The Wisconsin Department of Revenue proposes an order to: repeal Tax 2.05, 2.66 (2) (b) (Note) and (4) (c) (Note), and 2.67 (2) (c) 2. and 3.; amend Tax 1.15 (title), (1), and (5) (intro.) and (Note), 2.61 (9) (c) 3. (Example), 2.67 (2) (c) 1. and 4. and (d) 1. and 3., 2.82 (1) (a), (4) (c) (Example), and (5) (a) (Example), 2.88 (3) (a), 4.10 (3) (b) 2., 4.65 (3) (c), 14.01 (4) (a), (b), and (c), and 14.03 (3) (a) and (a) (Example), (4) (b) 23. h., and (5) (a) 7.; repeal and recreate Tax 1.15 (2), (3), and (4); and create Tax 2.88 (3) (c) and 14.01 (4) (a) (Note); relating to income, franchise, and excise tax provisions.
The scope statement for this rule, SS 070-14, was approved by the Governor on July 24, 2014, published in Register No. 704 on August 14, 2014, and approved by the Secretary of Revenue on August 27, 2014. Analysis by the Department of Revenue
Explanation of agency authority: Under s. 71.80 (1) (c), Stats., the department may make such regulations as it shall deem necessary in order to carry out chapter 71 of the Wisconsin Statutes, relating to income and franchise taxes. This provision applies to the revision of ss. Tax 2.05, 2.61, 2.67, 2.82, 2.88, 14.01, and 14.03. Section 78.79, Stats., provides "[t]he department may promulgate reasonable rules relating to the administration and enforcement of this chapter…" This provision applies to the revision of ss. Tax 4.10 and 4.65. Section 227.04 (2m), Stats., requires each agency to promulgate a rule that requires the agency to disclose in advance the discretion that the agency will follow in the enforcement of rules against a small business that has committed a minor violation. This provision applies to the repeal and recreation of s. Tax 1.15. Related statute or rule: There are no other applicable statutes or rules.
Plain language analysis: The proposed rule makes the following changes:
• Clarifies an example of the carryforward of net business losses in s. Tax 2.61 (9) (c) 3. • Revises ss. Tax 2.66, 2.67, and 2.82 to change references to certain corporate franchise and income tax forms that are being consolidated and renamed as a result of forms redesign. • Revises s. Tax 2.88 (3) to reflect that refund interest may not be paid on an overpayment that results from the carryback of a net operating loss. This provision is under s. 71.05 (8) (c), Stats., as created by 2013 Wis. Act 145. • Amends s. Tax 4.10 (3) (b) 2. to reflect the removal by 2013 Wis. Act 54 of limits on the capacity of a vehicle transporting fuel and the distance between the destination of the import or export of fuel from a bulk plant and the Wisconsin border. • Revise s. Tax 4.65 (3) (c) to reflect that s. 78.01 (2t), Stats., as created by 2013 Wis. Act 204, provides that exemption certificates used to claim exemption from the motor vehicle fuel tax on gasoline or diesel fuel are valid for 3 years. • Revises ss. Tax 14.01 and 14.05 to include Schedule H-EZ as a form for claiming homestead credit. • Revises s. Tax 14.03 to reflect the current amount of the dependent deduction under s. 71.52 (5), Stats.; include net operating loss carrybacks as an item includable in income under s. 71.52 (6), Stats., as amended by 2013 Wis. Act 184; and clarify that only nontaxable pension rollovers are excluded from income. 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 rule.
Comparison with rules in adjacent states: The department is not aware of a similar rule in an adjacent state.
Summary of factual data and analytical methodologies: The 2013-2014 Legislative session has made various changes to Wisconsin's income, franchise, and excise tax provisions. The department has created this proposed rule order to reflect these statutory changes, as well as provide needed clarification and reference changes as described above. No other data was used in the preparation of this proposed rule order or this analysis.
Analysis and supporting documents used to determine effect on small business: This rule order makes changes to reflect current law and current department policy. It makes no policy or other changes having an effect on small business.
Anticipated costs incurred by private sector: This rule order does not have a fiscal effect on the private sector.
Effect on small business: This rule order does not affect small business.
Agency contact person: Please contact Jennifer Chadwick at (608) 266-8253 or jennifer.chadwick@wisconsin.gov, if you have any questions regarding this rule order. Place where comments are to be submitted and deadline for submission: Comments may be submitted to the contact person shown below. The deadline for comments concerning this rule order was September 23, 2016. Information as to the place, date, and time of the public hearing was published in the Wisconsin Administrative Register.
Jennifer Chadwick
Department of Revenue
Mail Stop 6-40
2135 Rimrock Road
P.O. Box 8933
Madison, WI 53708-8933
SECTION 1. Tax 1.15 (title) and (1) are amended to read:
Tax 1.15 (title) Enforcement of rules and guidelines as they apply to against a small business that has commited a minor violation.
(1) Purpose. This section discloses the discretion the department will follow in the enforcement of rules and guidelines as they apply to against a small business that has committed a minor violation.
SECTION 2. Tax 1.15 (2), (3), and (4) are repealed and recreated to read:
Tax 1.15 (2) (2) Definitions. In this section: (a) "Minor violation" has the meaning given in s. 227.04 (1) (a), Stats. (b) "Small business" has the meaning given in s. 227.114 (1), Stats. (3) Discretion the department will follow. The enforcement of rules against a small business that has committed a minor violation, including the assessment of a penalty, forfeiture, fine, or interest, shall be done on a case-by-case basis. Each case shall be determined on its merits as evaluated by the department, taking into consideration all relevant factors. Factors shall include:
(a) The difficulty and cost of compliance with the rule by the small business.
