LRB-3867/1
JK:cjs:pg
2001 - 2002 LEGISLATURE
October 26, 2001 - Introduced by Senators Shibilski, Wirch, Plache, Breske,
Grobschmidt, M. Meyer, Moen, Welch, Rosenzweig, A. Lasee, Harsdorf and
Schultz, cosponsored by Representatives Gard, Jensen, M. Lehman, Riley,
Ziegelbauer, Townsend and Seratti. Referred to Committee on Universities,
Housing, and Government Operations.
SB294,1,8
1An Act to renumber and amend 71.04 (4), 71.04 (8) (b), 71.25 (6), 71.25 (10)
2(b) and 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), 71.25 (6) (a), 71.25 (6) (b),
671.25 (6) (c), 71.25 (6) (d) and 71.45 (3d) of the statutes;
relating to: single sales
7factor apportionment of income for corporate income tax and franchise tax
8purposes 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, 2003, 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 phased out, over the next two years as the
sales factor is increased and becomes the only factor. Beginning on January 1, 2003,
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 phased out,
over the next two 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, 2001, and before January 1, 2003, 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, 2003, 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, 2001, and before
January 1, 2003, 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, 2002 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:
SB294, s. 1
1Section
1. 71.04 (4) of the statutes is renumbered 71.04 (4) (intro.) and
2amended to read:
SB294,3,133
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:
SB294, s. 2
14Section
2. 71.04 (4) (a) of the statutes is created to read:
SB294,3,1815
71.04
(4) (a) For taxable years beginning before January 1, 2002, 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.
SB294, s. 3
19Section
3. 71.04 (4) (b) of the statutes is created to read:
SB294,3,2320
71.04
(4) (b) For taxable years beginning after December 31, 2001, and before
21January 1, 2003, 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.
SB294, s. 4
24Section
4. 71.04 (4) (c) of the statutes is created to read:
SB294,4,2
171.04
(4) (c) For taxable years beginning after December 31, 2002, an
2apportionment fraction composed of the sales factor under sub. (7).
SB294, s. 5
3Section
5. 71.04 (4) (d) of the statutes is created to read:
SB294,4,104
71.04
(4) (d) For taxable years beginning after December 31, 2001, and before
5January 1, 2003, the apportionment fraction for the remaining net income of a
6financial organization shall include a sales factor that represents more than 50% of
7the apportionment fraction, as determined by rule by the department. For taxable
8years beginning after December 31, 2002, the apportionment fraction for the
9remaining net income of a financial organization is composed of a sales factor, as
10determined by rule by the department.
SB294, s. 6
11Section
6. 71.04 (5) (intro.) of the statutes is amended to read:
SB294,4,1312
71.04
(5) Property factor. (intro.) For purposes of sub. (4)
and for taxable
13years beginning before January 1, 2003:
SB294, s. 7
14Section
7. 71.04 (6) (intro.) of the statutes is amended to read:
SB294,4,1615
71.04
(6) Payroll factor. (intro.) For purposes of sub. (4)
and for taxable years
16beginning before January 1, 2003:
SB294, s. 8
17Section
8. 71.04 (7) (d) of the statutes is amended to read:
SB294,4,2518
71.04
(7) (d) Sales, other than sales of tangible personal property, are in this
19state if the income-producing activity is performed in this state. If the
20income-producing activity is performed both in and outside this state the sales shall
21be divided between those states having jurisdiction to tax such business in
22proportion to the direct costs of performance incurred in each such state in rendering
23this service. Services performed in states which do not have jurisdiction to tax the
24business shall be deemed to have been performed in the state to which compensation
25is allocated by
sub. s. 71.04 (6)
, 1999 stats.
SB294, s. 9
1Section
9. 71.04 (8) (b) of the statutes is renumbered 71.04 (8) (b) 1. and
2amended to read:
SB294,5,93
71.04
(8) (b) 1.
"Public For taxable years beginning before January 1, 2002,
4"public utility", as used in this section, means
any business entity described under
5subd. 2. and any business entity which owns or operates any plant, equipment,
6property, franchise, or license for the transmission of communications or the
7production, transmission, sale, delivery, or furnishing of electricity, water or steam,
8the rates of charges for goods or services of which have been established or approved
9by a federal, state or local government or governmental agency.
"
Public
SB294,5,15
102. In this section, for taxable years beginning after December 31, 2001, "public 11utility"
also means any business entity providing service to the public and engaged
12in the transportation of goods and persons for hire, as defined in s. 194.01 (4),
13regardless of whether or not the entity's rates or charges for services have been
14established or approved by a federal, state or local government or governmental
15agency.
