2. For taxable years beginning after December 31, 1999, sales of intangible property are attributed to the state where a purchaser uses the intangible property. If intangible property is used in more than one state, the sales of the intangible property shall be apportioned to this state according to the portion of the intangible property's use in this state. If the portion of intangible property's use in this state cannot be determined, the sales of the intangible property shall be excluded from the numerator and the denominator of the sales factor under par. (a). Intangible property is used in this state if a purchaser uses the intangible property in the regular course of the purchaser's business in this state, regardless of where the purchaser's customers are located.
SECTION 1736. 71.25 (9) (dr) of the statutes is created to read:
71.25 (9) (dr) For taxable years beginning after December 31, 1999, receipts from the performance of services are attributed to the state where the purchaser received the benefit of the services. If a purchaser receives the benefit of a service in more than one state, the receipts from the performance of the service are included in the numerator of the sales factor under par. (a) according to the portion of the benefit of the service received in this state. If the state where a purchaser received the benefit of a service cannot be determined, the benefit of a service is received in the state where the purchaser, in the regular course of the purchaser's business, ordered the service. If the state where a purchaser ordered a service cannot be determined, the benefit of the service is received in the state where the purchaser, in the regular course of the purchaser's business, receives a bill for the service.
SECTION 1737. 71.25 (9) (e) (title) of the statutes is repealed.
SECTION 1738. 71.25 (9) (f) (title) of the statutes is repealed.
SECTION 1739. 71.255 of the statutes is created to read:
71.255 Combined reporting. (1) DEFINITIONS. In this section:
(a) "Affiliated group" means any of the following:
1. A parent corporation and any corporation or chain of corporations that are connected to the parent corporation by ownership by the parent corporation if the parent corporation owns stock representing at least 50% of the voting stock of at least one of the connected corporations or if the parent corporation or any of the connected corporations owns stock that cumulatively represents at least 50% of the voting stock of each of the connected corporations.
2. Any 2 or more corporations if a common owner owns stock representing at least 50% of the voting stock of the corporations or the connected corporations.
3. A partnership, limited liability company or tax-option corporation if a parent corporation or any corporation connected to the parent corporation by common ownership owns shares representing at least 50% of the shares of the partnership, limited liability company or tax-option corporation.
4. Any 2 or more corporations if stock representing at least 50% of the voting stock in each corporation are interests that cannot be separately transferred.
5. Any 2 or more corporations if stock representing at least 50% of the voting stock is directly owned by, or for the benefit of, family members. In this subdivision, "family members" means an individual or a spouse related by blood, marriage or adoption within the 2nd degree of kinship as computed under s. 852.03 (2), 1995 stats.
(b) "Combined report" means a form prescribed by the department that shows the calculations under this section to divide the income of an affiliated group conducting a unitary business among the jurisdictions where the affiliated group conducts its trade or business.
(c) "Corporation" has the meaning given in s. 71.22 (1) or 71.42 (1).
(d) "Department" means the department of revenue.
(e) "Intercompany transaction" means a transaction between corporations, partnerships, limited liability companies or tax-option corporations that become members of the same affiliated group that is engaged in a unitary business immediately after the transaction.
(f) "Partnership" means any entity considered a partnership under section 7701 of the Internal Revenue Code.
(g) "Unitary business" means 2 or more businesses that have common ownership or are integrated with or dependent upon each other. Two or more businesses are presumed to be a unitary business if the businesses have centralized management or a centralized executive force; centralized purchasing, advertising or accounting; intercorporate sales or leases; intercorporate services; intercorporate debts; intercorporate use of proprietary materials; interlocking directorates or interlocking corporate officers; or if a business conducted in this state is owned by a person that conducts a business entirely outside of this state that is different from the business conducted in this state.
(2) CORPORATIONS REQUIRED TO USE COMBINED REPORTING. A corporation that is subject to tax under s. 71.23 (1) or (2) or 71.43, that is a member of an affiliated group and that is engaged in a unitary business with one or more members of the affiliated group shall compute the corporation's income using the combined reporting method under this section. Any corporation, regardless of the country where the corporation is organized or incorporated or conducts business, and any tax-option corporation, if the department determines that combined reporting is necessary to accurately report the income of the tax-option corporation apportioned to this state, shall file a combined report if the corporation is a member of an affiliated group that is engaged in a unitary business.
