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71.03 Note NOTE: 1991 Wis. Act 301, which affected this section, contains extensive legislative council notes.
71.04 71.04 Situs of income; allocation and apportionment.
71.04(1)(1)Situs.
71.04(1)(a)(a) All income or loss of resident individuals and resident estates and trusts shall follow the residence of the individual, estate or trust. Income or loss of nonresident individuals and nonresident estates and trusts from business, not requiring apportionment under sub. (4), (10) or (11), shall follow the situs of the business from which derived. All items of income, loss and deductions of nonresident individuals and nonresident estates and trusts derived from a tax-option corporation not requiring apportionment under sub. (9) shall follow the situs of the business of the corporation from which derived. Income or loss of nonresident individuals and nonresident estates and trusts derived from rentals and royalties from real estate or tangible personal property, or from the operation of any farm, mine or quarry, or from the sale of real property or tangible personal property shall follow the situs of the property from which derived. Income from personal services of nonresident individuals, including income from professions, shall follow the situs of the services. A nonresident limited partner's distributive share of partnership income shall follow the situs of the business. A nonresident limited liability company member's distributive share of limited liability company income shall follow the situs of the business. Income of nonresident individuals, estates and trusts from the state lottery under ch. 565 is taxable by this state. Income of nonresident individuals, estates and trusts from any multistate lottery under ch. 565 is taxable by this state, but only if the winning lottery ticket or lottery share was purchased from a retailer, as defined in s. 565.01 (6), located in this state or from the department. Income of nonresident individuals, nonresident trusts and nonresident estates from pari-mutuel winnings or purses under ch. 562 is taxable by this state. All other income or loss of nonresident individuals and nonresident estates and trusts, including income or loss derived from land contracts, mortgages, stocks, bonds and securities or from the sale of similar intangible personal property, shall follow the residence of such persons, except as provided in par. (b) and sub. (9).
71.04(1)(b) (b) For purposes of determining the situs of income under this section:
71.04(1)(b)1. 1. The situs of income derived by any taxpayer as the beneficiary of the estate of a decedent or of a trust estate shall be determined as if such income had been received without the intervention of a fiduciary.
71.04(1)(b)2. 2. The situs of income received by a trustee, which income, under the internal revenue code, is taxable to the grantor of the trust or to any person other than the trust, shall be determined as if such income had been actually received directly by such grantor or such other person, without the intervention of the trust.
71.04(1)(b)3. 3. The residence of an estate or trust shall be as provided under s. 71.14.
71.04(2) (2)Part-year resident liability determination. Liability to taxation for income which follows the residence of the recipient, in the case of persons other than corporations, who move into or out of the state within the year, shall be determined for such year on the basis of the income received (or accrued, if on the accrual basis) during the portion of the year that any such person was a resident of Wisconsin. The net income of such person assignable to the state for such year shall be used in determining the income subject to assessment under this chapter.
71.04(3) (3)Partners and limited liability company members.
71.04(3)(a)(a) Part-year residents, time of residence. Partners or members who are residents of this state for less than a full taxable year shall compute taxes for that year on their share of partnership or limited liability company income or loss under this chapter on the part of the taxable year during which they are residents in the following manner:
71.04(3)(a)1. 1. Assign an equal portion of each item of income, loss or deduction to each day of the partnership's or limited liability company's taxable year.
71.04(3)(a)2. 2. Multiply each daily portion of those items of income, loss or deduction by a fraction that represents the partner's or member's portion, on that day, of the total partnership or limited liability company interest.
71.04(3)(a)3. 3. Net the items of income, loss or deduction, after the calculation under subd. 2., for all of the days during which the partner or member was a resident of this state.
71.04(3)(b) (b) Part-year residents, nonresidents. All partners or members who are residents of this state for less than a full taxable year or who are nonresidents shall compute taxes for that year on their share of partnership or limited liability company income or loss under this chapter for the part of the taxable year during which they are nonresidents by recognizing their proportionate share of all items of income, loss or deduction attributable to a business in, services performed in, or rental of property in, this state.
71.04(3)(c) (c) Disregarding agreements. In computing taxes under this chapter a partner or member shall disregard, for purposes of determining the situs of partnership income of partners, all provisions in partnership or limited liability company agreements that do any of the following:
71.04(3)(c)1. 1. Characterize the consideration for payments to the partner or member as services or the use of capital.
71.04(3)(c)2. 2. Allocate to the partner or member, as income from or gain from sources outside this state, a greater proportion of the partner's or member's distributive share of partnership or limited liability company income or gain than the ratio of partnership or company income or gain from sources outside this state to partnership or company income or gain from all sources.
71.04(3)(c)3. 3. Allocate to a partner or member a greater proportion of a partnership or limited liability company item of loss or deduction from sources in this state than the partner's or member's proportionate share of total partnership or company loss or deduction.
71.04(3)(c)4. 4. Determine a partner's or member's distributive share of an item of partnership or limited liability company income, gain, loss or deduction for federal income tax purposes if the principal purpose of that determination is to avoid or evade the tax under this chapter.
71.04(4) (4)Nonresident allocation and apportionment formula. Nonresident individuals and nonresident estates and trusts engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state. The amount of such income attributable to Wisconsin may be determined by an allocation and separate accounting thereof, when the business of such nonresident individual or nonresident estate or trust within the state is not an integral part of a unitary business, but the department of revenue may permit an allocation and separate accounting in any case in which it is satisfied that the use of such method will properly reflect the income taxable by this state. In all cases in which allocation and separate accounting is not permissible, the determination shall be made in the following manner: for all businesses except financial organizations, public utilities, railroads, sleeping car companies and car line companies there shall first be deducted from the total net income of the taxpayer the part thereof (less related expenses, if any) that follows the situs of the property or the residence of the recipient. The remaining net income shall be apportioned to Wisconsin by use of an apportionment fraction composed of a sales factor representing 50% of the fraction, a property factor representing 25% of the fraction and a payroll factor representing 25% of the fraction.
71.04(5) (5)Property factor. For purposes of sub. (4):
71.04(5)(a) (a) The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period. Cash on hand or in the bank, shares of stock, notes, bonds, accounts receivable, or other evidence of indebtedness, special privileges, franchises, goodwill, or property the income of which is not taxable or is separately allocated, shall not be considered tangible property nor included in the apportionment.
71.04(5)(b) (b) Property used in the production of nonapportionable income or losses shall be excluded from the numerator and denominator of the property factor. Property used in the production of both apportionable and nonapportionable income or losses shall be partially excluded from the numerator and denominator of the property factor so as to exclude, as near as possible, the portion of such property producing the nonapportionable income or loss.
71.04(5)(c) (c) Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at 8 times the net annual rental. Net annual rental is the annual rental paid by the taxpayer less any annual rental received by the taxpayer from sub-rentals.
71.04(5)(d) (d) The average value of property shall be determined by averaging the values at the beginning and ending of the tax period but the secretary of revenue may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer's property.
71.04(6) (6)Payroll factor. For purposes of sub. (4):
71.04(6)(a) (a) The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period.
71.04(6)(b) (b) Compensation is paid in this state if:
71.04(6)(b)1. 1. The individual's service is performed entirely within this state;
71.04(6)(b)2. 2. The individual's service is performed within and without this state, but the service performed without this state is incidental to the individual's service within this state;
71.04(6)(b)3. 3. A portion of the service is performed within this state and the base of operations of the individual is in this state;
71.04(6)(b)4. 4. A portion of the service is performed within this state and, if there is no base of operations, the place from which the individual's service is directed or controlled is in this state;
71.04(6)(b)5. 5. A portion of the service is performed within this state and neither the base of operations of the individual nor the place from which the service is directed or controlled is in any state in which some part of the service is performed, but the individual's residence is in this state; or
71.04(6)(b)6. 6. The individual is neither a resident of nor performs services in this state but is directed or controlled from an office in this state and returns to this state periodically for business purposes and the state in which the individual resides does not have jurisdiction to impose income or franchise taxes on the employer.
71.04(6)(c) (c) Compensation related to the operation, maintenance, protection or supervision of property used in the production of both apportionable and nonapportionable income or losses shall be partially excluded from the numerator and denominator of the payroll factor so as to exclude, as near as possible, the portion of pay related to the operation, maintenance, protection and supervision of property used in the production of nonapportionable income.
71.04(6)(d) (d) Payments made to an independent contractor or any person not properly classified as an employe are excluded from the payroll factor.
71.04(6)(e) (e) If the taxpayer has no employes or the department determines that employes are not a substantial income-producing factor, the department may order or permit the elimination of the payroll factor.
71.04(7) (7)Sales factor. For purposes of sub. (4):
71.04(7)(a) (a) The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period. For sales of tangible personal property, the numerator of the sales factor is the sales of the taxpayer during the tax period under par. (b) 1. and 2. plus 50% of the sales of the taxpayer during the tax period under pars. (b) 2m. and 3. and (c).
71.04(7)(b) (b) Sales of tangible personal property are in this state if any of the following occur:
71.04(7)(b)1. 1. The property is delivered or shipped to a purchaser, other than the federal government, within this state regardless of the f.o.b. point or other conditions of the sale.
71.04(7)(b)2. 2. The property is shipped from an office, store, warehouse, factory or other place of storage in this state and delivered to the federal government within this state regardless of the f.o.b. point or other conditions of sale.
71.04(7)(b)2m. 2m. The property is shipped from an office, store, warehouse, factory or other place of storage in this state and delivered to the federal government outside this state and the taxpayer is not within the jurisdiction, for income or franchise tax purposes, of the destination state.
71.04(7)(b)3. 3. The property is shipped from an office, store, warehouse, factory or other place of storage in this state to a purchaser other than the federal government and the taxpayer is not within the jurisdiction, for income or franchise tax purposes, of the destination state.
71.04(7)(c) (c) Sales of tangible personal property by an office in this state to a purchaser in another state and not shipped or delivered from this state are in this state if the taxpayer is not within the jurisdiction for income tax purposes of either the state from which the property is delivered or shipped or of the destination state.
71.04(7)(d) (d) Sales, other than sales of tangible personal property, are in this state if the income-producing activity is performed in this state. If the income-producing activity is performed both in and outside this state the sales shall be divided between those states having jurisdiction to tax such business in proportion to the direct costs of performance incurred in each such state in rendering this service. Services performed in states which do not have jurisdiction to tax the business shall be deemed to have been performed in the state to which compensation is allocated by sub. (6).
71.04(7)(e) (e) In this subsection, "sales" includes, but is not limited to, the following items related to the production of business income:
71.04(7)(e)1. 1. Gross receipts from the sale of inventory.
71.04(7)(e)2. 2. Gross receipts from the operation of farms, mines and quarries.
71.04(7)(e)3. 3. Gross receipts from the sale of scrap or by-products.
71.04(7)(e)4. 4. Gross commissions.
71.04(7)(e)5. 5. Gross receipts from personal and other services.
71.04(7)(e)6. 6. Gross rents from real property or tangible personal property.
71.04(7)(e)7. 7. Interest on trade accounts and trade notes receivable.
71.04(7)(e)8. 8. A partner's or member's share of the partnership's or limited liability company's gross receipts.
71.04(7)(e)9. 9. Gross management fees.
71.04(7)(e)10. 10. Gross royalties from income-producing activities.
71.04(7)(e)11. 11. Gross franchise fees from income-producing activities.
71.04(7)(f) (f) The following items are among those that are not included in "sales" in this subsection:
71.04(7)(f)1. 1. Gross receipts and gain or loss from the sale of tangible business assets, except those under par. (e) 1., 2. and 3.
71.04(7)(f)2. 2. Gross receipts and gain or loss from the sale of nonbusiness real or tangible personal property.
71.04(7)(f)3. 3. Gross rents and rental income or loss from real property or tangible personal property if that real property or tangible personal property is not used in the production of business income.
71.04(7)(f)4. 4. Royalties from nonbusiness real property or nonbusiness tangible personal property.
71.04(7)(f)5. 5. Proceeds and gain or loss from the redemption of securities.
71.04(7)(f)6. 6. Interest, except interest under par. (e) 7., and dividends.
71.04(7)(f)7. 7. Gross receipts and gain or loss from the sale of intangible assets, except those under par. (e) 1.
71.04(7)(f)8. 8. Dividends deductible by corporations in determining net income.
71.04(7)(f)9. 9. Gross receipts and gain or loss from the sale of securities.
71.04(7)(f)10. 10. Proceeds and gain or loss from the sale of receivables.
71.04(7)(f)11. 11. Refunds, rebates and recoveries of amounts previously expended or deducted.
71.04(7)(f)12. 12. Other items not includable in apportionable income.
71.04(7)(f)13. 13. Foreign exchange gain or loss.
71.04(7)(f)14. 14. Royalties and income from passive investments in the property under s. 71.25 (5) (a) 21.
71.04(7)(f)16. 16. Pari-mutuel wager winnings or purses under ch. 562.
71.04(8) (8)Railroads, financial organizations and public utilities.
71.04(8)(a)(a) "Financial organization", as used in this section, means any bank, trust company, savings bank, industrial bank, land bank, safe deposit company, private banker, savings and loan association, credit union, cooperative bank, small loan company, sales finance company, investment company, brokerage house, underwriter or any type of insurance company.
71.04(8)(b) (b) "Public utility", as used in this section, means any business entity which owns or operates any plant, equipment, property, franchise, or license for the transmission of communications or the production, transmission, sale, delivery, or furnishing of electricity, water or steam, the rates of charges for goods or services of which have been established or approved by a federal, state or local government or governmental agency. "Public utility" also means any business entity providing service to the public and engaged in the transportation of goods and persons for hire, as defined in s. 194.01 (4), regardless of whether or not the entity's rates or charges for services have been established or approved by a federal, state or local government or governmental agency.
71.04(8)(c) (c) The net business income of railroads, sleeping car companies, car line companies, financial organizations and public utilities requiring apportionment shall be apportioned pursuant to rules of the department of revenue, but the income taxed is limited to the income derived from business transacted and property located within the state.
71.04(9) (9)Nonresident income from multistate tax-option corporation. Nonresident individuals and nonresident estates and trusts deriving income from a tax-option corporation which is engaged in business within and without this state shall be taxed only on the income of the corporation derived from business transacted and property located in this state and losses and other items of the corporation deductible by such shareholders shall be limited to their proportionate share of the Wisconsin loss or other item. For purposes of this subsection, all intangible income of tax-option corporations passed through to shareholders is business income that follows the situs of the business.
71.04(10) (10)Department may waive factor. Where, in the case of any nonresident individual or nonresident estate or trust engaged in business within and without the state of Wisconsin and required to apportion its income as provided in this section, it shall be shown to the satisfaction of the department of revenue that the use of any one of the 3 factors provided under sub. (4) gives an unreasonable or inequitable final average ratio because of the fact that such nonresident individual or nonresident estate or trust does not employ, to any appreciable extent in its trade or business in producing the income taxed, the factors made use of in obtaining such ratio, this factor may, with the approval of the department of revenue, be omitted in obtaining the final average ratio which is to be applied to the remaining net income.
71.04(11) (11)Department may apportion by rule. If the income of any such nonresident individual or nonresident estate or trust properly assignable to the state of Wisconsin cannot be ascertained with reasonable certainty by the methods under this section, then the same shall be apportioned and allocated under such rules as the department of revenue may prescribe.
71.05 71.05 Income computation.
71.05(1)(1)Exempt and excludable income. There shall be exempt from taxation under this subchapter the following:
71.05(1)(a) (a) Retirement systems. All payments received from the U.S. civil service retirement system, the U.S. military employe retirement system, the employe's retirement system of the city of Milwaukee, Milwaukee county employes' retirement system, sheriff's annuity and benefit fund of Milwaukee county, police officer's annuity and benefit fund of Milwaukee, fire fighter's annuity and benefit fund of Milwaukee, or the public employe trust fund as successor to the Milwaukee public school teachers' annuity and retirement fund and to the Wisconsin state teachers retirement system, which are paid on the account of any person who was a member of the paying or predecessor system or fund as of December 31, 1963, or was retired from any of the systems or funds as of December 31, 1963, but such exemption shall not exclude from gross income tax sheltered annuity benefits.
71.05(1)(b) (b) State legislature allowance for expenses. All amounts received in accordance with s. 13.123 (1) (a) which are spent for the purposes specified in s. 13.123 (1) (a) if the person does not claim a deduction for travel expenses away from home on legislative days. In this chapter, the place of residence of a member of the state legislature within the legislative district which the member represents shall be considered the member's home.
71.05(1)(c) (c) Certain interest income. Interest received on bonds or notes issued by any of the following:
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