May 8, 2001 - Introduced by Representatives Gard, M. Lehman, Riley, Jensen,
Huebsch, Starzyk, Montgomery, Krawczyk, Townsend, Rhoades, Kedzie,
Gundrum, Ladwig, Ziegelbauer, Seratti, Grothman, Ainsworth, Ott,
Jeskewitz, Sykora, Powers, Hundertmark, Vrakas, Walker, Nass, Pettis,
Leibham, Hahn, J. Fitzgerald, Stone, Gunderson
and Hoven, cosponsored by
Senators Huelsman, Darling, Welch, Plache, Schultz and Roessler.
Referred to Committee on Economic Development.
AB380,1,8 1An Act to renumber and amend 71.04 (4), 71.04 (8) (b), 71.25 (6), 71.25 (10) (b)
2and 71.45 (3) (b); to amend 71.04 (5) (intro.), 71.04 (6) (intro.), 71.04 (7) (d),
371.04 (8) (c), 71.04 (10), 71.25 (7) (intro.), 71.25 (8) (intro.), 71.25 (9) (d), 71.25
4(10) (c), 71.25 (11), 71.45 (3) (intro.), 71.45 (3) (a) and 71.45 (3m); and to create
571.04 (4) (a), 71.04 (4) (b), 71.04 (4) (c), 71.04 (4) (d), 71.04 (4) (e), 71.25 (6) (a),
671.25 (6) (b), 71.25 (6) (c), 71.25 (6) (d), 71.25 (6) (e) and 71.45 (3d) of the statutes;
7relating to: single sales factor apportionment of income for corporate income
8tax and franchise tax purposes and granting rule-making authority.
Analysis by the Legislative Reference Bureau
Under current law, when computing corporate income taxes and franchise
taxes, a formula is used to attribute a portion of a corporation's income to this state.
The formula has three factors: a sales factor, a property factor, and a payroll factor.
The sales factor represents 50% of the formula and the property and payroll factors
each represent 25% of the formula. When computing income taxes and franchise
taxes for an insurance company, a formula with a premium factor and a payroll factor
is used to attribute a portion of an insurance company's income to this state.
Under this bill, beginning on January 1, 2005, the sales factor will be the only
factor used to attribute a portion of a corporation's income to this state. The property

and payroll factors will be decreased, and eventually phased out, over the next four
years as the sales factor is increased and becomes the only factor. Beginning on
January 1, 2005, the premium factor will be the only factor used to attribute a portion
of an insurance company's income to this state. The payroll factor will be decreased,
and eventually phased out, over the next four years as the premium factor is
increased and becomes the only factor.
Under current law, the income of an electric or gas utility is apportioned by
rules established by the department of revenue (DOR). Under the bill, for taxable
years beginning after December 31, 2002, and before January 1, 2005, the income of
an electric or gas utility is apportioned in the same manner as the income of a
corporation under the bill. Beginning on January 1, 2005, the sales factor will be the
only factor used to attribute a portion of the income of an electric or gas utility to this
state.
Under current law, the income of a financial organization is apportioned, for
corporate income tax and franchise tax purposes, by rules established by DOR.
Under the bill, for taxable years beginning after December 31, 2002, and before
January 1, 2005, the income of a financial organization is apportioned by multiplying
that income by a fraction that includes a sales factor representing more than 50% of
the fraction, as determined by rule by DOR. For taxable years beginning after
December 31, 2004 the income of a financial organization is apportioned by using a
sales factor, as determined by DOR.
Under current law and under the bill, the income of air carriers and pipeline
companies is apportioned by rules established by DOR.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB380, s. 1 1Section 1. 71.04 (4) of the statutes is renumbered 71.04 (4) (intro.) and
2amended to read:
AB380,3,133 71.04 (4) Nonresident allocation and apportionment formula. (intro.)
4Nonresident individuals and nonresident estates and trusts engaged in business
5within and without the state shall be taxed only on such income as is derived from
6business transacted and property located within the state. The amount of such
7income attributable to Wisconsin may be determined by an allocation and separate
8accounting thereof, when the business of such nonresident individual or nonresident

1estate or trust within the state is not an integral part of a unitary business, but the
2department of revenue may permit an allocation and separate accounting in any case
3in which it is satisfied that the use of such method will properly reflect the income
4taxable by this state. In all cases in which allocation and separate accounting is not
5permissible, the determination shall be made in the following manner: for all
6businesses except air carriers, financial organizations, pipeline companies, public
7utilities, railroads, sleeping car companies and car line companies there shall first
8be deducted from the total net income of the taxpayer the part thereof (less related
9expenses, if any) that follows the situs of the property or the residence of the
10recipient. The remaining net income shall be apportioned to Wisconsin this state by
11use of an apportionment fraction composed of a sales factor representing 50% of the
12fraction, a property factor representing 25% of the fraction and a payroll factor
13representing 25% of the fraction.
the following:
AB380, s. 2 14Section 2. 71.04 (4) (a) of the statutes is created to read:
AB380,3,1815 71.04 (4) (a) For taxable years beginning before January 1, 2003, an
16apportionment fraction composed of a sales factor under sub. (7) representing 50%
17of the fraction, a property factor under sub. (5) representing 25% of the fraction, and
18a payroll factor under sub. (6) representing 25% of the fraction.
AB380, s. 3 19Section 3. 71.04 (4) (b) of the statutes is created to read:
AB380,3,2320 71.04 (4) (b) For taxable years beginning after December 31, 2002, and before
21January 1, 2004, an apportionment fraction composed of a sales factor under sub. (7)
22representing 60% of the fraction, a property factor under sub. (5) representing 20%
23of the fraction, and a payroll factor under sub. (6) representing 20% of the fraction.
AB380, s. 4 24Section 4. 71.04 (4) (c) of the statutes is created to read:
AB380,4,4
171.04 (4) (c) For taxable years beginning after December 31, 2003, and before
2January 1, 2005, an apportionment fraction composed of a sales factor under sub. (7)
3representing 80% of the fraction, a property factor under sub. (5) representing 10%
4of the fraction, and a payroll factor under sub. (6) representing 10% of the fraction.
AB380, s. 5 5Section 5. 71.04 (4) (d) of the statutes is created to read:
AB380,4,76 71.04 (4) (d) For taxable years beginning after December 31, 2004, an
7apportionment fraction composed of the sales factor under sub. (7).
AB380, s. 6 8Section 6. 71.04 (4) (e) of the statutes is created to read:
AB380,4,159 71.04 (4) (e) For taxable years beginning after December 31, 2002, and before
10January 1, 2005, the apportionment fraction for the remaining net income of a
11financial organization shall include a sales factor that represents more than 50% of
12the apportionment fraction, as determined by rule by the department. For taxable
13years beginning after December 31, 2004, the apportionment fraction for the
14remaining net income of a financial organization is composed of a sales factor, as
15determined by rule by the department.
AB380, s. 7 16Section 7. 71.04 (5) (intro.) of the statutes is amended to read:
AB380,4,1817 71.04 (5) Property factor. (intro.) For purposes of sub. (4) and for taxable
18years beginning before January 1, 2005
:
AB380, s. 8 19Section 8. 71.04 (6) (intro.) of the statutes is amended to read:
AB380,4,2120 71.04 (6) Payroll factor. (intro.) For purposes of sub. (4) and for taxable years
21beginning before January 1, 2005
:
AB380, s. 9 22Section 9. 71.04 (7) (d) of the statutes is amended to read:
AB380,5,523 71.04 (7) (d) Sales, other than sales of tangible personal property, are in this
24state if the income-producing activity is performed in this state. If the
25income-producing activity is performed both in and outside this state the sales shall

1be divided between those states having jurisdiction to tax such business in
2proportion to the direct costs of performance incurred in each such state in rendering
3this service. Services performed in states which do not have jurisdiction to tax the
4business shall be deemed to have been performed in the state to which compensation
5is allocated by sub. s. 71.04 (6) , 1999 stats.
AB380, s. 10 6Section 10. 71.04 (8) (b) of the statutes is renumbered 71.04 (8) (b) 1. and
7amended to read:
AB380,5,148 71.04 (8) (b) 1. "Public For taxable years beginning before January 1, 2003,
9"public
utility", as used in this section, means any business entity described under
10subd. 2. and
any business entity which owns or operates any plant, equipment,
11property, franchise, or license for the transmission of communications or the
12production, transmission, sale, delivery, or furnishing of electricity, water or steam,
13the rates of charges for goods or services of which have been established or approved
14by a federal, state or local government or governmental agency. " Public
AB380,5,20 152. In this section, for taxable years beginning after December 31, 2002, "public
16utility" also means any business entity providing service to the public and engaged
17in the transportation of goods and persons for hire, as defined in s. 194.01 (4),
18regardless of whether or not the entity's rates or charges for services have been
19established or approved by a federal, state or local government or governmental
20agency.
AB380, s. 11 21Section 11. 71.04 (8) (c) of the statutes is amended to read:
AB380,6,222 71.04 (8) (c) The net business income of railroads, sleeping car companies, car
23line companies, pipeline companies, financial organizations, air carriers and public
24utilities requiring apportionment shall be apportioned pursuant to rules of the

1department of revenue, but the income taxed is limited to the income derived from
2business transacted and property located within the state.
AB380, s. 12 3Section 12. 71.04 (10) of the statutes is amended to read:
AB380,6,144 71.04 (10) Department may waive factor. Where, in the case of any nonresident
5individual or nonresident estate or trust engaged in business within in and without
6the
outside this state of Wisconsin and required to apportion its income as provided
7in this section, it shall be shown to the satisfaction of the department of revenue that
8the use of any one of the 3 factors provided under sub. (4) gives an unreasonable or
9inequitable final average ratio because of the fact that such nonresident individual
10or nonresident estate or trust does not employ, to any appreciable extent in its trade
11or business in producing the income taxed, the factors made use of in obtaining such
12ratio, this factor may, with the approval of the department of revenue, be omitted in
13obtaining the final average ratio which is to be applied to the remaining net income.
14This subsection does not apply to taxable years beginning after December 31, 2004.
AB380, s. 13 15Section 13. 71.25 (6) of the statutes is renumbered 71.25 (6) (intro.) and
16amended to read:
AB380,7,1117 71.25 (6) Allocation and separate accounting and apportionment formula.
18(intro.) Corporations engaged in business within and without the state shall be taxed
19only on such income as is derived from business transacted and property located
20within the state. The amount of such income attributable to Wisconsin may be
21determined by an allocation and separate accounting thereof, when the business of
22such corporation within the state is not an integral part of a unitary business, but
23the department of revenue may permit an allocation and separate accounting in any
24case in which it is satisfied that the use of such method will properly reflect the
25income taxable by this state. In all cases in which allocation and separate accounting

1is not permissible, the determination shall be made in the following manner: for all
2businesses except air carriers, financial organizations, pipeline companies, public
3utilities, railroads, sleeping car companies, car line companies and corporations or
4associations that are subject to a tax on unrelated business income under s. 71.26 (1)
5(a) there shall first be deducted from the total net income of the taxpayer the part
6thereof (less related expenses, if any) that follows the situs of the property or the
7residence of the recipient. The remaining net income shall be apportioned to
8Wisconsin this state by use of an apportionment fraction composed of a sales factor
9under sub. (9) representing 50% of the fraction, a property factor under sub. (7)
10representing 25% of the fraction and a payroll factor under sub. (8) representing 25%
11of the fraction.
the following:
AB380, s. 14 12Section 14. 71.25 (6) (a) of the statutes is created to read:
AB380,7,1613 71.25 (6) (a) For taxable years beginning before January 1, 2003, an
14apportionment fraction composed of a sales factor under sub. (9) representing 50%
15of the fraction, a property factor under sub. (7) representing 25% of the fraction, and
16a payroll factor under sub. (8) representing 25% of the fraction.
AB380, s. 15 17Section 15. 71.25 (6) (b) of the statutes is created to read:
AB380,7,2118 71.25 (6) (b) For taxable years beginning after December 31, 2002, and before
19January 1, 2004, an apportionment fraction composed of a sales factor under sub. (9)
20representing 60% of the fraction, a property factor under sub. (7) representing 20%
21of the fraction, and a payroll factor under sub. (8) representing 20% of the fraction.
AB380, s. 16 22Section 16. 71.25 (6) (c) of the statutes is created to read:
AB380,8,223 71.25 (6) (c) For taxable years beginning after December 31, 2003, and before
24January 1, 2005, an apportionment fraction composed of a sales factor under sub. (9)

1representing 80% of the fraction, a property factor under sub. (7) representing 10%
2of the fraction, and a payroll factor under sub. (8) representing 10% of the fraction.
AB380, s. 17 3Section 17. 71.25 (6) (d) of the statutes is created to read:
AB380,8,54 71.25 (6) (d) For taxable years beginning after December 31, 2004, an
5apportionment fraction composed of the sales factor under sub. (9).
AB380, s. 18 6Section 18. 71.25 (6) (e) of the statutes is created to read:
AB380,8,137 71.25 (6) (e) For taxable years beginning after December 31, 2002, and before
8January 1, 2005, the apportionment fraction for the remaining net income of a
9financial organization shall include a sales factor that represents more than 50% of
10the apportionment fraction, as determined by rule by the department. For taxable
11years beginning after December 31, 2004, the apportionment fraction for the
12remaining net income of a financial organization is composed of a sales factor, as
13determined by rule by the department.
AB380, s. 19 14Section 19. 71.25 (7) (intro.) of the statutes is amended to read:
AB380,8,1615 71.25 (7) Property factor. (intro.) For purposes of sub. (5) (6) and for taxable
16years beginning before January 1, 2005
:
AB380, s. 20 17Section 20. 71.25 (8) (intro.) of the statutes is amended to read:
AB380,8,1918 71.25 (8) Payroll factor. (intro.) For purposes of sub. (5) (6) and for taxable
19years beginning before January 1, 2005
:
AB380, s. 21 20Section 21. 71.25 (9) (d) of the statutes is amended to read:
AB380,9,321 71.25 (9) (d) Sales, other than sales of tangible personal property, are in this
22state if the income-producing activity is performed in this state. If the
23income-producing activity is performed both in and outside this state the sales shall
24be divided between those states having jurisdiction to tax such business in
25proportion to the direct costs of performance incurred in each such state in rendering

1this service. Services performed in states which do not have jurisdiction to tax the
2business shall be deemed to have been performed in the state to which compensation
3is allocated by sub. s. 71.25 (8) , 1999 stats.
AB380, s. 22 4Section 22. 71.25 (10) (b) of the statutes is renumbered 71.25 (10) (b) 1. and
5amended to read:
AB380,9,126 71.25 (10) (b) 1. In this section, for taxable years beginning before January 1,
72003,
"public utility" means any business entity described under subd. 2. and any
8business entity which owns or operates any plant, equipment, property, franchise,
9or license for the transmission of communications or the production, transmission,
10sale, delivery, or furnishing of electricity, water or steam the rates of charges for
11goods or services of which have been established or approved by a federal, state or
12local government or governmental agency. "Public
AB380,9,18 132. In this section, for taxable years beginning after December 31, 2002, "public
14utility" also means any business entity providing service to the public and engaged
15in the transportation of goods and persons for hire, as defined in s. 194.01 (4),
16regardless of whether or not the entity's rates or charges for services have been
17established or approved by a federal, state or local government or governmental
18agency.
AB380, s. 23 19Section 23. 71.25 (10) (c) of the statutes is amended to read:
AB380,9,2420 71.25 (10) (c) The net business income of railroads, sleeping car companies, car
21line companies, pipeline companies, financial organizations, air carriers and public
22utilities requiring apportionment shall be apportioned pursuant to rules of the
23department of revenue, but the income taxed is limited to the income derived from
24business transacted and property located within the state.
AB380, s. 24 25Section 24. 71.25 (11) of the statutes is amended to read:
AB380,10,11
171.25 (11) Department may waive factor. Where, in the case of any corporation
2engaged in business within in and without the outside this state of Wisconsin and
3required to apportion its income as provided in sub. (6), it shall be shown to the
4satisfaction of the department of revenue that the use of any one of the 3 factors
5provided in sub. (6) gives an unreasonable or inequitable final average ratio because
6of the fact that such corporation does not employ, to any appreciable extent in its
7trade or business in producing the income taxed, the factors made use of in obtaining
8such ratio, this factor may, with the approval of the department of revenue, be
9omitted in obtaining the final average ratio which is to be applied to the remaining
10net income. This subsection does not apply to taxable years beginning after
11December 31, 2004.
AB380, s. 25 12Section 25. 71.45 (3) (intro.) of the statutes is amended to read:
AB380,10,2113 71.45 (3) Apportionment. (intro.) With respect Except as provided in sub. (3d),
14to determine Wisconsin income for purposes of the franchise tax, domestic insurers
15not engaged in the sale of life insurance but which that, in the taxable year, have
16collected received premiums, other than life insurance premiums, written on
17subjects of
for insurance on property or risks resident, located or to be performed
18outside this state, there shall be subtracted from multiply the net income figure
19derived by application of sub. (2) (a) to arrive at Wisconsin income constituting the
20measure of the franchise tax an amount calculated by multiplying such adjusted
21federal taxable income
by the arithmetic average of the following 2 percentages:
AB380, s. 26 22Section 26. 71.45 (3) (a) of the statutes is amended to read:
AB380,11,1323 71.45 (3) (a) The Subject to sub. (3d), the percentage of total determined by
24dividing the sum of direct
premiums written on all property and risks for insurance
25other than life insurance, with respects to all property and risks resident, located,

1or to be performed in this state, and assumed premiums written for reinsurance,
2other than life insurance, with respect to all property and risks resident, located, or
3to be performed in this state, by the sum of direct premiums written for insurance
4on all property and risks, other than life insurance,
wherever located during the
5taxable year, as reflects
, and assumed premiums written on insurance for
6reinsurance on all property and risks
, other than life insurance, where the subject
7of insurance was resident, located or to be performed outside this state
wherever
8located. In this paragraph, "direct premiums" means direct premiums as reported
9for the taxable year on an annual statement that is filed by the insurer with the
10commissioner of insurance under s. 601.42 (1g) (a). In this paragraph, "assumed
11premiums" means assumed reinsurance premiums from domestic insurance
12companies as reported for the taxable year on an annual statement that is filed with
13the commissioner of insurance under s. 601.42 (1g) (a)
.
AB380, s. 27 14Section 27. 71.45 (3) (b) of the statutes is renumbered 71.45 (3) (b) 1. and
15amended to read:
AB380,11,2016 71.45 (3) (b) 1. The Subject to sub. (3d), the percentage of determined by
17dividing the payroll, exclusive of life insurance payroll, paid in this state in the
18taxable year by
total payroll, exclusive of life insurance payroll, paid everywhere in
19the taxable year as reflects such compensation paid outside this state.
20Compensation
.
AB380,12,4 212. Under subd. 1., payroll is paid outside in this state if the individual's service
22is performed entirely outside in this state; or the individual's service is performed
23both within and without in and outside this state, but the service performed within
24outside this state is incidental to the individual's service without in this state; or
25some service is performed without in this state and the base of operations, or if there

1is no base of operations, the place from which the service is directed or controlled is
2without in this state, or the base of operations or the place from which the service is
3directed or controlled is not in any state in which some part of the service is
4performed, but the individual's residence is outside in this state.
AB380, s. 28 5Section 28. 71.45 (3d) of the statutes is created to read:
AB380,12,116 71.45 (3d) Phase in; domestic insurers. (a) For taxable years beginning after
7December 31, 2002, and before January 1, 2004, a domestic insurer that is subject
8to apportionment under sub. (3) and this subsection shall multiply the net income
9figure derived by the application of sub. (2) by an apportionment fraction composed
10of the percentage under sub. (3) (a) representing 60% of the fraction and the
11percentage under sub. (3) (b) 1. representing 40% of the fraction.
AB380,12,1712 (b) For taxable years beginning after December 31, 2003, and before January
131, 2005, a domestic insurer that is subject to apportionment under sub. (3) and this
14subsection shall multiply the net income figure derived by the application of sub. (2)
15by an apportionment fraction composed of the percentage under sub. (3) (a)
16representing 80% of the fraction and the percentage under sub. (3) (b) 1. representing
1720% of the fraction.
AB380,12,2118 (c) For taxable years beginning after December 31, 2004, a domestic insurer
19that is subject to apportionment under sub. (3) and this subsection shall multiply the
20net income figure derived by the application of sub. (2) by the percentage under sub.
21(3) (a).
AB380, s. 29 22Section 29. 71.45 (3m) of the statutes is amended to read:
AB380,13,523 71.45 (3m) Arithmetic average. The Except as provided in sub. (3d), the
24arithmetic average of the 2 percentages referred to in sub. (3) shall be applied to the
25net income figure arrived at by the successive application of sub. (2) (a) and (b) with

1respect to Wisconsin insurers to which sub. (2) (a) and (b) applies and which have
2collected received premiums, other than life insurance premiums, written upon for
3insurance, other than life insurance, where the subject of such insurance was on
4property or risks
resident, located or to be performed outside this state, to arrive at
5Wisconsin income constituting the measure of the franchise tax.
AB380, s. 30 6Section 30. Nonstatutory provisions; revenue.
AB380,13,127 (1) Income apportionment for financial organizations; rules. The
8department of revenue shall submit in proposed form rules related to the
9apportionment of the income of financial organizations under sections 71.04 (4) (e)
10and 71.25 (6) (e) of the statutes, as created by this act, to the legislative council staff
11under section 227.15 (1) of the statutes no later than the first day of the 4th month
12beginning after the effective date of this subsection.
AB380,13,1313 (End)
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