(3) ACCOUNTING PERIOD. For purposes of this section, the income under ss. 71.26, 71.34 and 71.45, the apportionment factors under ss. 71.25 and 71.45 and the tax credits under ss. 71.28 and 71.47 of all corporations that are members of an affiliated group and that are engaged in a unitary business shall be determined by using the same accounting period. If the affiliated group that is engaged in a unitary business has a common parent corporation, the accounting period of the common parent corporation shall be used to determine the income, the apportionment factors and the tax credits of all the corporations that are members of the affiliated group that is engaged in a unitary business. If the affiliated group that is engaged in a unitary business has no common parent corporation, the income, the apportionment factors and the tax credits of the affiliated group that is engaged in a unitary business shall be determined using the accounting period of the member of the affiliated group that has the most significant operations on a recurring basis in this state.
(4) FILING RETURNS. (a) Corporations with the same accounting period. Corporations that must file a return under this section and that have the same accounting period may file a combined report under par. (c) that reports the aggregate state franchise or state income tax liability of all of the members of the affiliated group that are engaged in a unitary business. Corporations that are required to file a combined report under this section may file separate returns reporting the respective apportionment of the corporation's state franchise or state income tax liability as determined under the combined reporting method, if each corporation filing a separate return pays its own apportionment of its state franchise or state income tax liability.
(b) Corporations with different accounting periods. Corporations that are required to file a combined report and that have different accounting periods shall use the actual figures from the corporations' financial records to determine the proper income and income-related computations to convert to a common accounting period. Corporations that are required to file a combined report may use a proportional method to convert income to a common accounting period if the results of the proportional method do not materially misrepresent the income apportioned to this state. The apportionment factors under ss. 71.25 and 71.45 and the tax credits under ss. 71.28 and 71.47 shall be computed according to the same method used to determine the income under ss. 71.26, 71.34 and 71.45 for the common accounting period. If a corporation performs an interim closing of its financial records to determine the income attributable to the common accounting period, the actual figures from the interim closing shall be used to convert the apportionment factors to the common accounting period.
(c) Designated agent. If corporations that are subject to this section file a combined report under par. (a), the parent corporation of the affiliated group shall be the sole designated agent for each member of the affiliated group including the parent corporation. The designated agent shall file the combined report under par. (a), shall file for any extensions under s. 71.24 (7) or 71.44 (3), shall file amended reports and claims for refund or credit, and shall send and receive all correspondence with the department regarding a combined report. Any notice the department sends to the designated agent is considered a notice sent to all members of the affiliated group. Any refund shall be paid to and in the name of the designated agent and shall discharge any liability of the state to any member of an affiliated group regarding the refund. The affiliated group filing a combined report under par. (a) shall pay all taxes, including estimated taxes, in the designated agent's name. The designated agent shall participate on behalf of the affiliated group in any investigation or hearing requested by the department regarding a combined report and shall produce all information requested by the department regarding a combined report. The designated agent may execute a power of attorney on behalf of the members of the affiliated group. The designated agent shall execute waivers, closing agreements and other documents regarding a report filed under par. (a) and any waiver, agreement or document executed by the designated agent shall be considered as executed by all members of the affiliated group. If the department acts in good faith with an affiliated group member that represents itself as the designated agent for the affiliated group but that affiliated group member is not the designated agent, any action taken by the department with that affiliated group member has the same effect as if that affiliated group member were the actual designated agent for the affiliated group.
(d) Part-year members. If a corporation becomes a member of an affiliated group engaged in a unitary business or ceases to be a member of an affiliated group engaged in a unitary business after the beginning of a common accounting period, the corporation's income shall be apportioned to this state as follows:
1. If the corporation is required to file 2 short period federal returns for the common accounting period, the income for the short period that the corporation was a member of an affiliated group engaged in a unitary business shall be determined by using the combined reporting method and the corporation shall join in filing a combined report for that short period. The income for the remaining short period shall be by separate reporting under s. 71.25 or 71.45. If the corporation becomes a member of another affiliated group that is engaged in a unitary business in the remaining short period, the corporation's income shall be determined for the remaining short period by using the combined reporting method.
2. If the corporation is not required to file federal short period returns, the corporation shall file a separate return. Income shall be determined as follows:
a. By the combined reporting method for any period that the corporation was a member of an affiliated group that was engaged in a unitary business.
b. By separate reporting under s. 71.25 or 71.45 for any period that the corporation was not a member of an affiliated group that was engaged in a unitary business.
(e) Amended combined report. The election to file a combined report under this section applies to an amended combined report that includes the same corporations that joined in the filing of the original combined report. Under this section, an amended combined report shall be filed as follows:
1. If an election to file a combined report that is in effect for a taxable year is revoked for the taxable year because the affiliated group that filed the combined report is not a unitary business, as determined by the department, the designated agent for the affiliated group may not file an amended combined report. The designated agent and each corporation that joined in filing the combined report shall file a separate amended return. To compute the tax due on a separate amended return, a corporation that files a separate amended return shall consider all of the payments, credits or other amounts, including refunds, that the designated agent allocated to the corporation.
2. If a change in tax liability under this section is the result of the removal of a corporation from an affiliated group because the corporation was not eligible to be a member of the affiliated group for the taxable year, as determined by the department, the designated agent shall file an amended combined report and the ineligible corporation shall file a separate amended return.
3. If a corporation erroneously fails to join in the filing of a combined report, the designated agent shall file an amended combined report that includes the corporation. If a corporation that erroneously fails to join in the filing of a combined report has filed a separate return, the corporation shall file an amended separate return that shows no net income, overpayment or underpayment, and shows that the corporation has joined in the filing of a combined report.
(5) INCOME COMPUTATION UNDER COMBINED REPORTING. Under the combined reporting method, income attributable to this state shall be determined as follows:
(a) Determine the net income of each corporation under s. 71.26, 71.34 (1) or 71.45, including a general or limited partner's share of income to the extent that the general or limited partner and the partnership in which the general or limited partner invests are engaged in a unitary business, regardless of the percentage of the general or limited partner's ownership in the partnership.
(b) Adjust each corporation's income, as determined under par. (a), as provided under s. 71.30.
(c) From the amount determined under par. (b), subtract intercompany transactions such that intercompany accounts of assets, liabilities, equities, income, costs or expenses are excluded from the determination of income to accurately reflect the income, the apportionment factors and the tax credits in a combined report that is filed under this section. Distributions of intercompany dividends that are paid from nonbusiness earnings or nonbusiness profits, or distributions of intercompany dividends that are paid from earnings or profits that are accumulated before the payer corporation becomes a member of an affiliated group that is engaged in a unitary business, may not be excluded from the income of the recipient corporation. An intercompany distribution that exceeds the payer corporation's earnings or profits or stock basis shall not be considered income from an intercompany sale of an asset and shall not be excluded as income from an intercompany transaction. Intercompany dividends that are paid from earnings or profits from a unitary business income shall be considered as paid first from current earnings or profits and then from accumulations from prior years in reverse order of accumulation. An intercompany transaction includes the following:
1. Income from sales of inventory from one member of the affiliated group to another member of the affiliated group.
2. Gain or loss from sales of intangible assets from one member of the affiliated group to another member of the affiliated group.
3. Gain or loss on sales of fixed assets or capitalized intercompany charges from one member of the affiliated group to another member of the affiliated group.
4. Loans, advances, receivables and similar items that one member of the affiliated group owes to another member of the affiliated group, including interest income and interest expense related to these items.
5. Stock or other equity of one member of the affiliated group that is owned or controlled by another member of the affiliated group.
6. Except as provided in par. (c) (intro.), intercompany dividends paid out of earnings or profits from a unitary business income.
7. Annual rent paid by one member of the affiliated group to another member of the affiliated group.
8. Management or service fees paid by one member of the affiliated group to another member of the affiliated group.
9. Income or expenses allocated or charged by one member of the affiliated group to another member of the affiliated group.
(d) From the amount determined under par. (c) for each corporation, subtract nonbusiness income, net of related expenses, and add nonbusiness losses, net of related expenses, to determine each corporation's apportionable net income or apportionable net loss.
(e) Calculate the apportionment factors under sub. (6) and multiply each corporation's apportionable net income or apportionable net loss, as determined under par. (d), by the corporation's apportionment fraction as determined under s. 71.25 (6).
(f) To the amount determined under par. (e), add each corporation's nonbusiness income attributable to this state and subtract each corporation's nonbusiness losses attributable to this state.
(g) To the amount determined under par. (f), subtract each corporation's net business loss carry-forward under s. 71.26 (4) or 71.45 (4). A corporation may not carry forward a business loss from taxable years ending before January 1, 2000, if the corporation was not subject to this state's income or franchise tax for taxable years ending before January 1, 2000.
(6) APPORTIONMENT FACTOR COMPUTATION UNDER COMBINED REPORTING. Under the combined reporting method, this state's apportionment factors are determined as follows:
(a) Determine the numerator and the denominator of each corporation's apportionment factors as determined under s. 71.25 or 71.45, including a general or limited partner's share of the numerator and the denominator of the apportionment factors to the extent that the general or limited partner and the partnership in which the general or limited partner invests are engaged in a unitary business, regardless of the percentage of the general or limited partner's ownership in the partnership.
(b) Subtract intercompany transactions under sub. (5) (c) from both the numerators and the denominators as determined under par. (b).
(c) Add the denominators of the apportionment factors for each corporation, as determined under par. (b), to arrive at the combined denominators.
(d) Compute each corporation's apportionment factors by dividing the corporation's numerator as determined under par. (b) by the combined denominator as determined under par. (c).
(7) NET OPERATING LOSSES. For the first 2 taxable years that a combined report is filed under this section, the net operating loss for each member of an affiliated group that files a combined report is determined by adding each member's share of nonbusiness income to each member's share of business income and subtracting each member's share of nonbusiness loss from each member's share of business loss. Beginning with the 3rd taxable year that a combined report is filed under this section, if a member of an affiliated group that files a combined report has a positive net income as determined under sub. (5), the affiliated group shall only deduct the amount of the net operating loss carry-forward attributable to that member.
(8) ESTIMATED TAX PAYMENTS. (a) For the first 2 taxable years that a combined report is filed under this section, estimated taxes may be paid on a group basis or on a separate basis. The amount of any separate estimated taxes paid in the first 2 taxable years that a combined report is filed shall be credited against the group's tax liability. The designated agent shall notify the department of any estimated taxes paid on a separate basis in the first 2 taxable years that a combined report is filed.
(b) If a combined report is filed for 2 consecutive taxable years, estimated taxes shall be paid on a group basis for each subsequent taxable year until such time as separate returns are filed by the corporations that were members of an affiliated group that filed combined reports under this section. For each taxable year in which combined estimated payments are required under this subsection, the department shall consider the affiliated group filing a combined report to be one taxpayer. If a corporation subject to this section files a separate return in a taxable year following a year in which the corporation joined in filing a combined report, the amount of any estimated tax payments made on a group basis for the previous year shall be credited against the tax liability of the corporation that files a separate return, as allocated by the designated agent with the department's approval.
(c) If an affiliated group pays estimated taxes on a group basis for a taxable year or for any part of a taxable year, and the members of the affiliated group file separate returns for the taxable year, the designated agent, with the department's approval, shall allocate the estimated tax payments among the members of the affiliated group.
(d) If estimated taxes are paid on a group basis for a taxable year but the group does not file a combined report for the taxable year and did not file a combined report for the previous taxable year, the estimated tax shall be credited to the corporation that made the estimated tax payment on the group's behalf.
(9) INTEREST FOR UNDERPAYMENT OF ESTIMATED TAX. (a) General. The amount of interest that is due for an underpayment of estimated taxes under sub. (8) shall be computed as follows:
1. For the first year in which a combined report is filed, the amount of interest that is due for an underpayment of estimated taxes shall be determined by using the aggregate of the tax and income shown on the returns filled by the members of the group for the previous year.
2. For estimated taxes paid under sub. (8) (c), the amount of interest that is due from a group member for an underpayment of estimated taxes paid by the group member shall be determined by using the group member's separate items from the combined report filed for the previous year and the group member's allocated share of the combined estimated payments for the current year. The designated agent shall report the group member's allocated share of the combined estimated payments for the current year to the department, in the manner prescribed by the department.
(b) Entering a group. For a corporation that becomes a member of an affiliated group during a common accounting period under sub. (3), the amount of interest that is due for an underpayment of estimated taxes shall be allocated to the corporation as follows:
1. If a corporation becomes a member of an affiliated group at the beginning of a common accounting period, the corporation shall include with the corresponding items on the combined report for the previous common accounting period the separate items shown on the corporation's return for the previous taxable year.
2. If a corporation is not a member of an affiliated group for an entire common accounting period, the corporation shall include with the corresponding items on the combined report for the current taxable year the corporation's separate items for that portion of the common accounting period that the corporation was a member of the affiliated group.
3. To determine the separate items under subds. 1. and 2., if a corporation is a member of an affiliated group during a portion of a common accounting period in which the corporation becomes a member of another affiliated group, the corporation's separate items shall include the separate items that are attributed to the corporation by the designated agent of the first affiliated group.
(c) Leaving a group. For a corporation that leaves an affiliated group during a common accounting period under sub. (3), the amount of interest that is due for an underpayment of estimated taxes shall be allocated as follows:
1. The separate items attributed by the designated agent to the corporation for the common accounting period during which the corporation leaves the affiliated group shall be excluded from the corresponding items of the affiliated group for the current common accounting period and all the common accounting periods following the corporation's departure from the affiliated group.
2. A corporation that leaves an affiliated group shall consider the separate items attributed to the corporation by the designated agent of the affiliated group to determine the amount of interest that is due from the corporation for an underpayment of estimated taxes under sub. (8).
(10) ASSESSMENT NOTICE. If the department sends a notice of taxes that are owed by an affiliated group to the designated agent, the notice shall name each corporation that is a member of the affiliated group during any part of the period covered by the notice. The department's failure to name a member of the affiliated group on a notice under this subsection shall not invalidate the notice as to the unnamed member of the affiliated group. Any levy, lien or other proceeding to collect the amount of a tax assessment under this section shall name the corporation from which the department shall collect the assessment. If a corporation that joined in the filing of a combined report leaves the affiliated group, the department shall send the corporation a copy of any notice sent to the affiliated group under this subsection if the corporation notifies the department that the corporation is no longer a member of the affiliated group and if the corporation requests in writing that the department send notices under this subsection to the corporation. The department's failure to comply with a corporation's request to receive a notice does not affect the tax liability of the corporation.
(11) LIABILITY FOR TAX, INTEREST AND PENALTY. If members of an affiliated group file a combined report, the members of the affiliated group shall be jointly and severally liable for any combined tax, interest or penalty. The liability of a member of an affiliated group for any combined tax, interest or penalty shall not be reduced by an agreement with another member of the affiliated group or by an agreement with another person.
(12) PRESUMPTIONS AND BURDEN OF PROOF. An affiliated group shall be presumed to be engaged in a unitary business and all of the income of the unitary business shall be presumed to be apportionable business income under this section. A corporation, partnership, limited liability company or tax-option corporation has the burden of proving that it is not a member of an affiliated group that is subject to this section. The department shall promulgate rules to implement this section.
SECTION 1740. 71.26 (1) (b) of the statutes is amended to read:
71.26 (1) (b) Political units. Income received by the United States, the state and all counties, cities, villages, towns, school districts, technical college districts, joint local water authorities created under s. 66.0735, family care districts under s. 46.2895 or other political units of this state.
SECTION 1741. 71.26 (3) (L) of the statutes is amended to read:
71.26 (3) (L) Section 265 is excluded and replaced by the rule that any amount otherwise deductible under this chapter that is directly or indirectly related to income wholly exempt from taxes imposed by this chapter or to losses from the sale or other disposition of assets the gain from which would be exempt under this paragraph if the assets were sold or otherwise disposed of at a gain is not deductible. In this paragraph, "wholly exempt income", for corporations subject to franchise or income taxes, includes amounts received from affiliated or subsidiary corporations for interest, dividends or capital gains that, because of the degree of common ownership, control or management between the payor and payee, are not subject to taxes under this chapter. In this paragraph, "wholly exempt income", for corporations subject to income taxation under this chapter, also includes interest on obligations of the United States. In this paragraph, "wholly exempt income" does not include income excludable, not recognized, exempt or deductible under specific provisions of this chapter. If any expense or amount otherwise deductible is indirectly related both to wholly exempt income or loss and to other income or loss, a reasonable proportion of the expense or amount shall be allocated to each type of income or loss, in light of all the facts and circumstances.
SECTION 1742. 71.28 (1dj) (am) 3. of the statutes is amended to read:
71.28 (1dj) (am) 3. Modify the rule for certification under section 51 (d) (16) (A) of the internal revenue code to allow certification within the 90-day period beginning with the first day of employment of the employe by the claimant.
SECTION 1743. 71.28 (1dx) (b) 4. of the statutes is amended to read:
71.28 (1dx) (b) 4. The amount determined by multiplying the amount determined under s. 560.785 (1) (b) (bm) by the number of full-time jobs retained, as provided in the rules under s. 560.785, excluding jobs for which a credit has been claimed under sub. (1dj), in a an enterprise development zone under s. 560.797 and filled by a member of a targeted group for which significant capital investment was made and by then subtracting the subsidies paid under s. 49.147 (3) (a) for those jobs.
SECTION 1744. 71.28 (2) of the statutes is amended to read:
71.28 (2) FARMLAND PRESERVATION CREDIT, FARMLAND PRESERVATION ACREAGE CREDIT. The farmland preservation credit and the farmland preservation acreage credit under subch. IX may be claimed against taxes otherwise due subject to the provisions, requirements and conditions of that subchapter.
SECTION 1745. 71.28 (4) (a) of the statutes is amended to read:
71.28 (4) (a) Credit. Any corporation may credit against taxes otherwise due under this chapter an amount equal to 5% of the amount obtained by subtracting from the corporation's qualified research expenses, as defined in section 41 of the internal revenue code, except that "qualified research expenses" includes only expenses incurred by the claimant, incurred for research conducted in this state for the taxable year, except that a taxpayer may elect the alternative computation under section 41 (c) (4) of the Internal Revenue Code and that election applies until the department permits its revocation and except that "qualified research expenses" does not include compensation used in computing the credit under subs. (1dj) and (1dx), the corporation's base amount, as defined in section 41 (c) of the internal revenue code, except that gross receipts used in calculating the base amount means gross receipts from sales attributable to Wisconsin under s. 71.25 (9) (b) 1. and 2. and, (d), (dc), (dg), (dn) and (dr). Section 41 (h) of the internal revenue code does not apply to the credit under this paragraph.
SECTION 1746. 71.28 (4) (am) 1. of the statutes is amended to read:
71.28 (4) (am) Development zone additional research credit. 1. In addition to the credit under par. (a), any corporation may credit against taxes otherwise due under this chapter an amount equal to 5% of the amount obtained by subtracting from the corporation's qualified research expenses, as defined in section 41 of the internal revenue code, except that "qualified research expenses" include only expenses incurred by the claimant in a development zone under subch. VI of ch. 560, except that a taxpayer may elect the alternative computation under section 41 (c) (4) of the Internal Revenue Code and that election applies until the department permits its revocation and except that "qualified research expenses" do not include compensation used in computing the credit under sub. (1dj) nor research expenses incurred before the claimant is certified for tax benefits under s. 560.765 (3), the corporation's base amount, as defined in section 41 (c) of the internal revenue code, in a development zone, except that gross receipts used in calculating the base amount means gross receipts from sales attributable to Wisconsin under s. 71.25 (9) (b) 1. and 2. and, (d), (dc), (dg), (dn) and (dr) and research expenses used in calculating the base amount include research expenses incurred before the claimant is certified for tax benefits under s. 560.765 (3), in a development zone, if the claimant submits with the claimant's return a copy of the claimant's certification for tax benefits under s. 560.765 (3) and a statement from the department of commerce verifying the claimant's qualified research expenses for research conducted exclusively in a development zone. The rules under s. 73.03 (35) apply to the credit under this subdivision. The rules under sub. (1di) (f) and (g) as they apply to the credit under that subsection apply to claims under this subdivision. Section 41 (h) of the internal revenue code does not apply to the credit under this subdivision.
SECTION 1747. 71.29 (2) of the statutes is amended to read:
71.29 (2) WHO SHALL PAY. Every Except as provided in s. 71.255 (8), a corporation subject to tax under s. 71.23 (1) or (2) and every virtually exempt entity subject to tax under s. 71.125 or 71.23 (1) or (2) shall pay an estimated tax.
