Second, corporations which are organized under the laws of other states or foreign nations are generally subject to the Wisconsin corporate income and franchise tax if they exercise a franchise, conduct business or own property within the state. A non-Wisconsin (foreign) corporation is considered to have "nexus" with Wisconsin and be subject to taxation if it has one or more of the following "activities" in the state:
a. Maintenance of any business location in Wisconsin, including any kind of office.
b. Ownership of real estate in Wisconsin.
c. Ownership of a stock of goods in a public warehouse or on consignment in Wisconsin.
d. Ownership of a stock of goods in the hands of a distributor or other nonemploye representative in Wisconsin, if used to fill orders for the owner's account.
e. Usual or frequent activity in Wisconsin by employes or representatives soliciting orders with authority to accept them.
f. Usual or frequent activity in Wisconsin by employes or representatives engaged in purchasing activity or in the performance of services, including construction, installation, assembly or repair of equipment.
g. Operation of mobile stores in Wisconsin, such as trucks with driver-salespersons, regardless of frequency.
h. Miscellaneous other activities by employes or representatives in Wisconsin such as credit investigations, collection of delinquent accounts, conducting training classes or seminars for customer personnel in the operation, repair and maintenance of the taxpayer's products.
i. Leasing of tangible property and licensing of intangible rights for use in Wisconsin.
j. The sale of other than tangible personal property such as real estate, services and intangibles in Wisconsin.
k. The performance of construction contracts and personal services contracts in Wisconsin.
An out-of-state corporation is not considered to have nexus with Wisconsin and is not subject to the corporate income tax if: (a) the corporation stores tangible personal property, such as inventory or a stock of goods, in or on property in the state that is not owned by the corporation and the tangible personal property is delivered to another person in the state for manufacturing, fabricating, processing or printing in the state; (b) the corporation stores, in or on property not owned by the corporation, finished goods that have been fabricated, processed, manufactured or printed in the state and the entire amount of such goods is shipped or delivered out-of-state by another person in the state; or (c) the corporation is an out-of-state publisher which has finished publications printed and stored in this state in or on property not owned by the publisher whether or not the finished publications are subsequently sold or delivered in this state or shipped outside of it.
Joint Finance: Delete provision.
Senate/Legislature: Provide that an out-of-state corporation would not have nexus with Wisconsin and would not be subject to the corporate income and franchise tax if each of the following conditions were met:
a. The out-of-state corporation stores tangible personal property in the state on property not owned by the corporation;
b. The tangible personal property is stored for 90 days or less;
c. The tangible personal property is stored on another person's property and is transferred to the person for manufacturing in the state;
d. The value of manufacturing real estate of the parcel on which the tangible personal property is stored and manufactured was between $10 million and $11 million on January 1, 1999.
This provision would take effect for tax years beginning on or after January 1, 2000, and would reduce corporate income and franchise tax revenues by an estimated $250,000 in 1999-2000 and $500,000 in 2000-01.
[Act 9 Sections: 1722yc and 9343(22dd)]
22. TAX TREATMENT OF CORPORATE PARTNERS AND LIMITED LIABILITY COMPANY MEMBERS
Joint Finance: Modify current corporate income and franchise tax provisions as follows:
a. Define "doing business in this state" to include owning a direct or indirect interest in a general or limited partnership or limited liability company that transacts in the state for pecuniary gain.
b. Provide that the corporate income and franchise tax would be imposed on corporations that derive income from sources within the state or from activities attributable to the state.
c. Provide that a general or limited partner's share of the numerator and the denominator of the partnership's apportionment factors would be included in the numerator and the denominator of the general or limited partner's apportionment factors and for a limited liability company treated as a partnership a member's share of the numerator and the denominator of the limited liability company's apportionment factors would be included in the numerator and the denominator of the member's apportionment factors.
d. Provide that these provisions would first apply to tax years beginning on or after January 1, 1999.
This provision would increase corporate income and franchise tax revenues by an estimated $7,500,000 in 1999-00 and $5,000,000 in 2000-01. The higher figure in the first year includes one-time revenues of $2,500,000 from reconciling estimated and final tax payments.
Currently, the Wisconsin tax treatment of corporate partners and LLC members depends on whether or not the partnership or LLC is an extension of the corporation's business. If the partnership or LLC is an extension of the corporation's business, the corporation is considered to be doing business in Wisconsin as a result of that ownership interest. On the other hand, if the partnership or LLC is not an extension of the corporation's business, the corporation is not subject to Wisconsin taxation if its only connection to Wisconsin is that ownership interest. These provisions would make corporate partners and members of Wisconsin partnerships and LLCs, respectively, subject to taxation if they were doing business in Wisconsin regardless of the type of interest in the entity.
Assembly: Modify the Joint Finance provision to include issuing credit, debit or travel or entertainment cards to customers in the state in the definition of doing business. Delete references to affiliated and subsidiary corporations and degree of ownership, control and management that are related to certain amounts not deductible because they are related to wholly exempt income.
Conference Committee/Legislature: Include the Joint Finance and Assembly provisions and modify the definition of doing business for corporate partners and LLC members and apportionable income for corporations to be income, gain or loss from sources that are apportionable as income, including unitary or operational income, that is taxable in the state.
Veto by Governor [F-8]: Delete provisions.
[Act 9 Sections: 1722cd, 1722y, 1722yd, 1748y and 9343(22t)]
[Act 9 Vetoed Sections: 1722cd, 1738s, 1753g and 9343(22t)]
23. SUSTAINABLE URBAN DEVELOPMENT ZONE TAX CREDIT
Joint Finance: Direct DNR, in cooperation with the Departments of Health and Family Services, Transportation, Revenue, Administration and Commerce, and the Cities of Milwaukee, Green Bay, La Crosse and Oshkosh, to develop a pilot program no later than January 1, 2001, that promotes the use of financial incentives to clean up and redevelop contaminated properties in the listed cities. Of $2,250,000 in total funding, the following amounts would be available as grants to the cities: (a) $1,000,000 for the City of Milwaukee; (b) $500,000 for the City of Green Bay; (c) $500,000 for the City of La Crosse; and (d) $250,000 for the City of Oshkosh. State funds could be used for the assessment, investigation and cleanup of brownfields properties in the cities. Persons that conduct an eligible project under the pilot program would be eligible for a sustainable urban development zone tax credit that would be created for the program. The credit would equal 50% of the amount expended for environmental remediation under the sustainable urban development zone program. Environmental remediation would mean removal or containment of environmental pollution and restoration of soil or groundwater that is affected by environmental pollution in a brownfield, unless an investigation determined that remediation was required but the remediation was not undertaken. The Department of Commerce would be required to certify persons that conducted projects in the sustainable urban development zones as eligible to claim the tax credits and to provide the claimant and the Department of Revenue with a copy of the certification. The fiscal effect is expected to be minimal in the 1999-01 biennium.
Senate: Provide $250,000 SEG in 1999-00 from the environmental management account of the environmental fund to expand the sustainable urban development zone pilot program created by Joint Finance to include the City of Beloit (which would receive the $250,000), and provide a total of $2,500,000 in funding (instead of $2,250,000 under Joint Finance) for the sustainable urban development zone program. Of the $2,500,000 in total funding, the following amounts would be available as grants to the cities for the investigation and cleanup of environmental contamination: (a) $1,000,000 for Milwaukee; (b) $500,000 for Green Bay; (c) $500,000 for La Crosse; (d) $250,000 for Oshkosh; and (e) $250,000 for Beloit. The Department of Transportation would be required to work with Beloit, in addition to the four other cities to develop transportation planning, transportation access and infrastructure improvements for inclusion in the DOT 2001-03 biennial budget request.
Conference Committee/Legislature: Approve the Senate provision, as modified to: (a) provide $200,000 SEG for Beloit instead of $250,000; and (b) provide $130,000 of the $200,000 from the environmental management account of the environmental fund and the remaining $70,000 from the all-terrain vehicle (ATV) account of the conservation fund. (See Natural Resources -- Air, Waste and Contaminated Land #23.)
Veto by Governor [B-31]: Delete the sustainable urban development zone tax credit and eliminate the requirement that the Departments of Health and Family Services, Revenue and Transportation assist in developing the pilot program.
[Act 9 Sections: 332e, 1719g, 1798 and 2649h]
[Act 9 Vetoed Sections: 1684d, 1709c, 1719g, 1719m, 1722bd, 1740c, 1743d, 1747m, 1748bm, 1749k, 1756h, 1760q, 1798, 2649h and 9343(22c)]
24. WHOLLY EXEMPT INCOME
Assembly/Legislature: Delete provisions that specify that wholly exempt income for corporations subject to franchise or income taxes includes amounts received from affiliated or subsidiary corporations because of the degree of common ownership, control or management between the payor and payee.
Veto by Governor [F-10]: Delete provisions.
[Act 9 Vetoed Sections: 1740n and 9343(22t)]
25. CORPORATE INCOME AND FRANCHISE TAX--ENDANGERED RESOURCES CHECKOFF
Joint Finance: Allow corporate income taxpayers to donate a portion of their tax refund or, if taxes are due, include an additional amount with their tax payment for the endangered resources program, consistent with provisions allowing individual taxpayer donations. In 1997-98, the endangered resources tax check-off generated $535,200.
Assembly/Legislature: Delay the effective date for implementation of the endangered resources check-off on corporate income and franchise tax returns from tax year 2000 to tax year 2001.
[Act 9 Sections: 1748b and 9343(2g)]
26. RECYCLING SURCHARGE
Conference Committee/Legislature: Impose a recycling surcharge on businesses. The surcharge would be calculated the same as under prior law with certain modifications. Prior law, until April, 1999, imposed a surcharge in tax year 1998 equal to 2.75% of gross tax liability for corporations (5.5% in tax years prior to 1998) and 0.2173% of net business income for nonfarm sole proprietorships, partnerships, limited liability companies taxable as partnerships and S corporations (0.4345% in tax years prior to 1998). Businesses with under $4,000 in gross income, farms with less than $1,000 of net income and members of the clergy were excluded from paying the prior surcharge.
Under the bill, businesses (including farms) with $1 million or less in gross receipts would be excluded from paying the surcharge. However, businesses with gross receipts in excess of $1 million would be subject to the surcharge based on the business' total net income or gross tax liability. The maximum payment would be increased from $9,800 under prior law to $20,000. The minimum payment would remain at $25. The recycling surcharge rate would be effective beginning with tax year 2000 and would be 3.3% of gross tax liability for corporations or 0.2607% of net business income for nonfarm sole proprietorships, partnerships, limited liability companies taxable as partnerships and S corporations. In addition, DOR would be authorized to promulgate rules to define gross receipts and provisions would clarify that the surcharge is imposed on partnerships like other businesses.
The recycling surcharge would generate an estimated $10.5 million in 1999-00 and $29.8 million in 2000-01 and thereafter on an annual basis. These revenues would be deposited in the segregated recycling fund. [The fiscal effect and additional information regarding this provision are shown under "Natural Resources -- Air, Waste and Contaminated Land."]
Veto by Governor [B-30]: Veto provisions to modify the recycling surcharge as follows: (a) reduce the surcharge rate to 3.0% for corporations and 0.2% for nonfarm sole proprietor-ships, partnerships, S corporations and LLCs taxed as partnerships; (b) set the maximum payment at $9,800; and (c) exclude nonfarm businesses with less than $4,000,000 in gross receipts from paying the surcharge. As vetoed, the recycling surcharge is estimated to generate $6 million in 1999-00 and $16.9 million in 2000-01.
[Act 9 Sections: 1817bb, 1817bcm thru 1817bn, 9143(3d) and 9343(23em)]
[Act 9 Vetoed Sections: 1817be, 1817bf, 1817bh and 1817bi]
27. EDUCATION TAX CREDIT
Assembly: Provide, for tax years beginning on or after July 1, 2001, a tax credit under the individual and corporate income and franchise taxes equal to 50% of the amount paid or incurred for an individual to participate in an education program of a qualified postsecondary institution, if the individual is enrolled in a degree-granting program. The claimant could not claim tax credits based on tuition amounts also used to claim the state and federal higher education credits and deductions. The credit could be carried forward up to fifteen years to offset future tax liabilities.
Corporations and insurance companies could claim the education tax credit to offset tax liabilities. Partnerships, limited liability companies and tax-option corporations could not claim the tax credit, but eligibility for and the amount of credit that could be claimed would be based on amounts paid for tuition by the entity. A partnership, LLC or tax-option corporation would be required to compute the amount of tax credit each of its partners, members or shareholders could claim and to provide that information to them. Partners, LLC members and shareholders of tax-option corporations would claim the credit in proportion to their ownership interest.
"Degree-granting program" would be defined as an educational program for which an associate, a bachelor's or a graduate degree is awarded upon successful completion. "Qualified postsecondary institution" would mean a University of Wisconsin system institution, a technical college system institution or a regionally accredited four-year nonprofit college or university having its regional headquarters and principal place of business in Wisconsin.
Because the tax credit would first apply for tax years beginning on or after July 1, 2001, there would be no fiscal effect in the 1999-01 biennium. However, when implemented the education tax credit would reduce state individual and corporate income and franchise tax revenues by an estimated $9 million annually.
Conference Committee/Legislature: Delete provision.
28. CORPORATE INCOME AND FRANCHISE TAX -- DEDUCTION FOR SALARIES PAID TO CORPORATE OFFICERS AND EMPLOYES
Senate: Limit the deduction, under the state corporate income and franchise tax, for wages, salaries and bonuses paid to an employe or officer of a corporation to an amount equal to twenty-five times the wages, salaries, commissions and bonuses paid to the corporation's lowest paid full-time employe. This provision would first apply to tax years beginning on or after January 1 of the year following the bill's general effective date and would increase corporate income and franchise tax revenues by an estimated $6.5 million in 1999-00 and $13.0 million in 2000-01.
Conference Committee/Legislature: Delete provision.
29. INDIVIDUAL AND CORPORATE INCOME AND FRANCHISE TAXES -- FOREIGN STUDY TAX CREDIT
Senate: Provide, for tax years beginning on or after January 1, 2000, a tax credit of $1,000 under the individual and corporate income and franchise taxes for eligible expenses incurred by a business to sponsor an eligible student to attend a post-secondary educational institution in a foreign country. Eligible expenses would include transportation costs, room and board, books, tuition and other expenses related to attending school in a foreign country. A business would be required to pay a minimum of $3,000 of such expenses to claim the tax credit. An eligible student would be defined as a full-time undergraduate student enrolled in a Wisconsin public post-secondary institution who would be eligible for a grant under the Wisconsin Higher Education Grant (WHEG) program.
The credit could be claimed by corporations, sole proprietors, partners, tax-option corporation shareholders and limited liability company members. A partnership, tax-option corporation or LLC would be required to compute the amount of credit that each of its partners, shareholders or members may claim and provide that information to them. Partners, members of limited liability companies and shareholders of tax-option corporations could claim the credit in proportion to their ownership interest. Unused credit amounts could be carried forward up to 15 years to offset future tax liabilities. This provision would have a minimal fiscal effect.
Conference Committee/Legislature: Delete provision.
[Bill Sections: 1723 and 9343(18)]
General Sales and Use Tax
1. VOLUNTARY AGREEMENTS WITH DIRECT MARKETERS TO COLLECT WISCONSIN SALES TAX
GPR-REV $8,300,000
Joint Finance/Legislature: Authorize DOR to enter into voluntary agreements with out-of-state direct marketers for collection of Wisconsin sales and use tax from Wisconsin customers at a rate to include the general state sales tax rate plus the optional general county sales tax rate.
Specify that direct marketers who voluntarily agree to collect Wisconsin sales and use tax may retain 5% of the first $1 million of such tax in a calendar year and 6% of any additional amounts collected in the remainder of the same year. Specify that these provisions would not apply to an out-of-state retailer that has nexus with the state of Wisconsin for sales and use tax purposes.
Authorize DOR to promulgate administrative rules as needed to promote this option with Direct Marketing Association members and to negotiate payment schedules and audit follow-up as necessary.
Provide that all taxes collected through such voluntary agreements be deposited in the general fund. Specify that 1/11 of the funds generated in a fiscal year be appropriated to the Department of Health and Family Services (DHFS) in the subsequent fiscal year to be distributed to counties on a per capita basis in the form of block grants to fund services for children and families. Require DOR to certify at the close of each fiscal year the amount to be appropriated to DHFS for the block grants. Specify that these provisions would take effect on the first day of the second month beginning after publication of the bill.
