Rule-Making Notices
Notice of Hearing
Revenue
NOTICE IS HEREBY GIVEN that, pursuant to sections
71.05 (6) (b) 47. e.,
71.28 (9s) (d) 2., and
71.47 (9s) (d) 2., Stats., the Department of Revenue will hold a public hearing to consider emergency rules and permanent rules creating section
Tax 2.957, relating to
income and franchise tax credits and deductions for businesses that relocate to Wisconsin.
Hearing Information
The hearing will be held:
Date and Time Location
June 14, 2011 Events Room
Tuesday State Revenue Building
at 9:00 A.M. 2135 Rimrock Road
Madison, WI 53713
Handicap access is available at the hearing location.
Appearances at the Hearing and Submittal of Written Comments
Interested persons are invited to appear at the hearing and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearing. Written comments may also be submitted to the contact person listed below no later than June 21, 2011, and will be given the same consideration as testimony presented at the hearing.
Dale Kleven
Department of Revenue
Mail Stop 6-40
2135 Rimrock Road
P.O. Box 8933
Madison, WI 53708-8933
Analysis Prepared by the Department of Revenue
Statute(s) interpreted
Statutory authority
Explanation of agency authority
Related statute or rule
There are no other applicable statutes or rules.
Plain language analysis
This proposed rule prescribes the method by which the percentage of the workforce payroll of a business and the dollar amount of wages paid to such workforce moved to this state during a taxable year shall be determined for purposes of ss.
71.05 (6) (b) 47.,
71.28 (9s), and
71.47 (9s), Stats. It also provides examples of actions that may indicate a business has relocated to this state from another state or country and limits the deduction provided for in s.
71.05 (6) (b) 47. am.,
b., and
c., Stats.
Summary of, and comparison with, existing or proposed federal regulation
There is no existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule.
Comparison with similar rules in adjacent states
The department has researched provisions in adjacent states and is not aware of the existence of a similar rule.
Summary of factual data and analytical methodologies
2011 Wisconsin Act 3 created income and franchise tax credits and deductions for businesses that relocate to Wisconsin. Among the provisions created is a requirement for the department to promulgate rules to administer these credits and deductions. The department has created this proposed rule order to comply with this statutory requirement.
Analysis and supporting documents used to determine effect on small business
As explained above, this proposed rule is created to administer changes in Wisconsin's income and franchise tax laws. As the rule itself does not impose any significant financial or other compliance burden, the department has determined that it does not have a significant effect on small business.
Effect on Small Business
This proposed rule does not have a significant effect on small business.
Fiscal Estimate
Assumptions used in arriving at fiscal estimate
The fiscal effect of income and franchise tax credit and deduction for businesses that relocate to Wisconsin from another state or country was included in the fiscal estimate for
2011 Act 3. As such, the proposed rule has no fiscal effect.
State fiscal effect
No state fiscal effect.
Local government fiscal effect
No local government costs.
Anticipated costs incurred by private sector
This proposed rule does not have a significant fiscal effect on the private sector.
Agency Contact Person
Please contact Dale Kleven at (608) 266-8253 or
dale.kleven@revenue.wi.gov, if you have any questions regarding this proposed rule.
Text of Rule
SECTION 1. Tax 2.957 is created to read:
Tax 2.957 Relocated business credit or deduction. (1) Purpose. The purpose of this section is to prescribe the method by which the percentage of the workforce payroll of a business and the dollar amount of wages paid to such workforce moved to this state during a taxable year shall be determined for purposes of ss.
71.05 (6) (b) 47.,
71.28 (9s), and
71.47 (9s), Stats.; provide examples of actions that may indicate a business has relocated to this state from another state or country; and limit the deduction provided for in s.
71.05 (6) (b) 47. am.,
b., and
c., Stats.
(2) Definitions. In this section:
(a) “Business" means any organization or enterprise operated for profit, including a sole proprietorship, partnership, firm, business trust, joint venture, syndicate, corporation, limited liability company, or association.
(b) “Doing business in this state" has the meaning given in s.
71.22 (1r), Stats.
(c) “Employee" has the meaning given in section
3121 (d) of the Internal Revenue Code.
(e) “Wages" has the meaning given in section
3121 (a) of the Internal Revenue Code.
(3) Relocation To This State. For purposes of ss.
71.05 (6) (b) 47.,
71.28 (9s), and
71.47 (9s), Stats., actions that may indicate a business has relocated to this state from another state or country include the following:
(a) Registering with the department, as provided in s.
73.03 (50), Stats.
(b) Registering to do business in Wisconsin with the department of financial institutions.
(4) Doing Business In This State. For purposes of ss.
71.05 (6) (b) 47.,
71.28 (9s), and
71.47 (9s), Stats., doing business in this state for any portion of a taxable year means doing business in this state for the entire taxable year, as provided in s.
71.22 (1r), Stats.
(5) Workforce Payroll
. For purposes of ss.
71.05 (6) (b) 47. a.,
71.28 (9s) (a) 2., and
71.47 (9s) (a) 2., Stats., the determination as to whether 51% or more of the workforce payroll of a business has moved to this state during a taxable year shall be made using a fraction, the numerator of which is the total amount of wages paid by the business during the taxable year to employees of the business who are residents of this state, and the denominator of which is the total amount of wages paid by the business during the taxable year to all employees of the business.
Example: During the taxable year in which Business A begins doing business in Wisconsin, Business A pays $6,000,000 of wages to employees of Business A who are residents of Wisconsin and $10,000,000 of total wages to all employees of Business A. Sixty (60) percent of the workforce payroll of Business A moved to Wisconsin during the taxable year (6,000,000/10,000,000).
(6) Workforce Wages. For purposes of ss.
71.05 (6) (b) 47. a.,
71.28 (9s) (a) 2., and
71.47 (9s) (a) 2., Stats., the determination as to whether at least $200,000 of wages paid to the workforce of a business has moved to this state during a taxable year shall be made using the total amount of wages paid by the business during the taxable year to employees of the business who are residents of this state.
Example: During the taxable year in which Business B begins doing business in Wisconsin, Business B pays $250,000 of wages to employees of Business B who are residents of Wisconsin. Wages of $250,000 paid to the workforce of Business B moved to Wisconsin during the taxable year.
(7) Limitation On Deduction. No modification may be made under s.
71.05 (6) (b) 47. am.,
b., or
c., Stats., if the amount otherwise eligible for the modification is less than zero.
Example: Partner B determines the amount otherwise eligible for the modification under s.
71.05 (6) (b) 47. b., Stats., is a loss of $5,000. Partner B may not make a modification under s.
71.05 (6) (b) 47. b., Stats.
Notice of Hearing
Revenue
NOTICE IS HEREBY GIVEN that, pursuant to sections
71.05 (6) (b) 47m.,
71.26 (1) (h), and
71.45 (1) (c), Stats., the Department of Revenue will hold a public hearing to consider emergency rules and permanent rules creating section
Tax 3.05, relating to
income and franchise tax deductions for job creation.
Hearing Information
The hearing will be held:
Date and Time Location
June 14, 2011 Events Room
Tuesday State Revenue Building
at 1:00 P.M. 2135 Rimrock Road
Madison, WI 53713
Handicap access is available at the hearing location.
Appearances at the Hearing and Submittal of Written Comments
Interested persons are invited to appear at the hearing and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearing. Written comments may also be submitted to the contact person listed below no later than June 21, 2011, and will be given the same consideration as testimony presented at the hearing.
Dale Kleven
Department of Revenue
Mail Stop 6-40
2135 Rimrock Road
P.O. Box 8933
Madison, WI 53708-8933
Telephone: (608) 266-8253
Analysis Prepared by the Department of Revenue
Statute(s) interpreted
Statutory authority
Explanation of agency authority
Related statute or rule
There are no other applicable statutes or rules.
Plain language analysis
This proposed rule clarifies certain terms as they apply to the job creation deduction under ss.
71.05 (6) (b) 47m.,
71.26 (1) (h), and
71.45 (1) (c), Stats., prescribes the methods by which the average employee count is computed for purposes of determining the amount of the deduction, and clarifies how the deduction applies to partnerships, limited liability companies, tax-option corporations, and professional employer organizations.
Summary of, and comparison with, existing or proposed federal regulation
There is no existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule.
Comparison with similar rules in adjacent states
The department has researched provisions in adjacent states and is not aware of the existence of a similar rule.
Summary of factual data and analytical methodologies
2011 Wisconsin Act 5 created income and franchise tax deductions for job creation. Among the provisions created is a requirement for the department to promulgate rules to administer these deductions. The department has created this proposed rule order to comply with this statutory requirement.
Analysis and supporting documents used to determine effect on small business
As explained above, this proposed rule is created to administer changes in Wisconsin's income and franchise tax laws. As the rule itself does not impose any significant financial or other compliance burden, the department has determined that it does not have a significant effect on small business.
Effect on Small Business
This proposed rule does not have a significant effect on small business.
Fiscal Estimate
Assumptions used in arriving at fiscal estimate
The proposed rule order does all of the following:
2) Prescribes the methods by which the average employee count is computed for purposes of determining the amount of the deduction.
3) Clarifies how the deduction applies to partnerships, limited liability companies, tax-option corporations, and professional employer organizations.
The fiscal effect of the job creation deduction was included in the fiscal estimate for
2011 Act 5. As such, the proposed rule has no fiscal effect.
State fiscal effect
No state fiscal effect.
Local government fiscal effect
No local government costs.
Anticipated costs incurred by private sector
This proposed rule does not have a significant fiscal effect on the private sector.
Agency Contact Person
Please contact Dale Kleven at (608) 266-8253 or
dale.kleven@revenue.wi.gov, if you have any questions regarding this proposed rule.
Text of Rule
SECTION 1. Tax 3.05 is created to read:
Tax 3.05 Job creation deduction. (1) Purpose. The purpose of this section is to clarify certain terms as they apply to the job creation deduction under ss.
71.05 (6) (b) 47m.,
71.26 (1) (h), and
71.45 (1) (c), Stats.; define “employee," “full-time equivalent employee," and “gross receipts"; prescribe the methods by which the average employee count is computed for purposes of determining the amount of the deduction; and clarify how the deduction applies to partnerships, limited liability companies, tax-option corporations, and professional employer organizations.
(a) “Commonly controlled group" has the meaning given in s.
71.255 (1) (c), Stats.
(b) “Employee" has the meaning given in section
3121 (d) of the Internal Revenue Code.
(c) “Full-time equivalent employee" means an employee who is a resident of this state, is employed in a regular, nonseasonal job, and who, as a condition of employment, is required to work at least 2,080 hours per year, including paid leave and holidays.
(d) “Gross receipts" means gross sales, gross premiums earned, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital assets and business assets, gross income from pass-through entities, and all other receipts that are included in gross income, other than life insurance income, before apportionment for Wisconsin franchise or income tax purposes.
(3) Amount Of Deduction. Sections
71.05 (6) (b) 47m.,
71.26 (1) (h), and
71.45 (1) (c), Stats., provide for an income and franchise tax deduction in an amount equal to the increase in the number of full-time equivalent employees employed by the taxpayer in this state during the taxable year, multiplied by $4,000 for a business with gross receipts of no greater than $5,000,000 in the taxable year or $2,000 for a business with gross receipts greater than $5,000,000 in the taxable year.
(4) Average Employee Count. The average employee count for purposes of determining the increase in the number of full-time equivalent employees employed by the taxpayer in this state for a taxable year shall be computed using one of the following methods:
(a) 1. Except as provided in subd. 2., for a taxable year during which the taxpayer is required, under ch.
108, Stats., to file quarterly unemployment insurance wage reports with the department of workforce development, the average employee count shall be computed using the average number of full-time equivalent employees employed by the taxpayer in this state from the claimant's quarterly wage reports required to be filed during the taxable year. An amount computed under this subdivision shall be rounded to the nearest whole number.
Example: For Taxpayer A's taxable year beginning August 1, 2011 and ending July 31, 2012, Taxpayer A uses the number of full-time equivalent (FTE) employees employed in Wisconsin from the quarterly wage reports required to be filed October 31, 2011, January 31, 2012, April 30, 2012, and July 31, 2012 to compute the average employee count. The information from the reports filed is as follows:
Report Due Date Total Employees FTE Employees
Reported
October 31, 2011 43 22
January 31, 2012 58 36
April 30, 2012 57 39
July 31, 2012 71 63
TOTAL 229 160
The average employee count in this example is 40, the sum of the full-time equivalent employees employed in Wisconsin reported (160) divided by the number of reports filed (4).
2. If only one quarterly wage report is required to be filed during the taxable year, the average employee count shall be the number of full-time equivalent employees employed by the taxpayer in this state from that report.
3. For purposes of computing the average employee count under this paragraph, the number of full-time equivalent employees employed in this state does not include any employee who worked for a related person or related entity of the taxpayer or member of the same commonly controlled group as the taxpayer at any time during the 12 months prior to the due date of the quarterly wage report from which the number is derived.
(b) 1. Except as provided in subds. 2. and 3., for a taxable year during which a taxpayer is not required under ch.
108, Stats., to file quarterly unemployment insurance wage reports with the department of workforce development, the average employee count shall be computed using the average number of full-time equivalent employees employed by the taxpayer in this state on January 31, April 30, July 31, and October 31 within the taxable year. A January 31, April 30, July 31, or October 31 that does not occur within the taxable year is disregarded for purposes of the computation under this subdivision. An amount computed under this subdivision shall be rounded to the nearest whole number.
Example 1) For Taxpayer B's taxable year beginning July 1, 2011, and ending June 30, 2012, the number of full-time equivalent employees employed by Taxpayer B in this state on July 31, 2011, October 31, 2011, January 31, 2012, and April 30, 2012, are used to compute the average employee count.
Example 2) To compute the average employee count for Taxpayer C's short-period taxable year beginning March 15, 2011, and ending December 31, 2011, Taxpayer C divides the sum of the number of full-time equivalent employees employed by Taxpayer C in this state on April 30, 2011, July 31, 2011, and October 31, 2011, by three.
2. If only one of the dates, January 31, April 30, July 31, and October 31 occur within a taxable year, the average employee count shall be the number of full-time equivalent employees employed by the taxpayer in this state on that date.
3. If none of the dates January 31, April 30, July 31, or October 31, occurs within a taxable year, the average employee count shall be the number of full-time equivalent employees employed by the taxpayer in this state on the last day of the taxable year.
4. For purposes of computing the average employee count under this paragraph, the number of full-time equivalent employees employed in this state does not include any employee who worked for a related person or related entity of the taxpayer or member of the same commonly controlled group as the taxpayer at any time during the 12 months prior to the date on which the number is derived.
(5) Partnerships, Limited Liability Companies, And Tax-option Corporations. Partnerships, limited liability companies, and tax-option corporations may not claim the job creation deduction under ss.
71.05 (6) (b) 47m.,
71.26 (1) (h), or
71.45 (1) (c), Stats., but the eligibility for, and the amount of, the deduction shall be based on the increase in the number of full-time equivalent employees employed by the partnership, limited liability company, or tax-option corporation in this state and the gross receipts of the partnership, limited liability company, or tax-option corporation. A partnership, limited liability company, or tax-option corporation shall compute the amount of deduction that each of its partners, members, or shareholders may claim and shall provide that information to each of them.
Example: Partnership C has two equal partners, Individual D and Individual E. Individual D and Individual E are both Wisconsin residents. For its 2011 taxable year, Partnership C computes $450,000 of ordinary business income for federal income tax purposes and a job creation deduction of $40,000. Partnership C reports the following amounts to both Individual D and Individual E:
Ordinary business income Federal Amount 225,000
Adjustment (20,000)
Wisconsin Amount 205,000
Example: Company F, a professional employer organization, hires Employee G to perform services in Wisconsin for Taxpayer H, a client of Company F. For purposes of determining the job creation deduction, Employee G is considered to be an employee solely of Taxpayer H.
