If a combined return includes separate entity items of a corporation that would otherwise be a combined group member but for the water's edge rules of s. Tax 2.61 (4)
, the designated agent's filing of the combined return shall be considered to be a return filed by that corporation.
For purposes of the statute of limitations in s. 71.77 (7) (a)
, Stats., allowing the department to make an assessment within six years after the filing of a return, the statute of limitations shall be determined for each combined group member separately based on its total net income reported on its return, which is its net income or loss from the unitary combination as included in the combined return, plus its net income or loss from separate entity items. The six-year statute of limitations applies if a combined group member's total net income reported on its return is less than 75 percent of the net income properly assessable and the tax attributable to the additional income is in excess of $100. The designated agent shall be responsible for any combined group member's return that is open under the 6-year statute of limitations, subject to the provisions of s. Tax 2.65 (3) (f)
, even if the designated agent's return, as included in the combined return, is not open under the six-year statute of limitations.
Tax 2.67 Note
Section Tax 2.67
interprets ss. 71.24 (1)
, and (7)
, 71.255 (1) (b)
, (7) (b)
, and (9)
, 71.44 (1)
, and (3)
, and 71.83
Tax 2.67 History
: emerg. cr. eff. 1-15-10; CR 09-064
: cr. Register April 2010 No. 652
, eff. 5-1-10; CR 12-011
: am. (2) (d) 3. Register July 2012 No. 679
, eff. 8-1-12.
Tax 2.67 Annotation
Cross References: See s. Tax 2.60 for definitions that relate to this section. See s. Tax 2.65 for more information on the duties of the designated agent. See s. Tax 2.66 for more information on combined estimated tax requirements.
Every domestic corporation, one incorporated under Wisconsin's laws, except those exempt under ss. 71.26 (1)
and 71.45 (1)
, Stats., and every licensed foreign corporation, one not incorporated in Wisconsin, is required to file a complete corporation franchise or income tax return, form 4 or 5, regardless of whether or not business was transacted.
A foreign corporation is "licensed" if it has obtained a Certificate of Authority from the department of financial institutions to transact business in this state pursuant to s. 180.1501
, Stats. A licensed foreign corporation is presumed to be subject to Wisconsin franchise or income taxes.
An unlicensed foreign corporation is subject to Wisconsin franchise or income taxes if it has nexus with Wisconsin. The purpose of this rule is to provide guidelines for determining what constitutes nexus, that is, what business activities are needed for a foreign corporation to be subject to Wisconsin franchise or income taxes. The rule also explains how nexus applies to a foreign corporation in the context of s. 71.255
, Stats., relating to combined reporting, and s. 77.93
, Stats., relating to the economic development surcharge.
"Business location" includes a repair shop, parts department, purchasing office, employment office, warehouse, meeting place for directors, sales office, permanent sample or display room, research facility or a recreational facility for use of employees or customers. A residence of an employee or representative is not ordinarily considered a business location of the employer unless the facts indicate otherwise. Facts that may indicate a residence of an employee or representative is a business location include the following: a portion of the residence is used exclusively for the business of the employer, the employee is reimbursed or paid a flat fee for the use of this space by the employer; the employee's phone number is listed in the yellow pages or on the Internet under the name of the employer; the employee uses supplies, equipment or samples furnished by the employer; or the space is used by the employee to interview prospective employees, hold sales meetings, or discuss business with customers.
"Loans" include any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of an extension of credit from another. "Loans" include participations, syndications, and leases treated as loans for federal income tax purposes. "Loans" do not include properties treated as loans under section 595
of the Internal Revenue Code prior to its repeal by P.L. 104-188
; futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; non-interest bearing balances due from depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreements to resell; assets held in a trading account; securities; or interests in a real estate mortgage investment conduit or other mortgage-backed or asset-backed security.
"Representative" includes an employee, independent contractor, or any other person or entity engaged in substantial activities that helped the taxpayer to establish or maintain a market in this state.
Tax 2.82 Note
Under Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue
, 483 US. 232 (1987), the U.S. Supreme Court held that it made no difference whether the taxpayer's representatives were classified as independent contractors or employees. Also see Scripto, Inc. v. Carson
, 362 U.S. 207
(3) Federal limitations on taxation of foreign corporations. Tax 2.82(3)(a)1.1.
Article I, Section 8 of the U.S. Constitution grants congress the power to regulate commerce with foreign nations and among the several states. States are prohibited from levying a tax which imposes a burden on interstate or foreign commerce. However, this does not mean states may not impose any tax on interstate commerce. A state tax on net income from interstate commerce which is fairly attributable to the state is constitutional. (Northwestern States Portland Cement Co.
Section I of the 14th Amendment protects taxpayers within any class against discrimination and guarantees a remedy against illegal taxation.
Under Public Law 86-272, a state may not impose its franchise or income tax on a business selling tangible personal property, if the only
activity of that business is the solicitation of orders by its salesperson or representative which orders are sent outside the state for approval or rejection, and are filled by delivery from a point outside the state. The activity must be limited
to solicitation. If there is any activity which exceeds solicitation, the immunity from taxation under Public Law 86-272 is lost.
Those businesses which sell services, real estate or intangibles in more than one state;
Foreign nation corporations, that is, those not incorporated in the United States.
If the following activities are the only activities in Wisconsin of a foreign corporation selling tangible personal property, the corporation is not subject to Wisconsin franchise or income taxes under P.L. 86-272
Usual or frequent activity in Wisconsin by employees or representatives soliciting orders for tangible personal property which orders are sent outside this state for approval or rejection.
Solicitation activity by non-employee independent contractors, conducted through their own office or business location in Wisconsin.
(4) What constitutes nexus.
If a foreign corporation undertakes one or more of the following activities, it is considered to have nexus and shall be subject to Wisconsin franchise or income taxes:
Any of the following activities constitute nexus:
Maintenance of any business location in Wisconsin, including any kind of office.
Ownership of a stock of goods in a public warehouse or on consignment in Wisconsin.
Ownership of a stock of goods in the hands of a distributor or other non-employee representative in Wisconsin, if used to fill orders for the owner's account.
Usual or frequent activity in Wisconsin by employees or representatives soliciting orders with authority to accept them.
Usual or frequent activity in Wisconsin by employees or representatives engaged in a purchasing activity or in the performance of services (including construction, installation, assembly, repair of equipment).
Other usual and frequent activities by employees or representatives in Wisconsin such as credit investigations, collection of delinquent accounts, conducting training classes or seminars for customer personnel in the operation, or repair and maintenance of the taxpayer's products.
Operation of mobile stores in Wisconsin, such as trucks with driver-salespersons, regardless of frequency.
Leasing of tangible property and licensing of intangible rights for use in Wisconsin.
The sale of other than tangible personal property such as real estate, services and intangibles in Wisconsin.
The performance of construction contracts and personal services contracts in Wisconsin.
Engaging in substantial activities that help to establish and maintain a market in Wisconsin.
(b) "Doing business in this state".
Additionally, if a corporation has any of the activities that are specifically included in the statutory definition of "doing business in this state" (s. 71.22 (1r)
, Stats.), the corporation has nexus except where prohibited by P.L. 86-272
. Therefore, the following activities constitute nexus in Wisconsin to the extent sub. (3) (b) 3.
does not apply:
Issuing credit cards, debit cards, or travel and entertainment cards to customers in Wisconsin.
Regularly selling products or services of any kind or nature to customers in Wisconsin that receive the product or service in Wisconsin.
Regularly soliciting business from potential customers in Wisconsin.
Regularly performing services outside Wisconsin for which the benefits are received in Wisconsin.
Regularly engaging in transactions with customers in Wisconsin that involve intangible property and result in receipts flowing to the corporation from within Wisconsin.
Holding loans secured by real or tangible personal property located in Wisconsin.
Owning, directly or indirectly, a general or limited partnership interest in a partnership that does business in Wisconsin, regardless of the percentage of ownership.
Owning, directly or indirectly, an interest in a limited liability company that does business in Wisconsin, regardless of the percentage of ownership, if the limited liability company is treated as a partnership for federal income tax purposes.
(c) Nexus for entire taxable year.
If a corporation has nexus in Wisconsin for any part of its taxable year, it is considered to have nexus in Wisconsin for its entire taxable year, regardless of whether the activity that created the nexus took place throughout the year.
Tax 2.82 Note
Example: Corporation W is a calendar year corporation that operates five retail stores, one of which is in Wisconsin. The stores constitute a unitary business. Corporation W is not in a combined group. In the year 2010, Corporation W operated one store in Wisconsin. On August 31, 2010, Corporation W sold the Wisconsin store to Corporation Y but continued to operate the other stores outside Wisconsin. Between September 1, 2010 and December 31, 2010, Corporation W had no activities that would create nexus in Wisconsin. Corporation W is considered to have nexus in Wisconsin for its entire taxable year. Therefore, on its 2010 Wisconsin Form 4, Corporation W must compute its apportioned share of Wisconsin income based on its apportionable income from all of its stores for the entire year 2010. In addition, the numerator of the sales factor in its apportionment computation must include sales shipped to Wisconsin customers for the entire year 2010.
(d) How to obtain ruling. Paragraph (a)
and the statutory definitions summarized in par. (b)
as to what activities constitute nexus are not all-inclusive. A ruling may be requested about a particular foreign corporation as to whether it is subject to Wisconsin franchise or income taxes by writing to the Wisconsin Department of Revenue, Audit Technical Services Section, P.O. Box 8906, Madison, WI 53708.
Tax 2.82 Note
Section 71.23 (3)
, Stats., provides specific activities that do not constitute nexus in Wisconsin even if they exceed the protection of P.L. 86-272.
For a combined group, nexus is determined for the unitary business as a whole, as provided in s. 71.255 (5) (a)
, Stats. Therefore, if a member of a combined group has nexus in Wisconsin and that nexus is attributable to the combined group's unitary business, all members of the combined group have nexus in Wisconsin.
Tax 2.82 Note
Assume the same facts as the example in sub. (4) (c). In addition, assume Corporation Y is a member of Combined Group XYZ, which reports on a calendar year. Although Group XYZ operated numerous stores outside Wisconsin for the entire year, none of the members of Group XYZ had any nexus-creating activities in Wisconsin until July 1, 2010, when Corporation Y set up a temporary office in Wisconsin in anticipation of the purchase of the store from Corporation W. However, Corporation Z had sales shipped to Wisconsin customers during 2010. Since Corporation Y established nexus in Wisconsin during the year, Group XYZ is considered to have nexus in Wisconsin for its entire taxable year. Therefore, Group XYZ must file a combined Wisconsin Form 4 for the year 2010. On the combined return, Group XYZ must include its apportionable income for the entire taxable year (from all stores) in the combined unitary income to be apportioned. The Wisconsin share of the combined unitary income for Corporation Y and Corporation Z is then determined as described in s. 71.255 (5)
, Stats., and s. Tax 2.61 (7)
. Assuming all of Group XYZ's Wisconsin sales are attributable to Corporations Y and Z, Corporations Y and Z would be the only corporations in the group with Wisconsin income.
(b) Effect of controlled group election.
For a combined group that has made the controlled group election provided in s. 71.255 (2m)
, Stats., the entire commonly controlled group's business is deemed to be a single unitary business, and the commonly controlled group becomes a combined group. Therefore, if a combined group has made the controlled group election and at least one member of the combined group has nexus in Wisconsin, all members of the combined group have nexus in Wisconsin.
Tax 2.82 Note
See s. Tax 2.62
for further discussion of the concept of a unitary business. Also see s. Tax 2.61 (4) (h)
for details of how a corporation's nexus may be affected by the water's edge rules of combined reporting, and how these water's edge rules may affect taxation of a corporation's income from a unitary business.
(6) Nexus for economic development surcharge.
If a corporation has nexus under this section, the corporation is considered to be doing business in this state for purposes of s. 77.93
, Stats., relating to the economic development surcharge. Therefore, if a corporation, other than a corporation exempt from taxation, has nexus and has at least $4,000,000 of gross receipts from all activities for the taxable year, the corporation is subject to the economic development surcharge. The economic development surcharge applies to each member of a combined group separately.
Tax 2.82 Note
See s. Tax 2.32
for a description of what constitutes gross receipts for purposes of applying the $4,000,000 threshold.
Tax 2.82 Note
Examples: 1) Corporation A is incorporated outside Wisconsin and is not a member of a combined group. Corporation A is licensed to do business in Wisconsin, but all of its activities in Wisconsin are protected by P.L. 86-272. Therefore, Corporation A does not have nexus. Corporation A is not subject to the economic development surcharge because it does not have nexus in Wisconsin.
Tax 2.82 Note
2) Assume the same facts as Example 1, except that Corporation A is in Combined Group ABCD, which consists of Corporations A, B, C, and D. Corporation D has a warehouse and several stores in Wisconsin that are part of the combined group's common unitary business. Since Corporation D has nexus in Wisconsin, all corporations in the combined group have nexus in Wisconsin. Corporations A, B, and D have sales to Wisconsin customers but Corporation C does not. The gross receipts, Wisconsin income, gross tax, and resulting economic development surcharge for each corporation in the group are as follows:
- See PDF for table
Tax 2.82 Note
The Wisconsin income and gross tax are computed using the method described in s. Tax 2.61
. Since the economic development surcharge applies to each member of a combined group separately:
Tax 2.82 Note
•Corporation A is subject to the economic development surcharge because its gross receipts are at least $4,000,000.
Tax 2.82 Note
• Corporation B is not subject to the economic development surcharge because its gross receipts are less than $4,000,000.
Tax 2.82 Note
• Corporation C is subject to the minimum $25 economic development surcharge because its gross receipts are at least $4,000,000 and it has no gross tax liability.