(b) The financial capacity of the small business, including the ability of the small business to pay the amount of any penalty that may be imposed.
(c) The compliance options available, including options for achieving voluntary compliance with the rule.
(d) The level of public interest and concern.
(e) The opportunities available to the small business to understand and comply with the rule.
(f) Fairness to the small business and to other persons, including competitors and the public.
(4) Scope of discretion allowed. The department shall allow the discretion described in sub. (3) to be considered in all situations in which a small business has committed a minor violation, except in a situation where any of the following apply:
(a) The violation results in a substantial economic advantage for the small business.
(b) The small business has violated the same rule or guideline more than 3 times in the past 5 years.
(c) The violation may result in an imminent endangerment to the environment, or to public health or safety.
SECTION 3. Tax 1.15 (5) (intro.) and (Note) are amended to read:
Tax 1.15 (5) (intro.) Voluntary disclosure. The department encourages a small business that is not in compliance with Wisconsin tax law has committed a minor violation to voluntarily come forward disclose the minor violation. On a case-by-case basis, considering all relevant factors, the department may exercise discretion to:
SECTION 4. Tax 2.05 is repealed.
SECTION 5. Tax 2.61 (9) (c) 3. (Example) is amended to read:
Tax 2.61 (9) (c) 3. (Example) Combined Group EFG consists of Member E, Member F, and Member G. E has the following loss carryforwards:
Year Incurred | Sharable Carryforward | Non-sharable Carry- forward |
2008 2009 | −− ($6,000) | ($10,000) ($2,000) |
In 2010, E’s share of combined unitary income plus its separate entity items equal $14,000. After using its carryforwards to offset this income, E has $4,000 of remaining net business loss carryforward (= ($10,000) + ($6,000) + ($2,000) + $14,000). Of this amount, a portion is a sharable carryforward that may be applied against F and G’s shares of combined unitary income in the manner described in par. (d). Since loss carryforwards are applied in the order incurred, the $10,000 carryforward from 2008 is used in its entirety, and $4,000 of the 2009 carryforward is used. The portion of E’s remaining carryforward from 2009 that is sharable is $3,000 (= $4,000 x [$6,000 / $8,000]) and the portion that is non−sharable is $1,000 (= 4,000 x [$2,000 / $8,000]).
In 2012, E has the following loss carryforwards:
Year Incurred | Sharable Carryforward | Non-sharable Carry- forward |
2009 2010 2011 | ($3,000) −− ($4,000) | ($1,000) −− ($6,000) |
In addition, in 2012 E has received a pre−2009 net business loss carryforward of $3,000 ($60,000 x 5%) from Member F. E’s share of combined unitary income plus its separate entity items for 2012 equal $16,000. After using its carryforwards to offset this income, E has $1,000 of remaining net business loss carryforward (= ($3,000) + ($3,000) + ($1,000) + ($4,000) + ($6,000) + ($3,000) + $16,000). Since the loss carryforwards are first applied to the net business loss carryforwards incurred in 2009 and after, the $4,000 carryforward from 2009 and the $10,000 carryforward from 2011 are used in their entirety. The remaining $2,000 of loss carryforwards are applied to the pre−2009 net business loss carryforward. The remaining pre−2009 net business loss carryforward is $1,000.
SECTION 6. Tax 2.66 (2) (b) (Note) and (4) (c) (Note) are repealed.
SECTION 7. Tax 2.67 (2) (c) 1. is amended to read:
Tax 2.67 (2) (c) 1. One Wisconsin Form 4 6, Income or Franchise Tax Return, for the combined group as a whole.
SECTION 8. Tax 2.67 (2) (c) 2. and 3. are repealed.
SECTION 9. Tax 2.67 (2) (c) 4. and (d) 1. and 3. are amended to read:
Tax 2.67 (2) (c) 4. If the combined group is using apportionment, one Wisconsin Form 4A, Apportionment Data for Combined Groups, and the apportionment factor computation for each member of the combined group as performed on Form 4A-1 A-1, Apportionment Data for Single Factor Formulas, or Form 4A-2 A-2, Apportionment Data for Multiple Factor Formulas, per member as applicable.
(d) 1. Subject to the provisions of s. Tax 2.65 (3) (b), if any combined group member has separate entity items, the designated agent shall include those separate entity items in the combined return. If a corporation that would otherwise be a combined group member has no items that are subject to combination under the water's edge rules of s. Tax 2.61 (4), the designated agent may include that corporation's separate entity items in the combined return, in which case the combined return shall include the items specified in sub. (2) (c) 3., 5., and 6. and subd. 3. for that corporation as if it is a combined group member. Alternatively, the corporation may file a separate Wisconsin return to report those items. 3. The separate entity net income or loss and apportionment factors included in the combined return shall be reported on Wisconsin Form 4N N, Nonapportionable and Separately Apportioned Income. The designated agent shall complete and submit Form 4N N with the combined return for each applicable corporation and carry forward the total Form 4N N amounts to the appropriate line on Form 4 6. For purposes of the requirement of s. 71.255 (2) (d), Stats., separate entity items reported on Form 4N N shall be considered filed on a separate return. However, for purposes of determining a combined group member's net income, tax, interest, underpayment interest, economic development surcharge, and the statute of limitations, the separate entity amounts shall be added to its amounts, if any, computed in the unitary combination. SECTION 10. Tax 2.82 (1) (a), (4) (c) (Example), and (5) (a) (Example) are amended to read:
