2009 Wisconsin Act 2

(e) Its nonbusiness income or loss allocable to this state.

(f) Its income that is realized from the purchase and subsequent sale or redemption of lottery prizes, if the winning tickets were originally bought in this state.

(g) Its income or loss allocated or apportioned in an earlier year, required to be taken into account as state source income or loss during the taxable year, other than a net business loss carry-forward.

(h) Its net business loss carry-forward, as determined under sub. (6).

(4) Business income of the combined group. (a) The business income of a combined group is the sum of the income of each member of the combined group as determined under the Internal Revenue Code, as modified under s. 71.26 or 71.45, and except as provided under pars. (b) to (j). If a unitary business includes income from a pass-through entity, the pass-through entity income to be included in the total income of the combined group shall be the member of the combined group's direct and indirect distributive share of the pass-through entity's unitary business income.

(b) 1. Subtract any apportionable income of a distinct business activity conducted within and outside the state wholly by the member, income from a business conducted wholly by the member entirely within this state, the member's nonbusiness income, the member's income realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state, and its income allocated or apportioned in an earlier year required to be taken into account as state source income during the taxable year.

2. Add any apportionable expense or loss of a distinct business activity conducted within and outside the state wholly by the member, expense or loss from a business conducted wholly by the member entirely within this state, the member's nonbusiness expense or loss, its loss allocated or apportioned in an earlier year required to be taken into account as state source loss during the taxable year, and its net business loss carry-forward, except as provided in par. (e).

(c) For combined group members that are consolidated foreign operating corporations, include only the income described in sub. (2) (d) 2. to 4. A combined group may deduct expenses properly attributable to a consolidated foreign operating corporation's income described in sub. (2) (d) 2. to 4., subject to ss. 71.30 (2) and (2m) and 71.80 (1) (b) and (1m).

(d) The modifications provided under ss. 71.26 (2) (a) 7., 8., and 9. and 71.45 (2) (a) 16., 17., and 18. shall not apply with respect to interest expenses or intangible expenses paid, accrued, or incurred by a combined group member to or for the benefit of a consolidated foreign operating corporation.

(e) Subtract any pre-apportionment net business loss carry-forward deduction, as provided in sub. (6) (b).

(f) Except as provided in sub. (2) (d) 3. and except if the modification under s. 71.26 (3) (j) applies, dividends paid by one combined group member to another shall be, to the extent that the dividends are paid out of the earnings and profits of the unitary business included in the combined report, whether in the current taxable year or in a prior taxable year, subtracted from the income of the recipient. This paragraph does not apply to dividends received from members of the unitary business that were not part of the combined group during the calendar year preceding the receipt of the dividends.

(g) Except as otherwise provided by rule, business income or loss from an intercompany transaction between members of the same combined group shall be deferred as provided under U.S. Treasury Regulation 1.1502-13. Upon the occurrence of any of the following events, deferred business income or loss resulting from an intercompany transaction between members of a combined group shall be included in the income of the seller and shall be apportioned as business income or loss recognized immediately before the event:

1. The object of the deferred intercompany transaction is resold by the buyer to an entity that is not a member of the combined group.

2. The object of the deferred intercompany transaction is resold by the buyer to an entity that is a member of the combined group for use outside the unitary business in which the buyer and seller are engaged.

3. The object of the deferred intercompany transaction is converted by the buyer or is otherwise transferred to a use outside the unitary business in which the buyer and seller are engaged.

4. The buyer and seller are no longer members of the same combined group, regardless of whether the members are in the same unitary business.

(h) A charitable expense incurred by a member of a combined group shall, to the extent allowable as a deduction under section 170 of the Internal Revenue Code, be subtracted first from the business income of the combined group, subject to the income limitations of that section as applied to the entire business income of the combined group, and any remaining amount shall then be treated as a nonbusiness expense allocable to the member that incurred the expense, subject to the income limitations of that section applied to the nonbusiness income of that specific member. Any charitable deduction disallowed under this paragraph, but allowed as a carryover deduction in a subsequent year, shall be treated as originally incurred in the subsequent year by the same member and this paragraph shall apply in the subsequent year in determining the allowable deduction in that year.

(i) Gain or loss from the sale or exchange of capital assets, property described by section 1231 (a) (3) of the Internal Revenue Code, and property subject to an involuntary conversion, shall be removed from the total separate net income of each member of a combined group and shall be apportioned and allocated as follows:

1. For short-term capital gains or losses, long-term capital gains or losses, gains or losses under section 1231 of the Internal Revenue Code, and involuntary conversions, all combined group members' business gains and losses shall be combined within each class, and each class of net business gain or loss separately apportioned to each member using the member's apportionment factor or factors determined under sub. (5).

2. Each member shall then net its apportioned business gain or loss for all classes, including any such apportioned business gain and loss from other combined groups, against the member's nonbusiness gain and loss for all classes allocated to this state, as provided under sections 1222 and 1231 of the Internal Revenue Code, without regard to any of the member's gains or losses from the sale or exchange of capital assets, property described under section 1231 of the Internal Revenue Code, and involuntary conversions that are nonbusiness items allocated to another state.

3. Any state source income or loss, if the loss is not subject to the limitations of section 1211 of the Internal Revenue Code, of a member that results from the application of subds. 1. and 2. shall then be applied to all other state source income or loss of that member.

4. Any state source loss of a member that is subject to the limitations of section 1211 of the Internal Revenue Code shall be carried forward or carried back by that member and shall be treated as state source short-term capital loss incurred by that member for the year for which the carry-forward or carry-back applies.

(j) Any expense of one member of the combined group that is directly or indirectly attributable to the nonbusiness or exempt income of another member of the unitary business shall be allocated to that other member of the unitary business as corresponding nonbusiness or exempt expense, as appropriate.

(5) Member's share of business income of the combined group. (a) For purposes of this subsection, each member of a combined group is doing business in this state if any member of the combined group is doing business in this state and that business relates to the combined group's unitary business. Except as provided in par. (b), a taxpayer's share of the business income apportionable to this state of each combined group of which it is a member shall be the product of the business income of the combined group as determined under sub. (4) and the taxpayer's modified sales factor from the combined group, determined as follows:

1. For a member that is subject to apportionment under s. 71.25 (9), the numerator of the modified sales factor includes the member's sales associated with the combined group's unitary business in this state. Sales under s. 71.25 (9) (b) 2m. and 3. and (c) shall be included in the numerator of the modified sales factor if no member of the combined group is within the jurisdiction of the destination state for income or franchise tax purposes.

2. For a member that is subject to apportionment using a receipts factor under the department's rules pursuant to s. 71.25 (10), the numerator of the modified sales factor includes the member's Wisconsin receipts associated with the combined group's unitary business in this state, as provided by such rules.

3. For a member that is subject to apportionment under s. 71.45 (3), the numerator of the modified sales factor includes the member's premiums that are associated with the combined group's unitary business in this state.

4. The denominator of the modified sales factor shall include the denominator of the sales factor for each combined group member described in subd. 1., the denominator of the receipts factor for each combined group member described in subd. 2., and the denominator of the premiums factor for each combined group member described in subd. 3.

5. For a member that is required under the department's rules to use an apportionment factor or factors other than the sales factor, receipts factor, or premiums factor, the numerator of the modified sales factor for such member is its Wisconsin apportionment percentage on a separate entity basis based on the rules prescribed by the department, multiplied by the member's total sales, as defined in s. 71.25 (9) (e) and (f). The denominator of the modified sales factor for such member is the member's total sales as defined in s. 71.25 (9) (e) and (f).

6. The numerator and denominator, described in subds. 1. to 5., shall include the sales, receipts, or premiums of pass-through entities that are owned directly or indirectly by a corporation in proportion to a ratio the numerator of which is the amount of the corporation's distributive share of the pass-through entity's unitary business income included in the income of the combined group under sub. (4) and the denominator of which is the amount of the pass-through entity's total unitary business income.

7. The modified sales factor shall exclude transactions between members of the same combined group.

8. For purposes of determining the numerator of the modified sales factor or any apportionment factor or factors determined under par. (b), a taxpayer is considered to be within the jurisdiction for income or franchise tax purposes of any state in which any member of its combined group is within the jurisdiction for income or franchise tax purposes.

(b) If 2 or more members of a combined group would in the absence of this section be required to use differing apportionment formulas from one another, and if the business income of the combined group derived from business transacted in this state of that combined group cannot be ascertained with reasonable certainty by use of the modified sales factor as provided in par. (a), the combined group may petition the department to use a different apportionment computation for the combined report. This paragraph does not apply if less than 30 percent of the business income of the combined group would in the absence of this section be required to be apportioned using a factor or factors other than a single sales factor, a single receipts factor, or a single premiums factor. The department shall deny the petition if the taxpayer cannot show, by clear and convincing evidence, that the apportionment methods described in this subsection do not clearly reflect the income of the unitary business attributable to this state.

(6) Credits, net business losses, and post-apportionment deductions. (a) Except as provided in par. (b), no tax credit, Wisconsin net business loss carry-forward, or other post-apportionment deduction earned by one member of the combined group, but not fully used by or allowed to that member, may be used in whole or in part by another member of the combined group or applied in whole or in part against the total income of the combined group. A member of a combined group may use a carry-forward of a credit, Wisconsin net business loss carry-forward, or other post-apportionment deduction otherwise allowable under s. 71.26 or 71.45, that was incurred by that same member in a taxable year beginning before the effective date of this paragraph .... [LRB inserts date].

(b) A combined group member's share of a Wisconsin net business loss computed on a combined report for a taxable year beginning on or after the effective date of this paragraph .... [LRB inserts date], is subject to the carry-forward period and limitations provided in s. 71.26 (4), if the member is subject to tax under this subchapter, or s. 71.45 (4), if the member is subject to tax under subchapter VII. A member may use such Wisconsin net business loss, or share it among the members of the unitary business filing the combined report, as follows:

1. For the taxable year in which the Wisconsin net business loss from the unitary business is generated, such loss shall first be offset by the member against its Wisconsin income for that same taxable year from sources other than the unitary business. In subsequent years, the member shall offset such loss first against income from that same unitary business in the manner described in subd. 2. and then from sources other than the unitary business.

2. If the member is included in the combined report of the same unitary business for the taxable year for which the member will offset the loss, the member shall convert its Wisconsin net business loss carry-forward attributable to the unitary business to a pre-apportionment net business loss carry-forward in the manner described in subd. 3. and offset it against the combined group's business income computed under sub. (4). Any amount of pre-apportionment net business loss carry-forward not offset by the combined group's business income shall be converted back to a Wisconsin net business loss carry-forward in the manner described in subd. 4. and offset against the member's income, if any, from sources other than the unitary business. The carry-forward period and limitations set forth in ss. 71.26 (4) and 71.45 (4) shall apply in the same manner as if the loss was not converted to a pre-apportionment net business loss carry-forward before used.

3. For purposes of subd. 2, the pre-apportionment net business loss carry-forward for each year for which a combined group member has available Wisconsin net business loss is the member's apportioned share of the Wisconsin net business loss computed on the combined report for the year in which the loss was generated, divided by the member's Wisconsin apportionment percentage computed on that same combined report.

4. A combined group member's pre-apportionment net business loss carry-forward computed under subd. 3, but not used, shall be converted back to a Wisconsin net business loss carry-forward by multiplying the member's apportioned share of the remaining Wisconsin net business loss computed on the combined report for the year in which the loss was generated by the member's Wisconsin apportionment percentage computed on that same combined report.

5. Except as provided by the department by rule, if a corporation may no longer be included in the combined report, as determined under this section, that corporation's share of Wisconsin net business loss carry-forward from the combined group may not be shared among or transferred to any other members of the combined group or members of other combined groups, but the corporation may claim the loss carry-forward against its own income attributable to other unitary businesses or other sources of income, subject to the limitations under ss. 71.26 (4) or 71.45 (4).

(7) Designated agent. (a) Each combined group shall have one designated agent. The designated agent is the parent corporation of the combined group. If there is no such parent corporation, the designated agent may be appointed by the members. If there is no such parent corporation and no member is appointed, the designated agent is the member that has the most significant operations in this state on a recurring basis, as determined by the department. The designated agent may change only when the designated agent is no longer a member of the combined group, in which case the succeeding designated agent shall notify the department of the change in the manner prescribed by the department.

(b) Only the designated agent may act on behalf of the members of the combined group for matters relating to the combined report. The designated agent's responsibilities include:

1. Filing a combined report under sub. (2) (a).

2. Filing any extension under s. 71.24 or 71.44.

3. Filing any amended combined reports or claims for refunds or credits.

4. Sending and receiving all correspondence with the department regarding the combined report.

5. Remitting all taxes, including estimated taxes, to the department. For purposes of computing interest on late payments, all payments remitted are deemed to be made on a pro rata basis by all members of the combined group, unless otherwise specified by the designated agent.

6. Participating on behalf of the combined group members in any investigation or hearing requested by the department regarding a combined report, producing all information requested by the department regarding the combined report, and filing any appeal related to the combined report, investigation, or hearing. Any appeal filed by the designated agent shall be considered to be filed by all members of the combined group.

7. Executing waivers, closing agreements, powers of attorney, and other documents as necessary or required regarding the combined report filed under sub. (2) (a). Any waiver, agreement, power of attorney, or document executed by the designated agent shall be considered as executed by all members of the combined group.

8. Receiving notices regarding the combined report. Any such notice the designated agent receives is considered received by all members of the combined group.

9. Receiving refunds relating to the combined report. Any such refund shall be paid to and in the name of the designated agent and shall discharge any liability of the state to any member of the combined group regarding the refund.

10. Other responsibilities as determined by rule by the department.

(c) Acts contrary to those described in par. (b) are unauthorized acts that do not bind the department in any manner. The department may choose to receive the benefits or assume the obligations of any such unauthorized acts. The department is bound by acts contrary to those described in par. (b) only if the department takes affirmative steps to expressly manifest its intent to receive the benefits or assume the obligations of any such acts. If the department takes such affirmative steps to ratify an unauthorized act, the unauthorized act relates back to the time of the unauthorized act.

(d) The department may relieve the designated agent from any of the duties described in par. (b). Unless the department provides for such relief by rule, a designated agent shall obtain written approval from the department to be relieved of the duties described in par. (b).

(8) Taxable year of combined group. The combined group's taxable year is determined as follows:

(a) If 2 or more members of a combined group file a federal consolidated return, the combined group's taxable year is the taxable year of the federal consolidated group. In all other cases, the taxable year is the taxable year of the designated agent under sub. (7).

(b) If a taxable year of a member of a combined group differs from the taxable year of the combined group, the designated agent shall elect to determine the portion of that member's income to be included in one of the following ways:

1. A separate income statement prepared from the books and records for the months included in the combined group's taxable year.

2. Including all of the income for the year that ends during the combined group's taxable year.

(c) For corporations that are subject to an election under par. (b), the same election shall be made for each member of the combined group subject to the election, the same election shall be made in each succeeding year, and the election is irrevocable except upon written approval by the department.

(9) Part-year members of a combined group. If a corporation becomes a member of a combined group or ceases to be a member of a combined group after the beginning of the taxable year of the combined group, the corporation's income shall be determined as provided under subs. (3), (4), and (5) for the portion of the year in which the corporation was a member of the combined group and that income shall be included in the combined report. The income for the remaining short period shall be reported on a separate return or separate combined report.

(10) Transition. The department shall deem timely paid the estimated tax payments attributable to income includable in the combined report for installments that become due during the period beginning on January 1, 2009, and ending on the effective date of this subsection .... [LRB inserts date], provided that such estimated tax payments are paid by the next installment due date that follows in sequence following the effective date of this subsection .... [LRB inserts date]. However, if the next installment due date that follows in sequence following the effective date of this subsection .... [LRB inserts date], is less than 45 days after the effective date of this subsection .... [LRB inserts date], such estimated tax payments, in addition to the payment due less than 45 days after the effective date of this subsection .... [LRB inserts date], shall be deemed timely paid if paid by the next subsequent installment due date.

2,132 Section 132. 71.26 (2) (a) 4. of the statutes is amended to read:

71.26 (2) (a) 4. Plus the amount of the credit computed under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (1dy), (3g), (3h), (3n), (3p), (3r), (3t), (3w), (5e), (5f), (5g), (5h), (5i), (5j), and (5k) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, limited liability company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1k) (g).

2,133 Section 133. 71.26 (2) (a) 7. of the statutes is amended to read:

71.26 (2) (a) 7. Plus the amount deducted or excluded under the Internal Revenue Code for interest expenses and, rental expenses, intangible expenses, and management fees that are directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related entities.

2,134 Section 134. 71.26 (2) (a) 9. of the statutes is amended to read:

71.26 (2) (a) 9. Minus the amount added, pursuant to subd. 7. or s. 71.05 (6) (a) 24., 71.34 (1k) (j), or 71.45 (2) (a) 16., to the federal income of a related entity that paid interest expenses or, rental expenses , intangible expenses, or management fees to the corporation, to the extent that the related entity could not offset such amount with the deduction allowable under subd. 8. or s. 71.05 (6) (b) 45., 71.34 (1k) (k), or 71.45 (2) (a) 17.

2,135 Section 135. 71.26 (3) (x) of the statutes is amended to read:

71.26 (3) (x) Sections 1501 to 1505, 1551, 1552, 1563 and 1564 (relating to consolidated returns) are excluded, except that U.S. Treasury Regulation 1.1502-13, relating to deferred gain or loss from an intercompany transaction, applies to transactions between combined group members under s. 71.255 (4) (g).

2,136 Section 136. 71.28 (1dy) of the statutes is created to read:

71.28 (1dy) Economic development tax credit. (a) Definition. In this subsection, "claimant" means a person who files a claim under this subsection and is certified under s. 560.701 (2) and authorized to claim tax benefits under s. 560.703.

(b) Filing claims. Subject to the limitations under this subsection and ss. 560.701 to 560.706, for taxable years beginning after December 31, 2008, a claimant may claim as a credit against the tax imposed under s. 71.23, up to the amount of the tax, the amount authorized for the claimant under s. 560.703.

(c) Limitations. 1. No credit may be allowed under this subsection unless the claimant includes with the claimant's return a copy of the claimant's certification under s. 560.701 (2) and a copy of the claimant's notice of eligibility to receive tax benefits under s. 560.703 (3).

2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for, and the amount of, the credit are based on their authorization to claim tax benefits under s. 560.703. A partnership, limited liability company, or tax-option corporation shall compute the amount of credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members of limited liability companies, and shareholders of tax-option corporations may claim the credit in proportion to their ownership interests.

(d) Administration. 1. Except as provided in subd. 2., sub. (4) (e) and (f), as it applies to the credit under sub. (4), applies to the credit under this subsection.

2. If a claimant's certification is revoked under s. 560.705, or if a claimant becomes ineligible for tax benefits under s. 560.702, the claimant may not claim credits under this subsection for the taxable year that includes the day on which the certification is revoked; the taxable year that includes the day on which the claimant becomes ineligible for tax benefits; or succeeding taxable years and the claimant may not carry over unused credits from previous years to offset the tax imposed under s. 71.23 for the taxable year that includes the day on which certification is revoked; the taxable year that includes the day on which the claimant becomes ineligible for tax benefits; or succeeding taxable years.

3. Subsection (4) (g) and (h), as it applies to the credit under sub. (4), applies to the credit under this subsection.

2,137 Section 137. 71.28 (3p) (a) 1m. of the statutes is created to read:

71.28 (3p) (a) 1m. "Dairy cooperative" means a business organized under ch. 185 or 193 for the purpose of obtaining or processing milk.

2,138 Section 138. 71.28 (3p) (a) 3. (intro.) of the statutes is amended to read:

71.28 (3p) (a) 3. (intro.) "Dairy manufacturing modernization or expansion" means constructing, improving, or acquiring buildings or facilities, or acquiring equipment, for dairy manufacturing, including the following, if used exclusively for dairy manufacturing and if acquired and placed in service in this state during taxable years that begin after December 31, 2006, and before January 1, 2015, or, in the case of dairy cooperatives, if acquired and placed in service in this state during taxable years that begin after December 31, 2008, and before January 1, 2017:

2,139 Section 139. 71.28 (3p) (b) of the statutes is amended to read:

71.28 (3p) (b) Filing claims. Subject to the limitations provided in this subsection and s. 560.207, except as provided in par. (c) 5., for taxable years beginning after December 31, 2006, and before January 1, 2015, a claimant may claim as a credit against the taxes imposed under s. 71.23, up to the amount of the tax, an amount equal to 10 percent of the amount the claimant paid in the taxable year for dairy manufacturing modernization or expansion related to the claimant's dairy manufacturing operation.

2,140 Section 140. 71.28 (3p) (c) 2m. b. of the statutes is amended to read:

71.28 (3p) (c) 2m. b. The maximum amount of the credits that may be claimed by all claimants, other than members of dairy cooperatives, under this subsection and ss. 71.07 (3p) and 71.47 (3p) in fiscal year 2008-09, and in each fiscal year thereafter, is $700,000, as allocated under s. 560.207.

2,141 Section 141. 71.28 (3p) (c) 2m. bm. of the statutes is created to read:

71.28 (3p) (c) 2m. bm. The maximum amount of the credits that may be claimed by members of dairy cooperatives under this subsection and ss. 71.07 (3p) and 71.47 (3p) in fiscal year 2009-10 is $600,000, as allocated under s. 560.207, and the maximum amount of the credits that may be claimed by members of dairy cooperatives under this subsection and ss. 71.07 (3p) and 71.47 (3p) in fiscal year 2010-11, and in each fiscal year thereafter, is $700,000, as allocated under s. 560.207.

2,142 Section 142. 71.28 (3p) (c) 3. of the statutes is amended to read: