LRB-2520/2
JK:kjf:cph
2003 - 2004 LEGISLATURE
June 12, 2003 - Introduced by Senators Stepp, Kanavas, Panzer, Welch, Plale,
Roessler, Brown, Kedzie, Leibham, Reynolds, A. Lasee, Zien, Darling, S.
Fitzgerald, Lazich, Harsdorf and Wirch, cosponsored by Representatives
Gard, Ladwig, Jensen, McCormick, Suder, Gunderson, J. Fitzgerald,
Huebsch, Ziegelbauer, Gielow, Grothman, Nischke, Kreibich, Jeskewitz, M.
Lehman, LeMahieu, Nass, Musser, Olsen and Albers. Referred to Committee
on Economic Development, Job Creation and Housing.
SB197,1,9
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 (4) (f),
671.04 (4m), 71.25 (6) (a), 71.25 (6) (b), 71.25 (6) (c), 71.25 (6) (d), 71.25 (6) (e),
771.25 (6) (f), 71.25 (6m), 71.45 (3d) and 71.45 (3e) of the statutes;
relating to:
8single sales factor apportionment of income for corporate income tax and
9franchise tax purposes 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, 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:
SB197, s. 1
1Section
1. 71.04 (4) of the statutes is renumbered 71.04 (4) (intro.) and
2amended to read:
SB197,3,143
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:
SB197, s. 2
15Section
2. 71.04 (4) (a) of the statutes is created to read:
SB197,3,1916
71.04
(4) (a) Except as provided in par. (f), for taxable years beginning before
17January 1, 2006, an apportionment fraction composed of a sales factor under sub. (7)
18representing 50% of the fraction, a property factor under sub. (5) representing 25%
19of the fraction, and a payroll factor under sub. (6) representing 25% of the fraction.
SB197, s. 3
20Section
3. 71.04 (4) (b) of the statutes is created to read:
SB197,3,2521
71.04
(4) (b) Except as provided in par. (f), for taxable years beginning after
22December 31, 2005, and before January 1, 2007, an apportionment fraction
23composed of a sales factor under sub. (7) representing 60% of the fraction, a property
24factor under sub. (5) representing 20% of the fraction, and a payroll factor under sub.
25(6) representing 20% of the fraction.
SB197, s. 4
1Section
4. 71.04 (4) (c) of the statutes is created to read:
SB197,4,62
71.04
(4) (c) Except as provided in par. (f), for taxable years beginning after
3December 31, 2006, and before January 1, 2008, an apportionment fraction
4composed of a sales factor under sub. (7) representing 80% of the fraction, a property
5factor under sub. (5) representing 10% of the fraction, and a payroll factor under sub.
6(6) representing 10% of the fraction.
SB197, s. 5
7Section
5. 71.04 (4) (d) of the statutes is created to read:
SB197,4,108
71.04
(4) (d) Except as provided in par. (f), for taxable years beginning after
9December 31, 2007, an apportionment fraction composed of the sales factor under
10sub. (7).
SB197, s. 6
11Section
6. 71.04 (4) (e) of the statutes is created to read:
SB197,4,1812
71.04
(4) (e) Except as provided in par. (f), for taxable years beginning after
13December 31, 2005, and before January 1, 2008, the apportionment fraction for the
14remaining net income of a financial organization shall include a sales factor that
15represents more than 50% of the apportionment fraction, as determined by rule by
16the department. For taxable years beginning after December 31, 2007, the
17apportionment fraction for the remaining net income of a financial organization is
18composed of a sales factor, as determined by rule by the department.
SB197, s. 7
19Section
7. 71.04 (4) (f) of the statutes is created to read:
SB197,5,420
71.04
(4) (f) If a taxpayer who is subject to apportionment under this subsection
21has a net gain of 100 employees in this state in any taxable year beginning after the
22effective date of this paragraph .... [revisor inserts date], and before January 1, 2008,
23the taxpayer's remaining net income may, at the taxpayer's option, be apportioned
24to this state by an apportionment fraction composed of the sales factor under sub. (7)
25or, for a financial organization, under par. (e) beginning with the taxable year in
1which the employees are hired, except that if the taxpayer does not retain such
2employees in this state for at least 3 consecutive taxable years, the taxpayer shall
3apportion the taxpayer's remaining net income as provided under pars. (a) to (e), as
4appropriate.
SB197, s. 8
5Section
8. 71.04 (4m) of the statutes is created to read:
SB197,5,106
71.04
(4m) Apportionment formula computation. (a) 1. For taxable years
7beginning before January 1, 2008, if both the numerator and the denominator of the
8sales factor under sub. (7) related to a taxpayer's remaining net income are zero, the
9sales factor under sub. (7) is eliminated from the apportionment formula to
10determine the taxpayer's remaining net income under sub. (4).
SB197,5,1411
2. For taxable years beginning after December 31, 2007, if both the numerator
12and the denominator of the sales factor under sub. (7) related to a taxpayer's
13remaining net income are zero, none of the taxpayer's remaining net income is
14apportioned to this state.
SB197,5,1915
(b) 1. For taxable years beginning before January 1, 2008, if the numerator of
16the sales factor under sub. (7) related to a taxpayer's remaining net income is a
17negative number and the denominator of the sales factor under sub. (7) related to a
18taxpayer's remaining net income is a positive number, a negative number, or zero,
19the sales factor under sub. (7) is zero.
SB197,5,2420
2. For taxable years beginning after December 31, 2007, if the numerator of the
21sales factor under sub. (7) related to a taxpayer's remaining net income is a negative
22number and the denominator of the sales factor under sub. (7) related to a taxpayer's
23remaining net income is a positive number, a negative number, or zero, none of the
24taxpayer's remaining net income is apportioned to this state.
SB197,6,5
1(c) 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
3positive number and the denominator of the sales factor under sub. (7) related to a
4taxpayer's remaining net income is zero or a negative number, the sales factor under
5sub. (7) is one.
SB197,6,106
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 positive
8number and the denominator of the sales factor under sub. (7) related to a taxpayer's
9remaining net income is zero or a negative number, all of the taxpayer's remaining
10net income is apportioned to this state.
SB197, s. 9
11Section
9. 71.04 (5) (intro.) of the statutes is amended to read:
SB197,6,1312
71.04
(5) Property factor. (intro.) For purposes of sub. (4)
and for taxable
13years beginning before January 1, 2008:
SB197, s. 10
14Section
10. 71.04 (6) (intro.) of the statutes is amended to read:
SB197,6,1615
71.04
(6) Payroll factor. (intro.) For purposes of sub. (4)
and for taxable years
16beginning before January 1, 2008:
SB197, s. 11
17Section
11. 71.04 (7) (d) of the statutes is amended to read:
SB197,6,2518
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)
, 2001 stats.
SB197, s. 12
1Section
12. 71.04 (8) (b) of the statutes is renumbered 71.04 (8) (b) 1. and
2amended to read:
SB197,7,93
71.04
(8) (b) 1.
"Public For taxable years beginning before January 1, 2006,
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
SB197,7,15
102. In this section, for taxable years beginning after December 31, 2005, "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.
SB197, s. 13
16Section
13. 71.04 (8) (c) of the statutes is amended to read:
SB197,7,2117
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.
SB197, s. 14
22Section
14. 71.04 (10) of the statutes is amended to read:
SB197,8,823
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, 2007.
SB197, s. 15
9Section
15. 71.25 (6) of the statutes is renumbered 71.25 (6) (intro.) and
10amended to read:
SB197,9,511
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:
SB197, s. 16
6Section
16. 71.25 (6) (a) of the statutes is created to read:
SB197,9,107
71.25
(6) (a) Except as provided in par. (f), for taxable years beginning before
8January 1, 2006, an apportionment fraction composed of a sales factor under sub. (9)
9representing 50% of the fraction, a property factor under sub. (7) representing 25%
10of the fraction, and a payroll factor under sub. (8) representing 25% of the fraction.
SB197, s. 17
11Section
17. 71.25 (6) (b) of the statutes is created to read:
SB197,9,1612
71.25
(6) (b) Except as provided in par. (f), for taxable years beginning after
13December 31, 2005, and before January 1, 2007, an apportionment fraction
14composed of a sales factor under sub. (9) representing 60% of the fraction, a property
15factor under sub. (7) representing 20% of the fraction, and a payroll factor under sub.
16(8) representing 20% of the fraction.
SB197, s. 18
17Section
18. 71.25 (6) (c) of the statutes is created to read:
SB197,9,2218
71.25
(6) (c) Except as provided in par. (f), for taxable years beginning after
19December 31, 2006, and before January 1, 2008, an apportionment fraction
20composed of a sales factor under sub. (9) representing 80% of the fraction, a property
21factor under sub. (7) representing 10% of the fraction, and a payroll factor under sub.
22(8) representing 10% of the fraction.
SB197, s. 19
23Section
19. 71.25 (6) (d) of the statutes is created to read:
SB197,10,3
171.25
(6) (d) Except as provided in par. (f), for taxable years beginning after
2December 31, 2007, an apportionment fraction composed of the sales factor under
3sub. (9).
SB197, s. 20
4Section
20. 71.25 (6) (e) of the statutes is created to read:
SB197,10,115
71.25
(6) (e) Except as provided in par. (f), for taxable years beginning after
6December 31, 2005, and before January 1, 2008, the apportionment fraction for the
7remaining net income of a financial organization shall include a sales factor that
8represents more than 50% of the apportionment fraction, as determined by rule by
9the department. For taxable years beginning after December 31, 2007, the
10apportionment fraction for the remaining net income of a financial organization is
11composed of a sales factor, as determined by rule by the department.
SB197, s. 21
12Section
21. 71.25 (6) (f) of the statutes is created to read:
SB197,10,2213
71.25
(6) (f) If a taxpayer who is subject to apportionment under this subsection
14has a net gain of 100 employees in this state in any taxable year beginning after the
15effective date of this paragraph .... [revisor inserts date], and before January 1, 2008,
16the taxpayer's remaining net income may, at the taxpayer's option, be apportioned
17to this state by an apportionment fraction composed of the sales factor under sub. (9)
18or, for a financial organization, under par. (e) beginning with the taxable year in
19which the employees are hired, except that if the taxpayer does not retain such
20employees in this state for at least 3 consecutive taxable years, the taxpayer shall
21apportion the taxpayer's remaining net income as provided under pars. (a) to (e), as
22appropriate.
SB197, s. 22
23Section
22. 71.25 (6m) of the statutes is created to read:
SB197,11,324
71.25
(6m) Apportionment formula computation. (a) 1. For taxable years
25beginning before January 1, 2008, if both the numerator and the denominator of the
1sales factor under sub. (9) related to a taxpayer's remaining net income are zero, the
2sales factor under sub. (9) is eliminated from the apportionment formula to
3determine the taxpayer's remaining net income under sub. (6).