Tax 2.82 Note
• Corporation D is subject to the maximum $9,800 economic development surcharge because its gross tax of $474,000 multiplied by the economic development surcharge rate of 3% exceeds $9,800. The amount in excess of $9,800 is not imposed even though the other members have economic development surcharge liability of less than $9,800.
Tax 2.82 History
Cr. Register, January, 1979, No. 277
, eff. 2-1-79; correction in (3) (b) 1. made under s. 13.93 (2m) (b) 5., Stats., Register, November, 1993, No. 455
: emerg. r. and recr. eff. 12-31-09; CR 10-001
: r. and recr. Register June 2010 No. 654
, eff. 7-1-10; CR 12-011
: am. (1) (c), (6) Register July 2012 No. 679
, eff. 8-1-12.
Penalty for failure to produce records under s. 71.80 (9m), Stats. Tax 2.85(1)
A person who fails to produce records or documents, as provided under ss. 71.74 (2)
and 73.03 (9)
, Stats., that were requested by the department may be subject to any of the following penalties under s. 71.80 (9m)
The disallowance of deductions, credits, exemptions or income inclusion to which the requested records relate.
In addition to any other penalties that the department may impose, a penalty for each violation that is equal to the greater of $500 or 25% of the amount of the additional tax on any adjustment made by the department that results from the person's failure to produce the records.
"Disallowance," "inclusion," or "adjustment" means that an item is disallowed, included or adjusted through action taken by the department when a proposed assessment or refund or notice of assessment or refund is issued to a taxpayer.
"Records" include both paper and electronic formats. Examples include bills, receipts, invoices, contracts, letters, memos, accounting statements or schedules, general ledgers, journal entries, and board of director's minutes. "Records" do not include items protected by attorney-client privilege, if the taxpayer provides a brief description or summary of the contents of each record, the date each record was prepared, the person or persons who prepared each record, the person to whom each record was directed, or for whom each record was prepared, the purpose in preparing each record, and how each element of the privilege is met as to each record.
"Records requested were not provided" means that all records requested were not provided to the department within the time specified by the department.
"Written request for records" includes requests made by letter, e-mail, fax or any other written form.
"Provided" means the records are provided by electronic means or in paper format to the address specified by the department in its written request for records. If the address specified by the department is the person's location, the records are considered provided on the date the person notifies the department they are available for review at that location.
The penalties in this section may be imposed if the records requested were not provided and the department provided the notifications in pars. (a)
regarding the records requested. The number of days established by the department for the person to respond to the record requests should be reasonable based on the facts of each situation.
A first written request for records where the department allowed the person a minimum of 30 days from the date of request for the records to be provided.
After the time period to respond to the first written request has expired as provided in par. (a)
, a second written request for records where the department allowed the person a minimum of 30 days from the date of request for the records to be provided. This second written request for records shall include a statement explaining that if the requested records are not provided by the date specified, the penalties provided by s. 71.80 (9m)
, Stats., may be imposed.
Tax 2.85 Note
1) The department issues a first written request for records to Corporation A on September 1, 2009, allowing Corporation A until October 6, 2009, to provide the records requested. Corporation A does not provide the requested records to the department by October 6, 2009. The department issues a second written request for records to Corporation A on October 21, 2009, allowing Corporation A until November 30, 2009, to provide the records requested. Included in this second written request for records is a notification regarding the penalties provided by s. 71.80 (9m)
, Stats. Corporation A does not provide the requested records by November 30, 2009. Therefore, the department may disallow the deductions, credits, or exemptions or include in Wisconsin income the additional income to which the requested records relate and impose a penalty equal to the greater of $500 or 25% of the additional tax on the adjustments made resulting from Corporation A not providing the records requested.
Tax 2.85 Note
2) The department issues a first written request for records to Corporation B on December 21, 2009, allowing Corporation B until January 20, 2010, to provide the records requested. Corporation B does not provide the requested records to the department by January 20, 2010. The department issues a second written request for records to Corporation B on February 8, 2010, allowing Corporation B until March 10, 2010, to provide the records requested. Included in this second written request for records is a notification regarding the penalties provided by s. 71.80 (9m)
, Stats. Corporation B provides records to the department by March 10, 2010, but the department determines that the taxpayer did not provide some of the records requested by March 10, 2010. Therefore, since the taxpayer did not provide all of the records requested by March 10, 2010, the department may disallow the deductions, credits, or exemptions or include in Wisconsin income the additional income to which the requested records that were not provided relate and impose a penalty equal to the greater of $500 or 25% of the additional tax on the adjustments made resulting from the requested records that were not provided.
The penalties in this section may be waived if the person whose records were requested can show that, under all the facts and circumstances, its response to the written request for records or its failure to respond to the written request for records was reasonable or justified by factors beyond the person's control. In determining whether the penalties will be waived, the department may consider any of the following factors: