LRB-2636/1
JK:kmg:jf
2003 - 2004 LEGISLATURE
June 13, 2003 - Introduced by Representatives Gard, Ziegelbauer, Nass, J.
Fitzgerald, Gundrum, LeMahieu, Jeskewitz, Olsen, Towns, Nischke,
Huebsch, Weber, Jensen, Grothman, M. Lehman, Gielow, Musser, Krawczyk,
Balow, Albers, Montgomery, Ainsworth, Kreibich, Wieckert, Bies, Kaufert,
Owens, Gronemus, Suder, Vukmir, Van Roy, Hundertmark, Underheim, Hahn,
Gunderson, Ladwig, McCormick, Vrakas, D. Meyer, Hines, Lothian, Pettis,
Kestell, M. Williams and Ott, cosponsored by Senators Stepp, Kanavas,
Panzer, Breske, Kedzie, Leibham, Darling, Welch, A. Lasee, Zien, M. Meyer,
Brown and Roessler. Referred to Joint Committee on Finance.
AB413,1,9
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), 71.04 (4) (e), 71.04 (4m),
671.25 (6) (a), 71.25 (6) (b), 71.25 (6) (c), 71.25 (6) (d), 71.25 (6) (e), 71.25 (6m),
771.45 (3d) and 71.45 (3e) of the statutes;
relating to: single sales factor
8apportionment of income for corporate income tax and franchise tax purposes
9and 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, 2008, the sales factor will be the only
factor used to attribute a portion of a corporation's income to this state. The property
and payroll factors will be decreased, and eventually phased out, over four years as
the sales factor is increased and becomes the only factor. Beginning on January 1,
2008, the premium factor will be the only factor used to attribute a portion of an
insurance company's income to this state. The payroll factor will be decreased, and
eventually phased out, over four years as the premium factor is increased and
becomes the only factor.
Under current law, the income of an electric or gas utility is apportioned by
rules established by the Department of Revenue (DOR). Under the bill, for taxable
years beginning after December 31, 2005, and before January 1, 2008, 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, 2008, 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, 2005, and before
January 1, 2008, 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, 2007, 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:
AB413, s. 1
1Section
1. 71.04 (4) of the statutes is renumbered 71.04 (4) (intro.) and
2amended to read:
AB413,3,143
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
1accounting thereof, when the business of such nonresident individual or nonresident
2estate or trust within the state is not an integral part of a unitary business, but the
3department of revenue may permit an allocation and separate accounting in any case
4in which it is satisfied that the use of such method will properly reflect the income
5taxable by this state. In all cases in which allocation and separate accounting is not
6permissible, the determination shall be made in the following manner: for all
7businesses except
air carriers, financial organizations,
pipeline companies, public
8utilities, railroads, sleeping car companies and car line companies there shall first
9be deducted from the total net income of the taxpayer the part thereof (less related
10expenses, if any) that follows the situs of the property or the residence of the
11recipient. The remaining net income shall be apportioned to
Wisconsin this state by
12use of
an apportionment fraction composed of a sales factor representing 50% of the
13fraction, a property factor representing 25% of the fraction and a payroll factor
14representing 25% of the fraction. the following:
AB413, s. 2
15Section
2. 71.04 (4) (a) of the statutes is created to read:
AB413,3,1916
71.04
(4) (a) For taxable years beginning before January 1, 2006, an
17apportionment fraction composed of a sales factor under sub. (7) representing 50%
18of the fraction, a property factor under sub. (5) representing 25% of the fraction, and
19a payroll factor under sub. (6) representing 25% of the fraction.
AB413, s. 3
20Section
3. 71.04 (4) (b) of the statutes is created to read:
AB413,3,2421
71.04
(4) (b) For taxable years beginning after December 31, 2005, and before
22January 1, 2007, an apportionment fraction composed of a sales factor under sub. (7)
23representing 60% of the fraction, a property factor under sub. (5) representing 20%
24of the fraction, and a payroll factor under sub. (6) representing 20% of the fraction.
