SB532: Bill Text

LRB-3482/1

JK:kmg:pg

2003 - 2004 LEGISLATURE

2003 Senate BILL 532

March 5, 2004 - Introduced by Senator Carpenter, cosponsored by Representative Pocan. Referred to Committee on Economic Development, Job Creation and Housing.

SB532,1,8 An Act to repeal 71.04 (4) (a) to (e), 71.04 (4m), 71.25 (6) (a) to (e), 71.25 (6m), 71.45 (3d) and 71.45 (3e); to renumber and amend 71.04 (4) (intro.) and 71.25 (6) (intro.); to consolidate, renumber and amend 71.04 (8) (b) 1. and 2. and 71.25 (10) (b) 1. and 2.; and to amend 71.04 (5) (intro.), 71.04 (6) (intro.), 71.04 (7) (d), 71.04 (8) (c), 71.04 (10), 71.25 (7) (intro.), 71.25 (8) (intro.), 71.25 (9) (d), 71.25 (10) (c), 71.25 (11), 71.45 (3) (intro.), 71.45 (3) (a), 71.45 (3) (b) 1. and 71.45 (3m) of the statutes; relating to: the repeal of single sales factor apportionment of corporate income.

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 percent of the formula and the property and payroll factors each represent 25 percent 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 current law, 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 and the premium factor will be the only factor used to attribute a portion of an insurance company's income to this state.

Under this bill, the formula for attributing a portion of a corporation's income to this state will continue to have a sales factor, a property factor, and a payroll factor, rather than just a sales factor. Under this bill, the formula for attributing a portion of an insurance company's income to this state will continue to have a premium factor and a payroll factor, rather than just a premium factor.

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:

SB532, s. 1 Section 1. 71.04 (4) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is renumbered 71.04 (4) and amended to read:

SB532,3,5 71.04 (4) Nonresident allocation and apportionment formula. Nonresident individuals and nonresident estates and trusts engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state. The amount of such income attributable to Wisconsin may be determined by an allocation and separate accounting thereof, when the business of such nonresident individual or nonresident estate or trust within the state is not an integral part of a unitary business, but the department of revenue may permit an allocation and separate accounting in any case in which it is satisfied that the use of such method will properly reflect the income taxable by this state. In all cases in which allocation and separate accounting is not permissible, the determination shall be made in the following manner: for all businesses except air carriers, financial organizations, telecommunications companies, pipeline companies, public utilities, railroads, sleeping car companies and car line companies there shall first be deducted from the total net income of the taxpayer the part thereof (less related expenses, if any) that follows the situs of the property or the residence of the recipient. The remaining net income shall be apportioned to this state by use of the following: an apportionment fraction composed of a sales factor representing 50 percent of the fraction, a property factor representing 25 percent of the fraction, and a payroll factor representing 25 percent of the fraction.

SB532, s. 2 Section 2. 71.04 (4) (a) to (e) of the statutes, as created by 2003 Wisconsin Act 37, are repealed.

SB532, s. 3 Section 3. 71.04 (4m) of the statutes, as created by 2003 Wisconsin Act 37, is repealed.

SB532, s. 4 Section 4. 71.04 (5) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,3,13 71.04 (5) Property factor. (intro.) For purposes of sub. (4) and for taxable years beginning before January 1, 2008:

SB532, s. 5 Section 5. 71.04 (6) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,3,17 71.04 (6) Payroll factor. (intro.) For purposes of sub. (4) and for taxable years beginning before January 1, 2008:

SB532, s. 6 Section 6. 71.04 (7) (d) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,4,2 71.04 (7) (d) Sales, other than sales of tangible personal property, are in this state if the income-producing activity is performed in this state. If the income-producing activity is performed both in and outside this state the sales shall be divided between those states having jurisdiction to tax such business in proportion to the direct costs of performance incurred in each such state in rendering this service. Services performed in states which do not have jurisdiction to tax the business shall be deemed to have been performed in the state to which compensation is allocated by s. 71.04 sub. (6) , 2001 stats.

SB532, s. 7 Section 7. 71.04 (8) (b) 1. and 2. of the statutes, as affected by 2003 Wisconsin Act 37, are consolidated, renumbered 71.04 (8) (b) and amended to read:

SB532,4,16 71.04 (8) (b) For taxable years beginning before January 1, 2006, "public "Public utility", as used in this section, means any business entity described under subd. 2. and any business entity which owns or operates any plant, equipment, property, franchise, or license for the transmission of communications or the production, transmission, sale, delivery, or furnishing of electricity, water or steam, the rates of charges for goods or services of which have been established or approved by a federal, state or local government or governmental agency. 2. In this section, for taxable years beginning after December 31, 2005, "public "Public utility" also means any business entity providing service to the public and engaged in the transportation of goods and persons for hire, as defined in s. 194.01 (4), regardless of whether or not the entity's rates or charges for services have been established or approved by a federal, state or local government or governmental agency.

SB532, s. 8 Section 8. 71.04 (8) (c) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,4,24 71.04 (8) (c) The net business income of railroads, sleeping car companies, car line companies, pipeline companies, financial organizations, telecommunications companies, air carriers, and public utilities requiring apportionment shall be apportioned pursuant to rules of the department of revenue, but the income taxed is limited to the income derived from business transacted and property located within the state.

SB532, s. 9 Section 9. 71.04 (10) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,5,13 71.04 (10) Department may waive factor. Where, in the case of any nonresident individual or nonresident estate or trust engaged in business in and outside of this state and required to apportion its income as provided in this section, it shall be shown to the satisfaction of the department of revenue that the use of any one of the 3 factors provided under sub. (4) gives an unreasonable or inequitable final average ratio because of the fact that such nonresident individual or nonresident estate or trust does not employ, to any appreciable extent in its trade or business in producing the income taxed, the factors made use of in obtaining such ratio, this factor may, with the approval of the department of revenue, be omitted in obtaining the final average ratio which is to be applied to the remaining net income. This subsection does not apply to taxable years beginning after December 31, 2007.

SB532, s. 10 Section 10. 71.25 (6) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is renumbered 71.25 (6) and amended to read:

SB532,6,10 71.25 (6) Allocation and separate accounting and apportionment formula. Corporations engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state. The amount of such income attributable to Wisconsin may be determined by an allocation and separate accounting thereof, when the business of such corporation within the state is not an integral part of a unitary business, but the department of revenue may permit an allocation and separate accounting in any case in which it is satisfied that the use of such method will properly reflect the income taxable by this state. In all cases in which allocation and separate accounting is not permissible, the determination shall be made in the following manner: for all businesses except air carriers, financial organizations, telecommunications companies, pipeline companies, public utilities, railroads, sleeping car companies, car line companies and corporations or associations that are subject to a tax on unrelated business income under s. 71.26 (1) (a) there shall first be deducted from the total net income of the taxpayer the part thereof (less related expenses, if any) that follows the situs of the property or the residence of the recipient. The remaining net income shall be apportioned to this state by use of the following: an apportionment fraction composed of a sales factor under sub. (9) representing 50 percent of the fraction, a property factor under sub. (7) representing 25 percent of the fraction, and a payroll factor under sub. (8) representing 25 percent of the fraction.

SB532, s. 11 Section 11. 71.25 (6) (a) to (e) of the statutes, as created by 2003 Wisconsin Act 37, are repealed.

SB532, s. 12 Section 12. 71.25 (6m) of the statutes, as created by 2003 Wisconsin Act 37, is repealed.

SB532, s. 13 Section 13. 71.25 (7) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,6,18 71.25 (7) Property factor. (intro.) For purposes of sub. (6) and for taxable years beginning before January 1, 2008:

SB532, s. 14 Section 14. 71.25 (8) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,6,22 71.25 (8) Payroll factor. (intro.) For purposes of sub. (6) and for taxable years beginning before January 1, 2008:

SB532, s. 15 Section 15. 71.25 (9) (d) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,7,8 71.25 (9) (d) Sales, other than sales of tangible personal property, are in this state if the income-producing activity is performed in this state. If the income-producing activity is performed both in and outside this state the sales shall be divided between those states having jurisdiction to tax such business in proportion to the direct costs of performance incurred in each such state in rendering this service. Services performed in states which do not have jurisdiction to tax the business shall be deemed to have been performed in the state to which compensation is allocated by s. 71.25 sub. (8) , 2001 stats.

SB532, s. 16 Section 16. 71.25 (10) (b) 1. and 2. of the statutes, as affected by 2003 Wisconsin Act 37, are consolidated, renumbered 71.25 (10) (b) and amended to read:

SB532,7,22 71.25 (10) (b) In this section, for taxable years beginning before January 1, 2006, "public utility" means any business entity described under subd. 2. and any business entity which owns or operates any plant, equipment, property, franchise, or license for the transmission of communications or the production, transmission, sale, delivery, or furnishing of electricity, water or steam the rates of charges for goods or services of which have been established or approved by a federal, state or local government or governmental agency. 2. In this section, for taxable years beginning after December 31, 2005, "public "Public utility" also means any business entity providing service to the public and engaged in the transportation of goods and persons for hire, as defined in s. 194.01 (4), regardless of whether or not the entity's rates or charges for services have been established or approved by a federal, state or local government or governmental agency.

SB532, s. 17 Section 17. 71.25 (10) (c) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,8,6 71.25 (10) (c) The net business income of railroads, sleeping car companies, car line companies, pipeline companies, financial organizations, telecommunications companies, air carriers, and public utilities requiring apportionment shall be apportioned pursuant to rules of the department of revenue, but the income taxed is limited to the income derived from business transacted and property located within the state.

SB532, s. 18 Section 18. 71.25 (11) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,8,18 71.25 (11) Department may waive factor. Where, in the case of any corporation engaged in business in and outside of this state and required to apportion its income as provided in sub. (6), it shall be shown to the satisfaction of the department of revenue that the use of any one of the 3 factors provided in sub. (6) gives an unreasonable or inequitable final average ratio because of the fact that such corporation does not employ, to any appreciable extent in its trade or business in producing the income taxed, the factors made use of in obtaining such ratio, this factor may, with the approval of the department of revenue, be omitted in obtaining the final average ratio which is to be applied to the remaining net income. This subsection does not apply to taxable years beginning after December 31, 2007.

SB532, s. 19 Section 19. 71.45 (3) (intro.) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,9,2 71.45 (3) Apportionment. (intro.) Except as provided in sub. (3d), to To determine Wisconsin income for purposes of the franchise tax, domestic insurers that, in the taxable year, have received premiums, other than life insurance premiums, written for insurance on property or risks resident, located or to be performed outside this state shall multiply the net income figure derived by application of sub. (2) by the arithmetic average of the following 2 percentages:

SB532, s. 20 Section 20. 71.45 (3) (a) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,9,18 71.45 (3) (a) Subject to sub. (3d), the The percentage determined by dividing the sum of direct premiums written for insurance other than life insurance, with respect to all property and risks resident, located, or to be performed in this state, and assumed premiums written for reinsurance, other than life insurance, with respect to all property and risks resident, located, or to be performed in this state, by the sum of direct premiums written for insurance on all property and risks, other than life insurance, wherever located, and assumed premiums written for reinsurance on all property and risks, other than life insurance, wherever located. In this paragraph, "direct premiums" means direct premiums as reported for the taxable year on an annual statement that is filed by the insurer with the commissioner of insurance under s. 601.42 (1g) (a). In this paragraph, "assumed premiums" means assumed reinsurance premiums from domestic insurance companies as reported for the taxable year on an annual statement that is filed with the commissioner of insurance under s. 601.42 (1g) (a).

SB532, s. 21 Section 21. 71.45 (3) (b) 1. of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,9,24 71.45 (3) (b) 1. Subject to sub. (3d), the The percentage determined by dividing the payroll, exclusive of life insurance payroll, paid in this state in the taxable year by total payroll, exclusive of life insurance payroll, paid everywhere in the taxable year.

SB532, s. 22 Section 22. 71.45 (3d) of the statutes, as created by 2003 Wisconsin Act 37, is repealed.

SB532, s. 23 Section 23. 71.45 (3e) of the statutes, as created by 2003 Wisconsin Act 37, is repealed.

SB532, s. 24 Section 24. 71.45 (3m) of the statutes, as affected by 2003 Wisconsin Act 37, is amended to read:

SB532,10,13 71.45 (3m) Arithmetic average. Except as provided in sub. (3d), the The arithmetic average of the 2 percentages referred to in sub. (3) shall be applied to the net income figure arrived at by the successive application of sub. (2) (a) and (b) with respect to Wisconsin insurers to which sub. (2) (a) and (b) applies and which have received premiums, other than life insurance premiums, written for insurance on property or risks resident, located or to be performed outside this state, to arrive at Wisconsin income constituting the measure of the franchise tax.

SB532, s. 25 Section 25. Initial applicability.

SB532,10,18 (1) This act first applies to taxable years beginning on January 1 of the year in which this subsection takes effect, except that if this subsection takes effect after July 31 this act first applies to taxable years beginning on January 1 of the year following the year in which this subsection takes effect.

SB532,10,19 (End)