
¶166 When I apply the administrative rule to the undisputed 
facts, it is clear that the R/3 System is excluded from being a 
custom computer program under the very first sentence of the 
rule.  
¶167 The 
first 
sentence 
of 
Wis. 
Admin. 
Code 
§ Tax 
11.71(1)(e) defines the term "custom programs" to "mean utility 
and 
application 
software 
which 
accommodate 
the 
special 
processing needs of the customer."  The Tax Appeals Commission 
recognizes that the administrative rule's first sentence defines 
the term "custom programs."  Quoting directly from the rule's 
first sentence, the Commission states that "[s]ection TAX 
11.71(1)(e)(intro) defines custom programs 'as utility and 
application software which accommodate the special processing 
needs of the customer.'"39  The Tax Appeals Commission is 
                                                 
38 Wisconsin Admin. Code ch. Tax 11, including § Tax 
11.71(1), is applicable to the state sales and use taxes imposed 
under Wis. Stat. §§ 77.51-.66.  See Wis. Admin. Code § Tax 
11.001(1). 
39 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,854 (WTAC 2003) (emphasis added). 
No.  2004AP3239.ssa 
 
20 
obviously correct that the administrative rule's first sentence 
defines "custom programs."  The first sentence begins, "'Custom 
programs' mean . . . ." (emphasis added).  The verb "mean" 
denotes definition.40   
¶168 Although claiming to defer as a general matter to the 
Tax Appeals Commission's interpretation of the administrative 
rule, 
the 
concurrence 
apparently 
does 
not 
defer 
to 
the 
Commission's conclusion that the rule's first sentence defines 
"custom programs."41  The concurrence also does not explain what 
the rule's first sentence means, or what function it serves, if 
it does not define "custom programs."      
¶169 Everyone agrees that the R/3 System that Menasha 
Corporation acquired from SAP did not "accommodate the special 
processing needs of" Menasha Corporation.42  Software that is 
leased in unmodified form to many customers and that does not 
                                                                                                                                                             
The Commission refers to "Section TAX 11.71(1)(e)(intro)."  
In legislative parlance, an introduction is "an unnumbered 
subunit of a section, subsection, paragraph, or subdivision of 
the statutes with a colon at the end followed by a list of two 
or more items in numbered subunits."  Wisconsin Bill Drafting 
Manual 
2007-2008, 
§ 1.001(20) 
at 
9. 
 
Accordingly, 
the 
Commission's reference to "Section TAX 11.71(1)(e)(intro)" is to 
all the text in Wis. Admin. Code § Tax 11.71(1)(e) preceding the 
rule's colon and numbered subunits.          
40 See 
Wisconsin 
Bill 
Drafting 
Manual 
2007-2008, 
§ 2.01(1)(i) at 39 ("In a definition do not use 'means and 
includes.'  'Means' is complete and 'includes' is partial.  
Using 'includes' allows a court or administering agency to adopt 
additional meanings; using 'means' restricts them to reasonable 
constructions of your wording.") (emphasis added).    
41 See concurring op., ¶¶115-116.    
42 As the majority opinion acknowledges, the R/3 System "did 
not provide adequate processing for Menasha."  Majority op., 
¶16.   
No.  2004AP3239.ssa 
 
21 
provide 
adequate 
processing 
for 
any 
particular 
customer 
obviously does not accommodate the customer's special processing 
needs.  Indeed Menasha Corporation had to expend more than $16 
million over seven years to fit the R/3 System to Menasha's 
special processing needs.  
¶170 The Tax Appeals Commission completely disregards the 
administrative rule's first sentence defining "custom programs."  
In its opinion, the Commission neither acknowledges nor explains 
its failure to apply the definition set forth in the rule.  It 
appears that the Commission's error was inadvertent, not the 
result of a conscious determination that the administrative 
rule's 
definition 
of 
"custom 
programs" 
somehow 
is 
not 
controlling in the instant case.  The Commission just seems to 
have forgotten that the definition is there. 
¶171 The majority, however, certainly is aware that the 
definition is there.  The Department of Revenue argues to this 
court that the rule's first sentence defining "custom programs" 
must be applied in deciding the instant case.   
¶172 The Department of Revenue, for example, states in a 
brief to this court (using the words of the rule's first 
sentence) that the outcome in the present case depends upon 
"whether the software sold under the sales transaction with the 
seller 
accommodates 
the 
special 
processing 
needs 
of 
the 
customer . . . ."43  In the same brief, the Department further 
argues that "[a]s purchased by Menasha under its software sales 
                                                 
43 Brief and Supplemental Appendix of Petitioner Wisconsin 
Department of Revenue in Response to Non-Party Brief of 
Wisconsin Manufacturers & Commerce at 11.    
No.  2004AP3239.ssa 
 
22 
contract with SAP, R/3 was not 'custom' because it did not 
'accommodate the special processing needs of the customer' as 
required by subsection (e) of DOR's rule."44  Again the 
Department relies on the first sentence.      
¶173 During oral argument to this court, the Department of 
Revenue again stated its position that the court must apply the 
administrative rule's first sentence defining "custom programs" 
in determining whether the R/3 System is a "custom" program for 
purposes of the rule.  Counsel for the Department of Revenue 
made the following statement to this court:  
[T]he rule says that "custom software" is software 
that accommodates the specific processing needs of the 
customer.  The R/3 modules . . . as purchased by 
Menasha 
are 
not 
"custom 
software" 
within 
that 
definition because as purchased the modules did not 
accommodate the specific processing needs of Menasha.  
Menasha hired ICS so to customize the software so that 
it would accommodate Menasha's specific processing 
needs. . . . 
When asked where in the rule counsel found this definition of 
"custom software," counsel referred the court to the first 
sentence of the rule.    
¶174 Although the majority is aware that Wis. Admin. Code § 
11.71(1)(e) defines the term "custom programs" in its first 
sentence, and although the majority is also aware that the 
Department of Revenue relies upon the definition set forth in 
the first sentence, the majority opinion does not apply the 
rule's definition of "custom programs"; does not explain why it 
does not apply the rule's definition of "custom programs"; and 
                                                 
44 Id. at 12.     
No.  2004AP3239.ssa 
 
23 
does not acknowledge the Department's argument that the rule's 
definition of "custom programs" should be applied.   
¶175 Instead of applying the definition as written, the 
majority opinion relies exclusively upon the rule's second 
sentence, which states that the determination of whether a 
program is "custom" shall be based on all the facts and 
circumstances.  The majority opinion decides the present case 
simply by "weighing" the relevant facts and circumstances, as if 
Wis. Admin. Code § Tax 11.71(1)(e) did not define "custom 
programs" but instead merely set forth some sort of amorphous 
balancing test with no bottom line.  The majority opinion 
concludes that the facts and circumstances "weigh in favor" of 
holding that the R/3 System that SAP leased to Menasha 
Corporation is a custom program.  The majority opinion nowhere 
determines whether the facts and circumstances show that the R/3 
System fits within the rule's definition stating that "'[c]ustom 
programs' 
mean 
utility 
and 
application 
software 
which 
accommodate the special processing needs of the customer." 
¶176 The Tax Appeals Commission and the majority opinion 
clearly err in disregarding the administrative rule's first 
sentence defining "custom programs" and in relying exclusively 
on the rule's second sentence stating that the determination 
whether a program is custom shall be based on all the facts and 
circumstances.  The rule's second sentence supports rather than 
displaces the definition set forth in the first sentence, 
instructing the court what factors to consider when determining 
whether a program accommodates the special processing needs of 
the customer.   
No.  2004AP3239.ssa 
 
24 
¶177 For example, when a vendor enters into a transaction 
to sell a standardized software package but also agrees to 
modify the software for the customer (thus giving the software 
elements of both a prewritten program and a custom program), the 
software initially meets the administrative rule's definition of 
a custom program.  Then the factors set forth in the rule's 
second sentence must be examined to determine whether, under the 
totality of the circumstances, the program is a tax-free 
"custom" program accommodating the special processing needs of 
the customer.  The second sentence, however, does not come into 
play when the program obviously is excluded from the definition 
of a custom program under the first sentence.      
¶178 The rule's first sentence defining "custom programs" 
clearly provides the rule's bottom line.  Put another way, 
although the application of the rule need not end with the first 
sentence in every case, it does begin with it.  The dissent 
examines and applies both the first and second sentences of the 
rule.  The majority opinion erroneously attends only to the 
second sentence and entirely ignores the first in deciding the 
instant case.   
¶179 I could end the dissent right here.  The plain 
language of the first sentence of Wis. Admin. Code § Tax 
11.71(1)(e) leaves no doubt that the present case must be 
resolved in favor of the Department of Revenue.  I shall, 
however, proceed to the administrative rule's second sentence 
and to the list of seven factors enumerated within the rule's 
text.  The rule's second sentence and enumerated factors 
reinforce the rule's first sentence defining "custom programs."   
No.  2004AP3239.ssa 
 
25 
¶180 The sixth enumerated factor, Wis. Admin. Code § Tax 
11.71(1)(e)6., shows that the R/3 system cannot be a custom 
computer program.  The sixth factor states that "[c]ustom 
programs do not include basic operational programs or prewritten 
programs."  No one argues that the R/3 System is a basic 
operational program.  Rather the dispute is whether it is a 
prewritten program.  Prewritten programs are defined in Wis. 
Admin. Code § Tax 11.71(1)(k) as "programs prepared, held or 
existing for general use normally for more than one customer."45  
Furthermore, § Tax 11.71(1)(m) states that a prewritten program 
for purposes of § 11.71 is either a prewritten or custom 
program.   
¶181 The language of Wis. Admin. Code § 11.71(1)(e)6. and 
(m) make clear that if the R/3 System is a "prewritten program," 
it cannot qualify as a custom computer program.  The Tax Appeals 
Commission understood that the rule's sixth factor has this 
meaning, stating that factor six "is as much a veto as a 
factor"46 and that "[t]his case hinges on whether the R/3 System 
is 
a 
prewritten 
program."47 
 
The 
Commission's 
proper 
                                                 
45 Wis. Admin. Code § Tax 11.71(1)(k). 
46 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,855 (WTAC 2003). 
Strangely, the majority opinion does not appear to defer to 
the Commission's conclusion that factor 6 functions as a veto.  
The majority opinion determines, in contradiction to the 
Commission, that factor 6 cannot alone be dispositive of the 
question whether a computer program is custom.  See majority 
op., ¶92.   
47 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,855 (WTAC 2003).   
No.  2004AP3239.ssa 
 
26 
interpretation of the plain language of § Tax 11.71(1)(e)6. as a 
veto is further supported by Wis. Admin. Code Tax § 11.71(1)(m), 
which provides that for purposes of § Tax 11.71, "a program is 
either a prewritten program or a custom program," not both.  
¶182 Although conceding that the R/3 System is "existing 
rather than created"48 and is leased in identical form to a large 
number of customers, the Tax Appeals Commission and the majority 
opinion shockingly conclude, contrary to the very words of the 
rule, that the R/3 System does not exist for general use by more 
than one customer. 
¶183 The Tax Appeals Commission reaches this conclusion in 
disobedience of the plain language of the administrative rule, 
explaining that the only "use" of the R/3 System was its use 
after 
extensive post-sale modification had customized the 
software to Menasha Corporation's particular business needs.  As 
the majority opinion states, the Tax Appeals Commission reasons 
that the R/3 System does not exist for general use because the 
software is "useless until modified."49 
¶184 According 
to the Tax Appeals Commission, "[t]he 
distinction between custom and prewritten programs hinges on the 
amount of effort necessary to get the software operational for a 
particular customer's needs."50 
                                                 
48 Majority op., ¶88.   
49 Id., ¶89.   
50 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,856 (WTAC 2003).  The Tax Appeals Commission decided that 
"[t]he issue is not whether the end result is a program that 
provides standard business application, but rather the obstacles 
one must overcome to get to apply the software."  Id. at 32,855. 
No.  2004AP3239.ssa 
 
27 
¶185 Put another way, the Tax Appeals Commission concludes 
that SAP's sophisticated business customers pay millions of 
dollars to acquire software that has no use and is useless in 
the form purchased.  Nonsense!  Menasha Corporation paid $5 
million for software that it knew had a use and that it knew 
would be useful to it: Menasha used, and paid a lot of money to 
use, the R/3 System as a rudimentary business and accounting 
software system that advanced Menasha Corporation's ability to 
build its own business and accounting software system that met 
Menasha's Corporation's particular needs. 
¶186  The 
Tax 
Appeals Commission's decision rests on 
converting 
the 
words 
"existing 
for 
general 
use" 
in 
the 
administrative rule's definition of prewritten program to the 
words "ready for use off-the-shelf" without any modification51  
It is unreasonable to interpret the words "existing for general 
use" as "ready for use off-the-shelf" without any modification.  
Reasonably construed, the words "existing for general use" mean 
just what they say: that the program exists (as opposed to a 
program that must be created at the customer's order) and is 
suitable for general use (as opposed to the special use of one 
customer).  The text of the administrative rule says nothing 
about whether a program is "ready for use off-the-shelf" without 
any modification.    
¶187 The R/3 System that SAP leased to Menasha clearly 
falls within the administrative rule's definition of prewritten 
program.  Because factor six (and (1)(m)) act as a "veto," 
                                                 
51 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,855 (WTAC 2003). 
No.  2004AP3239.ssa 
 
28 
rendering prewritten programs and custom programs mutually 
exclusive, the R/3 System cannot be a custom program under Wis. 
Admin. Code § Tax 11.71(1)(e). 
¶188 The Tax Appeals Commission concluded that although 
"SAP admitted that the R/3 software is prewritten and subject to 
the sales and use tax," and although SAP "backed up" this 
admission by paying taxes on past sales of the R/3 software and 
agreeing to collect sales and use taxes on future sales, SAP's 
admission and actions have "no value" in the instant case and 
are not "probative."52  The Tax Appeals Commission's position 
that SAP's admission and actions have no value and are not 
probative is not reasonable.  How can the seller's agreement 
that its own software is taxable as "prewritten" software be 
without any probative value?    
¶189 In sum, the Tax Appeals Commission's interpretation 
and application of the administrative rule's sixth factor is 
unconvincing for several reasons.   
¶190 First, nothing in the words of the administrative rule 
supports the Tax Appeals Commission's interpretation of Wis. 
Admin. Code § Tax 11.71(1)(e)6. changing the words "general use" 
to read "ready for use off-the-shelf" without any modification.  
The words "ready for use off-the-shelf" without any modification 
are conspicuously absent from the text of Wis. Admin. Code § Tax 
11.71(1)(k).  The administrative rule's text does not require 
that the "use" of a prewritten program must be use of the 
program off the shelf and without modification.  
                                                 
52 Id. at 32,854.   
No.  2004AP3239.ssa 
 
29 
¶191 Second, the Tax Appeals Commission's interpretation of 
"prewritten program" in Wis. Admin. Code § Tax 11.71(1)(k) as 
ready for use off the shelf without any modification is not only 
contrary to the words of the rule but also contravenes the 
history of the administrative rule.53  The history behind the 
rule shows that the majority opinion rewrites the text of Wis. 
Admin. Code § Tax 11.71(1)(k) to include the very language that 
the Department of Revenue expressly refused to put in the rule 
at the time of the rule's promulgation.  
¶192 The 
computer 
industry 
apparently 
lobbied 
the 
Department during the promulgation of Wis. Admin. Code § Tax 
11.71 to define "prewritten programs" as programs that are ready 
for use off the shelf.  When the Department was preparing the 
definition of "prewritten programs" in Wis. Admin. Code § Tax 
11.71(1)(k), an attorney representing the computer industry (the 
very same attorney, as it happens, who represented Menasha 
                                                 
53 The Department of Revenue promulgated Wis. Admin. Code 
§ Tax 11.71 in 1986.  361 Wis. Admin. Reg. 28 (Jan. 15, 1986).  
The Department amended Wis. Admin. Code § Tax 11.71 once, in 
1993.  447 Wis. Admin. Reg. 24 (Mar. 14, 1993).  Among other 
things, this amendment added language to Wis. Admin. § Tax 
11.71(1)(e)6. clarifying the Department's position that custom 
programs do not include prewritten programs.  Under the then-
existing statute, the Department of Revenue had considered 
"prewritten programs" as taxable.   
The legislature amended Wis. Stat. § 77.51(20) in 1992 to 
provide that "tangible personal property" includes "computer 
programs except custom computer programs."  1991 Wis. Act 269.  
According to a Department of Revenue memo included in the 
drafting file for the 1992 amendment, the object of this 
amendment was to adopt the Department's interpretation of 
computer programs (except custom computer programs) as tangible 
personal 
property. 
 
Drafting 
File, 
1991 
Wis. 
Act 
269, 
Legislative Reference Bureau, Madison, Wis. 
No.  2004AP3239.ssa 
 
30 
Corporation before the Tax Appeals Commission in the present 
case) lobbied the Department to define "prewritten programs" as 
programs intended for general use "and mass distribution as 
prepackaged ready-to-use programs" (emphasis added).54   
¶193 The 
Department 
expressly 
denied 
the 
attorney's 
request, stating that it would stick with "the prewritten 
program definition we originally used."     
¶194 The 
Department's 
refusal 
to 
define 
"prewritten 
programs" as "prepackaged ready-to-use programs" stemmed from 
its longstanding position that prewritten programs need not be 
ready for use off-the-shelf.  In two "technical information 
memoranda" dated April 2, 1976, and August 7, 1978, the 
Department of Revenue defined the term "prewritten (canned) 
programs" as "programs prepared, held or existing for general or 
repeated use, including programs developed for in-house use and 
subsequently held or offered for sale or lease."55  The technical 
                                                 
54 The record contains a letter that the Department of 
Revenue sent to the attorney in response to his request.    
55 DOR Tech. Info. Mem. 38.4 (Aug. 7, 1978); DOR Tech. Info. 
Mem. 38.1 (Apr. 2, 1976).    
This definition of "prewritten (canned) programs" is nearly 
identical to the definition of "prewritten programs" now set 
forth in the text of Wis. Admin. Code § Tax 11.71(1)(k).    
Although the Department of Revenue's technical information 
memoranda are not binding upon the Department, the Department 
may be equitably estopped from collecting taxes in a manner 
inconsistent with the positions set forth in its technical 
information memoranda.  See DOR v. Family Hosp., Inc., 105 
Wis. 2d 250, 255-56, 313 N.W.2d 828 (1982) (holding that the 
Department was equitably estopped from collecting a certain tax 
from the defendant hospital when the hospital had reasonably 
relied to its detriment upon a DOR technical information 
memorandum stating that hospitals were exempt from the tax). 
No.  2004AP3239.ssa 
 
31 
information 
memoranda 
elaborated 
upon 
this 
definition 
by 
explaining that "prewritten (canned) programs" need not be ready 
for use off-the-shelf.  The memoranda stated that "[i]n some 
cases [prewritten programs] are usable as written" but that "in 
most cases it is necessary that the program be modified, adapted 
and tested to meet the customer's particular needs."56 
                                                 
56 DOR Tech. Info. Mem. 38.4 (Aug. 7, 1978); DOR Tech. Info. 
Mem. 38.1 (Apr. 2, 1976).     
The Department of Revenue also remained consistent in its 
position after promulgating Wis. Admin. Code § Tax 11.71.  For 
example, in a 1992 "tax release," the Department stated that 
under Wis. Stat. § 77.51(20) (as amended by 1991 Wis. Act 269), 
"[a]ny customizing, other than changes made by the vendor prior 
to sale or license, does not affect the taxability of the sale."  
Wis. Tax Bull. 79, Oct. 1992, at 23.  The DOR also has published 
one additional tax release, as well as eight private letter 
rulings, interpreting Wis. Stat. § 77.51(20) and Wis. Admin. 
Code § Tax 11.71 consistently with the Department's longstanding 
position that the distinction between "custom" and "prewritten" 
programs does not hinge upon whether a program is ready for use 
off the shelf.  See Wis. Tax Bull. 122, Oct. 2000, at 42 
("Modifications made by Customer D or other third parties, 
subsequent to the initial licensing [of a computer program], do 
not impact on the determination of taxability at the time of 
sale.").  See also Wis. Tax Bull. 111, Oct. 1998, at 33-38 
(Private Letter Rulings W9831006 & W9832007); Wis. Tax Bull. 
107, Apr. 1998, at 31-33 (Private Letter Ruling W9810003); Wis. 
Tax Bull. 91, Apr. 1995, at 33-37 (Private Letter Ruling 
W9452010); Wis. Tax Bull. 81, Apr. 1993, at 31-34 (Private 
Letter Rulings W9251014 & W9253016); Wis. Tax Bull. 78, July 
1992, at 19-20 (Private Letter Ruling W9214005); Wis. Tax Bull. 
76, Apr. 1992, at 19-20 (Private Letter Ruling W9202001).   
The Wisconsin Tax Bulletin, a quarterly newsletter that 
includes the Department of Revenue's published tax releases and 
private letter rulings, is available at the Department's Web 
site, http://www.revenue.wi.gov/ise/wtb/index.html (last visited 
June 30, 2008).   
No.  2004AP3239.ssa 
 
32 
¶195 Third, the Tax Appeals Commission's decision yields 
unreasonable and absurd results.  In its decision the Commission 
considers the Menasha Corporation's seven-year history working 
with the R/3 System in determining that the R/3 System was not a 
prewritten 
program 
because 
it 
was 
"useful 
only 
after 
a 
significant investment of resources in planning, testing, 
training, enhancement, and maintenance . . . ."57  Yet the seller 
and buyer need to determine the taxability of the transaction in 
the year the agreement is completed.  At the time of the 
agreement, the vendor and customer may not know what future 
steps the customer may take to customize the software to its own 
needs, or how much the customer may invest relative to the 
purchase price.   
¶196 Fourth, the Tax Appeals Commission's interpretation of 
Wis. Admin. Code Tax § (1)(e)6. reduces the factor to mere 
surplusage. 
 
Thus 
the 
Tax 
Appeals 
Commission 
bases 
its 
interpretation of factor six largely on the rule's first four 
factors, each of which (according to the Commission) "hinges on 
the degree to which the software is ready for use off-the-
shelf."58  Why conclude that factor six seeks to measure the same 
attributes of the software program that the other factors 
                                                                                                                                                             
Under Wis. Stat. § 73.035, the DOR may issue and publish a 
private letter ruling in response to a request for a ruling 
about facts relating to a tax that the DOR administers.  A 
private letter ruling does not bind the requester and may not be 
appealed.  Wis. Stat. § 73.035(2). 
57 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,856 (WTAC 2003).  
58 Id. at 32,855.  See also id. at 32,856. 
No.  2004AP3239.ssa 
 
33 
measure?  The plain language of enumerated factor six does not 
refer to the other five preceding factors.  Each factor in the 
definition of "custom program" is independent of the others, and 
each must be interpreted individually based on the plain 
language of the rule.   
¶197 Factor six states simply that "custom program" does 
not include a prewritten program.  The other enumerated factors 
do not influence the plain language of enumerated factor six.  
By interpreting factor six to mean nothing more than the 
combined meaning the first four factors, the Tax Appeals 
Commission reduced factor six to surplusage.  
¶198 Again, I could end the dissent here.  Like the first 
sentence of Wis. Admin. Code § Tax 11.71(1)(e) defining "custom 
programs," the rule's definition of "prewritten programs" and 
the 
veto 
provision 
in 
the 
rule's 
sixth 
factor 
clearly 
demonstrate that the R/3 System is not a custom program.  
Nevertheless, I will address two other errors in the Tax Appeals 
Commission's decision that render the decision in conflict with 
the plain text of the administrative rule. 
¶199 The 
Tax 
Appeals Commission errs in interpreting 
enumerated factor two, which has two parts: (1) "[w]hether the 
program is loaded into the customer's computer by the vendor" 
and (2) "the extent to which the installed program must be 
tested against the program's specifications."59   
¶200 With regard to the first part, the Tax Appeals 
Commission found that "the fact that a former SAP employee 
                                                 
59 Wis. Admin. Code § Tax 11.71(1)(e)2.   
No.  2004AP3239.ssa 
 
34 
loaded the [R/3] software weighs in favor of a finding that the 
software at issue is custom software."60  The Commission's 
finding ignores the plain language of the rule, which requires 
that the program is loaded "by the vendor" (emphasis added).  A 
former employee of the vendor is not the vendor.   
¶201 The language of the rule is clear, and the Tax Appeals 
Commission's interpretation and application of factor two is 
inconsistent with the language of the administrative rule.  The 
Commission did not apply the "by the vendor" language literally.  
The Commission's interpretation is unreasonable. 
¶202 Finally, the Tax Appeals Commission does not account 
for the seventh factor.  The seventh factor states, "If an 
existing program is selected for modification, there must be a 
significant modification of that program by the vendor so that 
it may be used in the customer's specific hardware and software 
environment."  Wis. Admin. Code § Tax 11.71(1)(e)7.   
¶203 The 
Tax 
Appeals 
Commission 
concluded 
that 
the 
reference in factor seven to "'existing program' means an 
'existing program for general use' as that phrase is used in the 
definition of 'prewritten programs . . . .'"61  The Commission 
then determined that, because the Commission had already 
concluded that the R/3 System is not a prewritten program, "this 
factor does not come into play."62  According to the Tax Appeals 
                                                 
60 Menasha Corp. v. DOR, Wis. Tax Rptr. (CCH) 400-719, at 
32,855 (WTAC 2003). 
61 Id. at 32,856. 
62 Id.  
No.  2004AP3239.ssa 
 
35 
Commission, the seventh factor comes into play only if the 
software is prewritten.  
¶204 The Tax Appeals Commission's reasoning is odd.  As 
counsel for Menasha Corporation has explained, the Commission's 
decision does not apply factor seven literally.63  Furthermore, 
the Commission's conclusion that factor seven comes into play 
only when a program is prewritten implies that factor seven is 
surplusage.  As the Commission itself seemed to recognize, the 
"veto" provision in factor six states that any program which is 
prewritten cannot be a custom program.  If factor seven comes 
into play only when a program is prewritten, it thus has no 
effect. 
¶205 In sum, I agree with the circuit court.  I would apply 
Wis. Admin. Code § Tax 11.71(1)(e), (k), and (m) according to 
their clear text and would conclude that the R/3 System that SAP 
leased to Menasha is not a "custom program" as that term is 
defined in the text of the rule.  It is undisputed that the R/3 
software that SAP leased to Menasha Corporation did not 
"accommodate the special processing needs of the customer."  
Rather, the exact same package of 70 software modules was sold 
to 
thousands 
of 
different 
customers 
regardless 
of 
each 
customer's individual processing needs.  The R/3 System is a 
"prewritten program" already existing for general use, not a 
program created or customized for Menasha's special use.  
Because the R/3 System was not customized, Menasha Corporation 
                                                 
63 See Foley and Lardner LLP, Legal News: Federal and State 
Controversy, 
Apr. 
2004, 
at 
6, 
available 
at 
http://www.foley.com/publications/newsletters_archive.aspx?year_
2004 (last visited June 30, 2008). 
No.  2004AP3239.ssa 
 
36 
had to enter into separate service contracts, subsequent to 
licensing the software, to customize the software to meet 
Menasha Corporation's special processing needs. 
¶206 To reach a result favorable to Menasha Corporation, 
the Tax Appeals Commission and the majority opinion do violence 
to the plain language of Wis. Admin. Code Tax 11.71(1).  The Tax 
Appeals Commission and majority opinion reach their holding in 
the only way they can: by disregarding the definition of "custom 
programs" set forth in Wis. Admin. Code § Tax 11.71(1)(e) and by 
rewriting the definition of "prewritten programs" set forth in 
Wis. Admin. Code § Tax 11.71(1)(k). 
¶207 For the reasons set forth, I dissent. 
¶208 I am authorized to state that Justices ANN WALSH 
BRADLEY and LOUIS B. BUTLER, JR. join this dissent. 
 
 
No.  2004AP3239.awb 
 
1 
 
¶209 ANN WALSH BRADLEY, J.   (dissenting).  Here's the $300 
million1 question: did the R/3 computer program "accommodate the 
special processing needs" of Menasha? That's the question that 
the first sentence of Wis. Admin. Code § TAX 11.71(1)(e) 
requires that we ask. The Commission doesn't answer it, the 
majority doesn't answer it, and the concurrence doesn't answer 
it.  
¶210 Not 
one 
of 
them 
answers 
the 
question 
in 
the 
affirmative. They can't because the 70 disks of the R/3 system 
did not accommodate the special processing needs of Menasha. Not 
one of them answers the question in the negative. They can't 
because doing so would undermine their conclusions. We therefore 
get three separate writings, totaling more than 100 pages of 
text, where no one addresses the very first sentence of a rule 
they purport to interpret.  
¶211 I join the dissent of Chief Justice Abrahamson. I 
write separately, however, to address the issue of deference and 
to emphasize the failure of the Commission, the majority, and 
the concurrence to ask and answer this necessary question. 
¶212 In a case where there are differing reasonable 
interpretations, deference is often given. An interpretation is 
not reasonable, however, if it ignores the language of the rule 
or if it is inconsistent with that language. Pfeiffer v. Board 
                                                 
1 See Legislative Fiscal Bureau revenue and expenditure 
projections, 
January 
30, 
2007, 
4. 
Available 
at 
http://www.legis.state.wi.us/lfb/Misc/2007_01_30_revenue%20estim
ates.pdf (last visited June 25, 2008). 
No.  2004AP3239.awb 
 
2 
 
of 
Regents 
of 
the 
University 
of 
Wisconsin 
System, 
110 
Wis. 2d 146, 154-55, 328 N.W.2d 279 (1983).  
¶213 Instead of interpreting the language of Wis. Admin. 
Code § TAX 11.71(1)(e), the Commission altogether ignored the 
first sentence of the rule it purported to be interpreting. How 
can we defer to an interpretation of language when no such 
interpretation exists? 
The majority follows the Commission in 
failing to provide any analysis of the first sentence.    
¶214 As a result of ignoring the first sentence of the 
rule, the agency here has reached an interpretation that is 
inconsistent with that sentence. This court gives no deference 
to an agency's interpretation of a rule that is inconsistent 
with the language of that rule.  Pfeiffer, 110 Wis. 2d at 154-
55. 
I 
¶215 The issue here is the interpretation of Wis. Admin. 
Code § TAX 11.71(1)(e). The first part of the section states as 
follows:  
"Custom 
programs" 
mean 
utility 
and 
application 
software which accommodate the special processing 
needs of the customer. The determination of whether a 
program is a custom program shall be based upon all 
the 
facts 
and 
circumstances, 
including 
the 
following . . . . 
(Emphasis added.) 
¶216 The very first sentence of the rule sets forth the 
definition of "custom programs," and the question in this case 
is whether the software here fits within the definition of a 
No.  2004AP3239.awb 
 
3 
 
"custom program." However, the Commission never turns its 
attention to the definition. 
¶217 We give agencies varying degrees of deference in 
interpreting their own rules. See DaimlerChrysler v. Labor & 
Indus. Review Comm'n, 2007 WI 15, ¶15, 299 Wis. 2d 1, 727 
N.W.2d 311. The key premise to that principle is that the agency 
actually renders an interpretation. In this case, the Commission 
ignored the defining sentence. It did not even render an 
interpretation of "custom programs . . . which accommodate the 
special processing needs of the customer."  
¶218 How 
can 
we 
give 
deference 
to 
a 
non-existent 
interpretation?  
¶219 The answer, of course, is that we can't.  We owe no 
deference whatsoever to an agency's failure to interpret a 
definition clearly set forth in the Wisconsin Administrative 
Code.  
¶220 The concurrence attempts to circumvent this problem by 
claiming that the first sentence is merely part of the 
definition of custom programs. It accuses the dissents of taking 
"eight words of a sentence from the definition and saying it is 
the definition." Concurrence, ¶116 (emphasis in original). 
Instead, the concurrence argues that we should give controlling 
weight deference to the Commission's interpretation. 
¶221 Yet 
the 
concurrence 
contradicts 
the 
Commission 
outright. The Commission explicitly determined that section 
11.71(1)(e) defines "custom programs" in its first sentence. In 
its decision in this case, the Commission stated: 
No.  2004AP3239.awb 
 
4 
 
"Section 
TAX 
11.71(1)(e)(intro) 
defines 
custom 
programs as 'utility and application software which 
accommodate the special processing needs of the 
customer.'" (Emphasis added.) 
In other words, the Commission agrees with the dissents in this 
regard.2  
¶222 Despite the concurrence's protests that it is giving 
deference to the Commission, its central argument overturns the 
Commission's explicit determination.   
II 
¶223 Not only does the Commission fail to analyze the most 
fundamental provision in the rule——the first sentence——it 
renders 
an 
interpretation 
that 
directly 
contradicts 
that 
unambiguous provision.  
¶224 The Commission, as well as the majority and the 
concurrence, makes the mistake of interpreting the factors 
listed in section 11.71(1)(e) as the only things to consider 
when determining whether a computer program is custom. However, 
if one looks at the factors in conjunction with the definition 
of "custom programs," it is clear that the factors are based on 
                                                 
2 As an explanation for why the Commission failed to analyze 
the definition of "custom programs," the concurrence offers a 
strained interpretation. It surmises that the use of "intro" by 
the Commission clearly meant that the first sentence of the rule 
is merely "prefatory material," implying that it is not the 
definition of "custom programs." Concurrence, ¶115 n.3. The use 
of "intro" carries no such implication.  
As noted in Chief Justice Abrahamson's dissent, the use of 
"intro" simply means that language is "preceding the rule's 
colon 
and 
numbered 
subunits." 
Chief 
Justice 
Abrahamson's 
dissent, ¶167 n. 39; see Wisconsin Bill Drafting Manual 2007-08, 
§ 1.001(2) at 9. The use of "intro" certainly does not 
contradict the Commission's clear statement that the first 
sentence defines "custom programs." 
No.  2004AP3239.awb 
 
5 
 
the assumption that the program in question actually meets the 
needs of the customer. The factors must be examined in order to 
determine whether the needs met by the software are "special." 
¶225 The factors operate within the premise set forth in 
the 
very 
first 
sentence 
of 
the 
rule: 
that 
software 
"accommodate[s] the special processing needs of the customer." 
They cannot operate to contradict it.3 The concurrence's claim 
that the dissents render the rest of the rule "surplusage" 
misses the mark. The dissents are clear: the factors must be 
considered, but they cannot be deployed to contradict the 
definition set forth in the first sentence of the rule. 
¶226 It is undeniable that the R/3 system purchased——the 70 
disks containing prewritten software——did not "accommodate the 
special processing needs of the customer." The processing needs 
of the customer, Menasha, were only accommodated after other 
modifications were made. 
¶227 Put another way, the Commission interpreted section 
11.71(1)(e) such that software which does not accommodate the 
special needs of the customer is a "custom program," which in 
                                                 
3 In other words, whether there was extensive presale 
consultation and analysis is a factor in determining whether the 
needs met by the software are special to the customer. If the 
software does not meet the customer's needs (be they special or 
general), the software is not custom. Likewise, whether the 
program is loaded by the vendor, the extent of training 
required, the amount of maintenance support, the cost of the 
system, 
whether 
the 
software 
is 
a 
basic 
operational 
or 
prewritten 
program, 
and 
whether 
an 
existing 
system 
is 
significantly modified, go to the question of whether any needs 
accommodated by the software are special to the customer. See 
Wis. Admin. Code § TAX 11.71(1)(e)1-7. 
No.  2004AP3239.awb 
 
6 
 
turn is defined as software that does accommodate the special 
needs of the customer. "Does not accommodate" is the opposite of 
"does accommodate." 
¶228 The Commission's interpretation led it to a conclusion 
that software which does not accommodate the special processing 
needs of the customer is "custom." Such an interpretation is 
thus inconsistent with the plain words of the rule. Because 
that's what the Commission's interpretation has done, we owe it 
no deference.  
¶229 Like the Commission and the concurrence, the majority 
utterly ignores the first sentence of rule. It does not provide 
a single word explaining how its conclusion comports with the 
requirement that custom programs "accommodate the special 
processing needs of the customer."  
¶230 The closest the majority comes to such an analysis is 
its statement that "the rule does not end with the first 
sentence." Majority op., ¶106. I agree——but it most assuredly 
begins there.   
¶231 Because its analysis ignores the first sentence and 
renders an interpretation inconsistent with the language of the 
rule, we owe no deference to the Commission's interpretation. I 
therefore respectfully dissent.  
¶232 I am authorized to state that Justice LOUIS B. BUTLER, 
JR. joins this dissent.   
 
No.  2004AP3239.awb 
 
1