AB413, s. 4
25Section
4. 71.04 (4) (c) of the statutes is created to read:
AB413,4,4
171.04
(4) (c) For taxable years beginning after December 31, 2006, and before
2January 1, 2008, an apportionment fraction composed of a sales factor under sub. (7)
3representing 80% of the fraction, a property factor under sub. (5) representing 10%
4of the fraction, and a payroll factor under sub. (6) representing 10% of the fraction.
AB413, s. 5
5Section
5. 71.04 (4) (d) of the statutes is created to read:
AB413,4,76
71.04
(4) (d) For taxable years beginning after December 31, 2007, an
7apportionment fraction composed of the sales factor under sub. (7).
AB413, s. 6
8Section
6. 71.04 (4) (e) of the statutes is created to read:
AB413,4,159
71.04
(4) (e) For taxable years beginning after December 31, 2005, and before
10January 1, 2008, the apportionment fraction for the remaining net income of a
11financial organization shall include a sales factor that represents more than 50% of
12the apportionment fraction, as determined by rule by the department. For taxable
13years beginning after December 31, 2007, the apportionment fraction for the
14remaining net income of a financial organization is composed of a sales factor, as
15determined by rule by the department.
AB413, s. 7
16Section
7. 71.04 (4m) of the statutes is created to read:
AB413,4,2117
71.04
(4m) Apportionment formula computation. (a) 1. For taxable years
18beginning before January 1, 2008, if both the numerator and the denominator of the
19sales factor under sub. (7) related to a taxpayer's remaining net income are zero, the
20sales factor under sub. (7) is eliminated from the apportionment formula to
21determine the taxpayer's remaining net income under sub. (4).
AB413,4,2522
2. For taxable years beginning after December 31, 2007, if both the numerator
23and the denominator of the sales factor under sub. (7) related to a taxpayer's
24remaining net income are zero, none of the taxpayer's remaining net income is
25apportioned to this state.
AB413,5,5
1(b) 1. For taxable years beginning before January 1, 2008, if the numerator of
2the sales factor under sub. (7) related to a taxpayer's remaining net income is a
3negative number and the denominator of the sales factor under sub. (7) related to a
4taxpayer's remaining net income is a positive number, a negative number, or zero,
5the sales factor under sub. (7) is zero.
AB413,5,106
2. For taxable years beginning after December 31, 2007, if the numerator of the
7sales factor under sub. (7) related to a taxpayer's remaining net income is a negative
8number and the denominator of the sales factor under sub. (7) related to a taxpayer's
9remaining net income is a positive number, a negative number, or zero, none of the
10taxpayer's remaining net income is apportioned to this state.
AB413,5,1511
(c) 1. For taxable years beginning before January 1, 2008, if the numerator of
12the sales factor under sub. (7) related to a taxpayer's remaining net income is a
13positive number and the denominator of the sales factor under sub. (7) related to a
14taxpayer's remaining net income is zero or a negative number, the sales factor under
15sub. (7) is one.
AB413,5,2016
2. For taxable years beginning after December 31, 2007, if the numerator of the
17sales factor under sub. (7) related to a taxpayer's remaining net income is a positive
18number and the denominator of the sales factor under sub. (7) related to a taxpayer's
19remaining net income is zero or a negative number, all of the taxpayer's remaining
20net income is apportioned to this state.
AB413, s. 8
21Section
8. 71.04 (5) (intro.) of the statutes is amended to read:
AB413,5,2322
71.04
(5) Property factor. (intro.) For purposes of sub. (4)
and for taxable
23years beginning before January 1, 2008:
AB413, s. 9
24Section
9. 71.04 (6) (intro.) of the statutes is amended to read:
AB413,6,2
171.04
(6) Payroll factor. (intro.) For purposes of sub. (4)
and for taxable years
2beginning before January 1, 2008:
AB413, s. 10
3Section
10. 71.04 (7) (d) of the statutes is amended to read:
AB413,6,114
71.04
(7) (d) Sales, other than sales of tangible personal property, are in this
5state if the income-producing activity is performed in this state. If the
6income-producing activity is performed both in and outside this state the sales shall
7be divided between those states having jurisdiction to tax such business in
8proportion to the direct costs of performance incurred in each such state in rendering
9this service. Services performed in states which do not have jurisdiction to tax the
10business shall be deemed to have been performed in the state to which compensation
11is allocated by
sub. s. 71.04 (6)
, 2001 stats.
AB413, s. 11
12Section
11. 71.04 (8) (b) of the statutes is renumbered 71.04 (8) (b) 1. and
13amended to read:
AB413,6,2014
71.04
(8) (b) 1.
"Public For taxable years beginning before January 1, 2006,
15"public utility", as used in this section, means
any business entity described under
16subd. 2. and any business entity which owns or operates any plant, equipment,
17property, franchise, or license for the transmission of communications or the
18production, transmission, sale, delivery, or furnishing of electricity, water or steam,
19the rates of charges for goods or services of which have been established or approved
20by a federal, state or local government or governmental agency.
"
Public
AB413,7,2
212. In this section, for taxable years beginning after December 31, 2005, "public 22utility"
also means any business entity providing service to the public and engaged
23in the transportation of goods and persons for hire, as defined in s. 194.01 (4),
24regardless of whether or not the entity's rates or charges for services have been
1established or approved by a federal, state or local government or governmental
2agency.
AB413, s. 12
3Section
12. 71.04 (8) (c) of the statutes is amended to read:
AB413,7,84
71.04
(8) (c) The net business income of railroads, sleeping car companies, car
5line companies,
pipeline companies, financial organizations
, air carriers, and public
6utilities requiring apportionment shall be apportioned pursuant to rules of the
7department of revenue, but the income taxed is limited to the income derived from
8business transacted and property located within the state.
AB413, s. 13
9Section
13. 71.04 (10) of the statutes is amended to read:
AB413,7,2010
71.04
(10) Department may waive factor. Where, in the case of any nonresident
11individual or nonresident estate or trust engaged in business
within in and
without
12the outside of this state
of Wisconsin and required to apportion its income as provided
13in this section, it shall be shown to the satisfaction of the department of revenue that
14the use of any one of the 3 factors provided under sub. (4) gives an unreasonable or
15inequitable final average ratio because of the fact that such nonresident individual
16or nonresident estate or trust does not employ, to any appreciable extent in its trade
17or business in producing the income taxed, the factors made use of in obtaining such
18ratio, this factor may, with the approval of the department of revenue, be omitted in
19obtaining the final average ratio which is to be applied to the remaining net income.
20This subsection does not apply to taxable years beginning after December 31, 2007.
AB413, s. 14
21Section
14. 71.25 (6) of the statutes is renumbered 71.25 (6) (intro.) and
22amended to read:
AB413,8,1723
71.25
(6) Allocation and separate accounting and apportionment formula. 24(intro.) Corporations engaged in business within and without the state shall be taxed
25only on such income as is derived from business transacted and property located
1within the state. The amount of such income attributable to Wisconsin may be
2determined by an allocation and separate accounting thereof, when the business of
3such corporation within the state is not an integral part of a unitary business, but
4the department of revenue may permit an allocation and separate accounting in any
5case in which it is satisfied that the use of such method will properly reflect the
6income taxable by this state. In all cases in which allocation and separate accounting
7is not permissible, the determination shall be made in the following manner: for all
8businesses except
air carriers, financial organizations,
pipeline companies, public
9utilities, railroads, sleeping car companies, car line companies and corporations or
10associations that are subject to a tax on unrelated business income under s. 71.26 (1)
11(a) there shall first be deducted from the total net income of the taxpayer the part
12thereof (less related expenses, if any) that follows the situs of the property or the
13residence of the recipient. The remaining net income shall be apportioned to
14Wisconsin this state by use of
an apportionment fraction composed of a sales factor
15under sub. (9) representing 50% of the fraction, a property factor under sub. (7)
16representing 25% of the fraction and a payroll factor under sub. (8) representing 25%
17of the fraction. the following:
AB413, s. 15
18Section
15. 71.25 (6) (a) of the statutes is created to read:
AB413,8,2219
71.25
(6) (a) For taxable years beginning before January 1, 2006, an
20apportionment fraction composed of a sales factor under sub. (9) representing 50%
21of the fraction, a property factor under sub. (7) representing 25% of the fraction, and
22a payroll factor under sub. (8) representing 25% of the fraction.
AB413, s. 16
23Section
16. 71.25 (6) (b) of the statutes is created to read:
AB413,9,224
71.25
(6) (b) For taxable years beginning after December 31, 2005, and before
25January 1, 2007, an apportionment fraction composed of a sales factor under sub. (9)
1representing 60% of the fraction, a property factor under sub. (7) representing 20%
2of the fraction, and a payroll factor under sub. (8) representing 20% of the fraction.
AB413, s. 17
3Section
17. 71.25 (6) (c) of the statutes is created to read:
AB413,9,74
71.25
(6) (c) For taxable years beginning after December 31, 2006, and before
5January 1, 2008, an apportionment fraction composed of a sales factor under sub. (9)
6representing 80% of the fraction, a property factor under sub. (7) representing 10%
7of the fraction, and a payroll factor under sub. (8) representing 10% of the fraction.
AB413, s. 18
8Section
18. 71.25 (6) (d) of the statutes is created to read:
AB413,9,109
71.25
(6) (d) For taxable years beginning after December 31, 2007, an
10apportionment fraction composed of the sales factor under sub. (9).
AB413, s. 19
11Section
19. 71.25 (6) (e) of the statutes is created to read:
AB413,9,1812
71.25
(6) (e) For taxable years beginning after December 31, 2005, and before
13January 1, 2008, the apportionment fraction for the remaining net income of a
14financial organization shall include a sales factor that represents more than 50% of
15the apportionment fraction, as determined by rule by the department. For taxable
16years beginning after December 31, 2007, the apportionment fraction for the
17remaining net income of a financial organization is composed of a sales factor, as
18determined by rule by the department.
AB413, s. 20
19Section
20. 71.25 (6m) of the statutes is created to read:
AB413,9,2420
71.25
(6m) Apportionment formula computation. (a) 1. For taxable years
21beginning before January 1, 2008, if both the numerator and the denominator of the
22sales factor under sub. (9) related to a taxpayer's remaining net income are zero, the
23sales factor under sub. (9) is eliminated from the apportionment formula to
24determine the taxpayer's remaining net income under sub. (6).
AB413,10,4
12. For taxable years beginning after December 31, 2007, if both the numerator
2and the denominator of the sales factor under sub. (9) related to a taxpayer's
3remaining net income are zero, none of the taxpayer's remaining net income is
4apportioned to this state.
AB413,10,95
(b) 1. For taxable years beginning before January 1, 2008, if the numerator of
6the sales factor under sub. (9) related to a taxpayer's remaining net income is a
7negative number and the denominator of the sales factor under sub. (9) related to a
8taxpayer's remaining net income is a positive number, a negative number, or zero,
9the sales factor under sub. (9) is zero.
AB413,10,1410
2. For taxable years beginning after December 31, 2007, if the numerator of the
11sales factor under sub. (9) related to a taxpayer's remaining net income is a negative
12number and the denominator of the sales factor under sub. (9) related to a taxpayer's
13remaining net income is a positive number, a negative number, or zero, none of the
14taxpayer's remaining net income is apportioned to this state.
AB413,10,1915
(c) 1. For taxable years beginning before January 1, 2008, if the numerator of
16the sales factor under sub. (9) related to a taxpayer's remaining net income is a
17positive number and the denominator of the sales factor under sub. (9) related to a
18taxpayer's remaining net income is zero or a negative number, the sales factor under
19sub. (9) is one.
AB413,10,2420
2. For taxable years beginning after December 31, 2007, if the numerator of the
21sales factor under sub. (9) related to a taxpayer's remaining net income is a positive
22number and the denominator of the sales factor under sub. (9) related to a taxpayer's
23remaining net income is zero or a negative number, all of the taxpayer's remaining
24net income is apportioned to this state.