SB294, s. 10
16Section
10. 71.04 (8) (c) of the statutes is amended to read:
SB294,5,2117
71.04
(8) (c) The net business income of railroads, sleeping car companies, car
18line companies,
pipeline companies, financial organizations
, air carriers and public
19utilities requiring apportionment shall be apportioned pursuant to rules of the
20department of revenue, but the income taxed is limited to the income derived from
21business transacted and property located within the state.
SB294, s. 11
22Section
11. 71.04 (10) of the statutes is amended to read:
SB294,6,823
71.04
(10) Department may waive factor. Where, in the case of any nonresident
24individual or nonresident estate or trust engaged in business
within in and
without
25the outside this state
of Wisconsin and required to apportion its income as provided
1in this section, it shall be shown to the satisfaction of the department of revenue that
2the use of any one of the 3 factors provided under sub. (4) gives an unreasonable or
3inequitable final average ratio because of the fact that such nonresident individual
4or nonresident estate or trust does not employ, to any appreciable extent in its trade
5or business in producing the income taxed, the factors made use of in obtaining such
6ratio, this factor may, with the approval of the department of revenue, be omitted in
7obtaining the final average ratio which is to be applied to the remaining net income.
8This subsection does not apply to taxable years beginning after December 31, 2002.
SB294, s. 12
9Section
12. 71.25 (6) of the statutes is renumbered 71.25 (6) (intro.) and
10amended to read:
SB294,7,511
71.25
(6) Allocation and separate accounting and apportionment formula. 12(intro.) Corporations engaged in business within and without the state shall be taxed
13only on such income as is derived from business transacted and property located
14within the state. The amount of such income attributable to Wisconsin may be
15determined by an allocation and separate accounting thereof, when the business of
16such corporation within the state is not an integral part of a unitary business, but
17the department of revenue may permit an allocation and separate accounting in any
18case in which it is satisfied that the use of such method will properly reflect the
19income taxable by this state. In all cases in which allocation and separate accounting
20is not permissible, the determination shall be made in the following manner: for all
21businesses except
air carriers, financial organizations,
pipeline companies, public
22utilities, railroads, sleeping car companies, car line companies and corporations or
23associations that are subject to a tax on unrelated business income under s. 71.26 (1)
24(a) there shall first be deducted from the total net income of the taxpayer the part
25thereof (less related expenses, if any) that follows the situs of the property or the
1residence of the recipient. The remaining net income shall be apportioned to
2Wisconsin this state by use of
an apportionment fraction composed of a sales factor
3under sub. (9) representing 50% of the fraction, a property factor under sub. (7)
4representing 25% of the fraction and a payroll factor under sub. (8) representing 25%
5of the fraction. the following:
SB294, s. 13
6Section
13. 71.25 (6) (a) of the statutes is created to read:
SB294,7,107
71.25
(6) (a) For taxable years beginning before January 1, 2002, an
8apportionment fraction composed of a sales factor under sub. (9) representing 50%
9of the fraction, a property factor under sub. (7) representing 25% of the fraction, and
10a payroll factor under sub. (8) representing 25% of the fraction.
SB294, s. 14
11Section
14. 71.25 (6) (b) of the statutes is created to read:
SB294,7,1512
71.25
(6) (b) For taxable years beginning after December 31, 2001, and before
13January 1, 2003, an apportionment fraction composed of a sales factor under sub. (9)
14representing 60% of the fraction, a property factor under sub. (7) representing 20%
15of the fraction, and a payroll factor under sub. (8) representing 20% of the fraction.
SB294, s. 15
16Section
15. 71.25 (6) (c) of the statutes is created to read:
SB294,7,1817
71.25
(6) (c) For taxable years beginning after December 31, 2002, an
18apportionment fraction composed of the sales factor under sub. (9).
SB294, s. 16
19Section
16. 71.25 (6) (d) of the statutes is created to read:
SB294,8,220
71.25
(6) (d) For taxable years beginning after December 31, 2001, and before
21January 1, 2003, the apportionment fraction for the remaining net income of a
22financial organization shall include a sales factor that represents more than 50% of
23the apportionment fraction, as determined by rule by the department. For taxable
24years beginning after December 31, 2002, the apportionment fraction for the
1remaining net income of a financial organization is composed of a sales factor, as
2determined by rule by the department.
SB294, s. 17
3Section
17. 71.25 (7) (intro.) of the statutes is amended to read:
SB294,8,54
71.25
(7) Property factor. (intro.) For purposes of sub.
(5) (6) and for taxable
5years beginning before January 1, 2003:
SB294, s. 18
6Section
18. 71.25 (8) (intro.) of the statutes is amended to read:
SB294,8,87
71.25
(8) Payroll factor. (intro.) For purposes of sub.
(5) (6) and for taxable
8years beginning before January 1, 2003:
SB294, s. 19
9Section
19. 71.25 (9) (d) of the statutes is amended to read:
SB294,8,1710
71.25
(9) (d) Sales, other than sales of tangible personal property, are in this
11state if the income-producing activity is performed in this state. If the
12income-producing activity is performed both in and outside this state the sales shall
13be divided between those states having jurisdiction to tax such business in
14proportion to the direct costs of performance incurred in each such state in rendering
15this service. Services performed in states which do not have jurisdiction to tax the
16business shall be deemed to have been performed in the state to which compensation
17is allocated by
sub. s. 71.25 (8)
, 1999 stats.
SB294, s. 20
18Section
20. 71.25 (10) (b) of the statutes is renumbered 71.25 (10) (b) 1. and
19amended to read:
SB294,9,220
71.25
(10) (b) 1. In this section,
for taxable years beginning before January 1,
212002, "public utility" means
any business entity described under subd. 2. and any
22business entity which owns or operates any plant, equipment, property, franchise,
23or license for the transmission of communications or the production, transmission,
24sale, delivery, or furnishing of electricity, water or steam the rates of charges for
1goods or services of which have been established or approved by a federal, state or
2local government or governmental agency.
"Public
SB294,9,8
32. In this section, for taxable years beginning after December 31, 2001, "public 4utility"
also means any business entity providing service to the public and engaged
5in the transportation of goods and persons for hire, as defined in s. 194.01 (4),
6regardless of whether or not the entity's rates or charges for services have been
7established or approved by a federal, state or local government or governmental
8agency.
SB294, s. 21
9Section
21. 71.25 (10) (c) of the statutes is amended to read:
SB294,9,1410
71.25
(10) (c) The net business income of railroads, sleeping car companies, car
11line companies,
pipeline companies, financial organizations
, air carriers and public
12utilities requiring apportionment shall be apportioned pursuant to rules of the
13department of revenue, but the income taxed is limited to the income derived from
14business transacted and property located within the state.
SB294, s. 22
15Section
22. 71.25 (11) of the statutes is amended to read:
SB294,9,2416
71.25
(11) Department may waive factor. Where, in the case of any corporation
17engaged in business
within in and
without the outside this state
of Wisconsin and
18required to apportion its income as provided in sub. (6), it shall be shown to the
19satisfaction of the department of revenue that the use of any one of the 3 factors
20provided in sub. (6) gives an unreasonable or inequitable final average ratio because
21of the fact that such corporation does not employ, to any appreciable extent in its
22trade or business in producing the income taxed, the factors made use of in obtaining
23such ratio, this factor may, with the approval of the department of revenue, be
24omitted in obtaining the final average ratio which is to be applied to the remaining
1net income.
This subsection does not apply to taxable years beginning after
2December 31, 2002.
SB294, s. 23
3Section
23. 71.45 (3) (intro.) of the statutes is amended to read:
SB294,10,124
71.45
(3) Apportionment. (intro.)
With respect Except as provided in sub. (3d), 5to
determine Wisconsin income for purposes of the franchise tax, domestic insurers
6not engaged in the sale of life insurance but which
that, in the taxable year, have
7collected received premiums
, other than life insurance premiums, written
on
8subjects of for insurance
on property or risks resident, located or to be performed
9outside this state
, there shall
be subtracted from multiply the net income figure
10derived by application of sub. (2)
(a) to arrive at Wisconsin income constituting the
11measure of the franchise tax an amount calculated by multiplying such adjusted
12federal taxable income by the arithmetic average of the following 2 percentages:
SB294, s. 24
13Section
24. 71.45 (3) (a) of the statutes is amended to read:
SB294,11,414
71.45
(3) (a)
The Subject to sub. (3d), the percentage
of total determined by
15dividing the sum of direct premiums written
on all property and risks for insurance 16other than life insurance,
with respects to all property and risks resident, located,
17or to be performed in this state, and assumed premiums written for reinsurance,
18other than life insurance, with respect to all property and risks resident, located, or
19to be performed in this state, by the sum of direct premiums written for insurance
20on all property and risks, other than life insurance, wherever located
during the
21taxable year, as reflects, and assumed premiums written
on insurance for
22reinsurance on all property and risks, other than life insurance,
where the subject
23of insurance was resident, located or to be performed outside this state wherever
24located. In this paragraph, "direct premiums" means direct premiums as reported
25for the taxable year on an annual statement that is filed by the insurer with the
1commissioner of insurance under s. 601.42 (1g) (a). In this paragraph, "assumed
2premiums" means assumed reinsurance premiums from domestic insurance
3companies as reported for the taxable year on an annual statement that is filed with
4the commissioner of insurance under s. 601.42 (1g) (a).