For 2005-07 Budget -- Not Ready For Introduction
2005 BILL
AN ACT ...; relating to: the budget.
Analysis by the Legislative Reference Bureau
taxation
Income taxation
Under current law, for purposes of 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. 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. This bill modifies the sales factor to provide for the apportionment of income derived from the lease, rental, or licensing of real property and moving property, the use of computer software, and the sale or use of intangible property and services.
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:
SECTION 1. 71.01 (1b) of the statutes is created to read:
71.01 (1b) For purposes of s. 71.04 (7) (df), (dg), and (dh), "commercial domicile" means the location from which a trade or business is principally managed and directed, based on any factors the department determines are appropriate, including the location where the greatest number of employees of the trade or business work, have their office or base of operations, or from which the employees are directed or controlled.
SECTION 2. 71.01 (1n) of the statutes is created to read:
71.01 (1n) For purposes of s. 71.04 (7) (df), (dg), and (dh), "domicile" means an individual's true, fixed, and permanent home where the individual intends to remain permanently and indefinitely and to which, whenever absent, the individual intends to return, except that no individual may have more than one domicile at any time.
SECTION 3. 71.01 (8g) of the statutes is amended to read:
71.01 (8g) "Member" does not include a member of a limited liability company treated as a corporation under s. 71.22 (1) (1k).
SECTION 4. 71.01 (8m) of the statutes is amended to read:
71.01 (8m) "Partner" does not include a partner of a publicly traded partnership treated as a corporation under s. 71.22 (1) (1k).
SECTION 5. 71.01 (10g) of the statutes is created to read:
71.01 (10g) For purposes of s. 71.04 (7) (df), (dg), and (dh), "state" means a state of the United States, the District of Columbia, the commonwealth of Puerto Rico, or any territory or possession of the United States, unless the context requires that "state" means only the state of Wisconsin.
SECTION 6. 71.03 (1) of the statutes is amended to read:
71.03 (1) DEFINITION. In this section, "gross income" means all income, from whatever source derived and in whatever form realized, whether in money, property or services, which is not exempt from Wisconsin income taxes. "Gross income" includes, but is not limited to, the following items: compensation for services, including salaries, wages and fees, commissions and similar items; gross income derived from business; interest; rents; royalties; dividends; alimony and separate maintenance payments; annuities; income from life insurance and endowment contracts; pensions; income from discharge of indebtedness; distributive shares of partnership gross income except distributive shares of the income of publicly traded partnerships treated as corporations under s. 71.22 (1) (1k); distributive shares of limited liability company gross income except distributive shares of the income of limited liability companies treated as corporations under s. 71.22 (1) (1k); income in respect of a decedent; and income from an interest in an estate or trust. "Gross income" from a business or farm consists of the total gross receipts without reduction for cost of goods sold, expenses or any other amounts. The gross rental amounts received from rental properties are included in gross income without reduction for expenses or any other amounts. "Gross income" from the sale of securities, property or other assets consists of the gross selling price without reduction for the cost of the assets, expenses of sale or any other amounts. "Gross income" from an annuity, retirement plan or profit sharing plan consists of the gross amount received without reduction for the employee's contribution to the annuity or plan.
SECTION 7. 71.04 (7) (d) of the statutes is repealed.
SECTION 8. 71.04 (7) (db) of the statutes is created to read:
71.04 (7) (db) Gross receipts from the lease, rental, or licensing of real property owned by the taxpayer and the sublease of real property are in this state if the real property is located in this state.
SECTION 9. 71.04 (7) (dd) of the statutes is created to read:
71.04 (7) (dd) 1. Except as provided in subd. 2., gross receipts from the lease, rental, or licensing of tangible personal property owned by the taxpayer and the sublease of tangible personal property are in this state if the property is located in this state during the entire period of lease, rental, licensing, sublease, or other use. If the property is used in and outside this state during the period of lease, rental, licensing, or sublease, gross receipts are in this state to the extent that the property is used in this state. The proportion of use in this state is determined by multiplying the gross receipts from the lease, rental, licensing, sublease, or other use of the property by a fraction having as a numerator the amount of time the property was used in this state in the taxable year and having as a denominator the total time the property was used in all states having jurisdiction to impose an income tax on the taxpayer in the taxable year.
2. Gross receipts from the lease, rental, or licensing of moving property, including motor vehicles, rolling stock, aircraft, vessels, or mobile equipment, owned by the taxpayer and the sublease of moving property are in this state to the extent that the property is used in this state. The proportion of use of moving property in this state is determined as follows:
a. The proportion of use of a motor vehicle or rolling stock in this state is determined by multiplying the gross receipts from the lease, rental, licensing, or sublease of the motor vehicle or rolling stock by a fraction having as a numerator the number of miles traveled within this state by the motor vehicle or rolling stock while leased, rented, licensed, or subleased in the taxable year and having as a denominator the total number of miles traveled by the motor vehicle or rolling stock while leased, rented, licensed, or subleased in the taxable year.
b. The proportion of use of an aircraft in this state is determined by multiplying the gross receipts from the lease, rental, licensing, or sublease of the aircraft by a fraction having as a numerator the number of takeoffs and landings of the aircraft in this state while leased, rented, licensed, or subleased in the taxable year and having as a denominator the total number of takeoffs and landings of the aircraft while leased, rented, licensed, or subleased in the taxable year.
c. The proportion of use of a vessel or mobile equipment in this state is determined by multiplying the gross receipts from the lease, rental, licensing, or sublease of the vessel or mobile equipment by a fraction having as a numerator the number of days that the vessel or mobile equipment is in this state while leased, rented, licensed, or subleased in the taxable year and having as a denominator the total number of days that the vessel or mobile equipment is leased, rented, licensed, or subleased in the taxable year.
d. If the taxpayer is unable to determine the use of moving property under subd. 2. a., b., or c. while the property is leased, rented, licensed, or subleased in the taxable year, the moving property is conclusively deemed to be used in the state in which the property is located at the time that the lessee, renter, licensee, or sublessee takes possession of the property in the taxable year.
SECTION 10. 71.04 (7) (df) of the statutes is created to read:
71.04 (7) (df) 1. Gross receipts from the use of computer software are in this state if the purchaser or licensee uses the computer software at a location in this state.
2. Computer software is used at a location in this state if the purchaser or licensee uses the computer software in the regular course of business operations in this state, for personal use in this state, or if the purchaser or licensee is an individual whose domicile is in this state. If the purchaser or licensee uses the computer software in more than one state, the gross receipts shall be divided among those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the computer software in those states. To determine computer software use in this state, the department may consider the number of users in each state where the computer software is used, the number of site licenses or workstations in this state, and any other factors that reflect the use of computer software in this state.
3. If the taxpayer is not subject to income tax in the state in which the gross receipts are considered received under this paragraph, but the taxpayer's commercial domicile is in this state, 50 percent of those gross receipts shall be included in the numerator of the sales factor.
SECTION 11. 71.04 (7) (dg) of the statutes is created to read:
71.04 (7) (dg) 1. Gross royalties and other gross receipts received for the sale or use of intangible property, including, but not limited to, patents, copyrights, trademarks, trade names, service names, franchises, licenses, plans, specifications, blueprints, processes, techniques, formulas, designs, layouts, patterns, drawings, manuals, technical know-how, contracts, and customer lists, are in this state if the user, purchaser, or licensee uses the intangible property at a location in this state.
2. Intangible property is used at a location in this state if the user, purchaser, or licensee uses the property in the operation of a trade or business at a location in this state, for personal use in this state, or if the user, purchaser, or licensee is an individual whose domicile is in this state. If the user, purchaser, or licensee uses the intangible property in more than one state, the gross royalties and other gross receipts from the sale or use of the intangible property shall be divided among those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the intangible property in those states. To determine intangible property use in this state, the department may consider the number of licensed sites in each state, the volume of property manufactured, produced, or sold at locations in this state, or any other factors that reflect the use of the intangible property in this state.
3. If the taxpayer is not subject to income tax in the state in which the gross royalties or other gross receipts are considered received under this paragraph, but the taxpayer's commercial domicile is in this state, 50 percent of those gross royalties or other gross receipts shall be included in the numerator of the sales factor.
SECTION 12. 71.04 (7) (dh) of the statutes is created to read:
71.04 (7) (dh) 1. Gross receipts from services are in this state if the purchaser of the service received the benefit of the service in this state.
2. The benefit of a service is received in this state if any of the following applies:
a. The service relates to real property that is located in this state.
b. The service relates to tangible personal property that is located in this state at the time that the service is received or tangible personal property that is delivered directly or indirectly to customers in this state.
c. The service is provided to an individual who is physically present in this state at the time that the service is received.
d. The service is provided to a person engaged in a trade or business in this state and relates to that person's business in this state.
3. If the purchaser of a service receives the benefit of a service in more than one state, the gross receipts from the performance of the service are included in the numerator of the sales factor according to the portion of the service received in this state.
4. If the taxpayer is not subject to income tax in the state in which the benefit of the service is received, the benefit of the service is received in this state to the extent that the taxpayer's employees or representatives performed services from a location in this state. Fifty percent of the taxpayer's receipts that are considered received in this state under this paragraph shall be included in the numerator of the sales factor.
SECTION 13. 71.04 (7) (dm) of the statutes is created to read:
71.04 (7) (dm) If the income from sales, other than sales of tangible personal property, properly assignable to this state cannot be ascertained with reasonable certainty by the methods under pars. (db), (dd), (df), (dg), and (dh), the department may promulgate rules that specify how the income shall be apportioned.
SECTION 14. 71.04 (7) (e) 12. of the statutes is created to read:
71.04 (7) (e) 12. Gross receipts from the sale, licensing, or use of intangible property in the ordinary course of the taxpayer's trade or business.
SECTION 15. 71.04 (7) (f) 5. of the statutes is amended to read:
71.04 (7) (f) 5. Proceeds Notwithstanding any other provision of this subsection, proceeds and gain or loss from the redemption of securities.
SECTION 16. 71.04 (7) (f) 7. of the statutes is amended to read:
71.04 (7) (f) 7. Gross receipts and gain or loss from the sale of intangible assets, except those under par. (e) 1. and 12.
SECTION 17. 71.04 (7) (f) 9. of the statutes is amended to read:
71.04 (7) (f) 9. Gross Notwithstanding any other provision of this subsection, gross receipts and gain or loss from the sale or exchange of securities.
SECTION 18. 71.07 (2dr) (a) of the statutes is amended to read:
71.07 (2dr) (a) Credit. Any person may credit against taxes otherwise due under this chapter an amount equal to 5% of the amount obtained by subtracting from the person's qualified research expenses, as defined in section 41 of the internal revenue code, except that "qualified research expenses" include only expenses incurred by the claimant in a development zone under subch. VI of ch. 560, except that a taxpayer may elect the alternative computation under section 41 (c) (4) of the Internal Revenue Code and that election applies until the department permits its revocation and except that "qualified research expenses" do not include compensation used in computing the credit under sub. (2dj) nor research expenses incurred before the claimant is certified for tax benefits under s. 560.765 (3), the person's base amount, as defined in section 41 (c) of the internal revenue code, in a development zone, except that gross receipts used in calculating the base amount means gross receipts from sales attributable to Wisconsin under s. 71.04 (7) (b) 1. and 2. and (d), (db), (dd), (df), (dg), (dh), and (dm) and research expenses used in calculating the base amount include research expenses incurred before the claimant is certified for tax benefits under s. 560.765 (3), in a development zone, if the claimant submits with the claimant's return a copy of the claimant's certification for tax benefits under s. 560.765 (3) and a statement from the department of commerce verifying the claimant's qualified research expenses for research conducted exclusively in a development zone. The rules under s. 73.03 (35) apply to the credit under this paragraph. The rules under sub. (2di) (f) and (g), as they apply to the credit under that subsection, apply to claims under this paragraph. Section 41 (h) of the internal revenue code does not apply to the credit under this paragraph.
SECTION 19. 71.07 (3m) (a) 1. b. of the statutes is amended to read:
71.07 (3m) (a) 1. b. For partnerships except publicly traded partnerships treated as corporations under s. 71.22 (1) (1k), or limited liability companies, except limited liability companies treated as corporations under s. 71.22 (1) (1k), "claimant" means each individual partner or member.
SECTION 20. 71.07 (10) of the statutes is amended to read:
71.07 (10) CREDITS NOT ALLOWED. The credits under s. 71.28 (4) and (5) may not be claimed by partners, including partners of a publicly traded partnership treated as a corporation under s. 71.22 (1) (1k), members of a limited liability company, including members of a limited liability company treated as a corporation under s. 77.22 (1) (1k), or shareholders of a tax-option corporation.
SECTION 21. 71.195 of the statutes is amended to read:
71.195 Definition. In this subchapter, "partnership" includes limited liability companies and other entities that are treated as partnerships under the Internal Revenue Code, and "partnership" does not include publicly traded partnerships treated as corporations under s. 71.22 (1) (1k).
SECTION 22. 71.22 (1) of the statutes is renumbered 71.22 (1k).
SECTION 23. 71.22 (1g) of the statutes is created to read:
71.22 (1g) For purposes of s. 71.25 (9) (df), (dg), and (dh), "commercial domicile" means the location from which a trade or business is principally managed and directed, based on any factors the department determines are appropriate, including the location where the greatest number of employees of the trade or business work, have their office or base of operations, or from which the employees are directed or controlled.
SECTION 24. 71.22 (1t) of the statutes is created to read:
71.22 (1t) For purposes of s. 71.25 (9) (df), (dg), and (dh), "domicile" means an individual's true, fixed, and permanent home where the individual intends to remain permanently and indefinitely and to which, whenever absent, the individual intends to return, except that no individual may have more than one domicile at any time.
SECTION 25. 71.22 (6m) of the statutes is amended to read:
71.22 (6m) "Member" does not include a member of a limited liability company treated as a corporation under sub. (1) (1k).
SECTION 26. 71.22 (7m) of the statutes is amended to read:
71.22 (7m) "Partner" does not include a partner of a publicly traded partnership treated as a corporation under sub. (1) (1k).
SECTION 27. 71.22 (9g) of the statutes is created to read:
71.22 (9g) For purposes of s. 71.25 (9) (df), (dg), and (dh), "state" means a state of the United States, the District of Columbia, the commonwealth of Puerto Rico, or any territory or possession of the United States, unless the context requires that "state" means only the state of Wisconsin.
SECTION 28. 71.25 (9) (d) of the statutes is repealed.
SECTION 29. 71.25 (9) (db) of the statutes is created to read:
71.25 (9) (db) Gross receipts from the lease, rental, or licensing of real property owned by the taxpayer and the sublease of real property are in this state if the real property is located in this state.
SECTION 30. 71.25 (9) (dd) of the statutes is created to read:
71.25 (9) (dd) 1. Except as provided in subd. 2., gross receipts from the lease, rental, or licensing of tangible personal property owned by the taxpayer and the sublease of tangible personal property are in this state if the property is located in this state during the entire period of lease, rental, licensing, sublease, or other use. If the property is used in and outside this state during the period of lease, rental, licensing, or sublease, gross receipts are in this state to the extent that the property is used in this state. The proportion of use in this state is determined by multiplying the gross receipts from the lease, rental, licensing, sublease, or other use of the property by a fraction having as a numerator the amount of time the property was used in this state in the taxable year and having as a denominator the total time the property was used in all states having jurisdiction to impose an income tax on the taxpayer in the taxable year.
2. Gross receipts from the lease, rental, or licensing of moving property, including motor vehicles, rolling stock, aircraft, vessels, or mobile equipment, owned by the taxpayer and the sublease of moving property are in this state to the extent that the property is used in this state. The proportion of use of moving property in this state is determined as follows:
a. The proportion of use of a motor vehicle or rolling stock in this state is determined by multiplying the gross receipts from the lease, rental, licensing, or sublease of the motor vehicle or rolling stock by a fraction having as a numerator the number of miles traveled within this state by the motor vehicle or rolling stock while leased, rented, licensed, or subleased in the taxable year and having as a denominator the total number of miles traveled by the motor vehicle or rolling stock while leased, rented, licensed, or subleased in the taxable year.
b. The proportion of use of an aircraft in this state is determined by multiplying the gross receipts from the lease, rental, licensing, or sublease of the aircraft by a fraction having as a numerator the number of takeoffs and landings of the aircraft in this state while leased, rented, licensed, or subleased in the taxable year and having as a denominator the total number of takeoffs and landings of the aircraft while leased, rented, licensed, or subleased in the taxable year.
c. The proportion of use of a vessel or mobile equipment in this state is determined by multiplying the gross receipts from the lease, rental, licensing, or sublease of the vessel or mobile equipment by a fraction having as a numerator the number of days that the vessel or mobile equipment is in this state while leased, rented, licensed, or subleased in the taxable year and having as a denominator the total number of days that the vessel or mobile equipment is leased, rented, licensed, or subleased in the taxable year.
d. If the taxpayer is unable to determine the use of moving property under subd. 2. a., b., or c. while the property is leased, rented, licensed, or subleased in the taxable year, the moving property is conclusively deemed to be used in the state in which the property is located at the time that the lessee, renter, licensee, or sublessee takes possession of the property in the taxable year.
SECTION 31. 71.25 (9) (df) of the statutes is created to read:
