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Tax 2.39(6)(b)3.a. a. If the taxpayer has nexus in the state from which the property is delivered or shipped, then the sale is in that state.
Tax 2.39(6)(b)3.b. b. If the taxpayer does not have nexus in the state from which the property is delivered or shipped, then the sale is in Wisconsin. For taxable years beginning before January 1, 2009, the amount included in the numerator of the sales factor shall be 50% of the gross receipts from the sale. For taxable years beginning on or after January 1, 2009, the amount included in the numerator of the sales factor shall be the total gross receipts from the sale.
Tax 2.39(6)(b)4. 4. With respect to sales to the federal government:
Tax 2.39(6)(b)4.a. a. Gross receipts from the sales of tangible personal property are in Wisconsin if the property is shipped from an office, store, warehouse, factory or other place of storage in Wisconsin and delivered to the federal government, including its agencies and instrumentalities, in Wisconsin regardless of the f.o.b. point or other conditions of sale. For purposes of this section, only sales for which the federal government makes direct payment to the seller pursuant to the terms of its contract constitute sales to the federal government. Thus, sales by a subcontractor to the prime contractor, the party to the contract with the federal government, do not constitute sales to the federal government.
Tax 2.39(6)(b)4.b. b. Gross receipts from the sales of tangible personal property are in Wisconsin if the property is shipped from an office, store, warehouse, factory or other place of storage in Wisconsin and delivered to the federal government, including its agencies and instrumentalities, outside Wisconsin and the taxpayer does not have nexus in the destination state. For taxable years beginning before January 1, 2009, the amount included in the numerator of the sales factor shall be 50% of the gross receipts from the sale. For taxable years beginning on or after January 1, 2009, the amount included in the numerator of the sales factor shall be the total gross receipts from the sale.
Tax 2.39(6)(b)5. 5. For purposes of applying subds. 2. to 4., whether the taxpayer has nexus in the destination state is determined using the same standards as set forth in s. Tax 2.82.
Tax 2.39(6)(c) (c) Leases, rentals, or licensing of tangible personal property attributable to Wisconsin.
Tax 2.39(6)(c)1.1. Except as described in subd. 2., the numerator of the sales factor includes gross receipts from the lease, rental, licensing, or other use of tangible personal property owned by the taxpayer and the sublease of tangible personal property 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 included in the numerator of the sales factor 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 number of days the property 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 property is leased, rented, licensed, or subleased in all states having jurisdiction to tax the taxpayer during the taxable year.
Tax 2.39(6)(c)2. 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 included in the numerator of the sales factor 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:
Tax 2.39(6)(c)2.a. 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.
Tax 2.39(6)(c)2.b. 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.
Tax 2.39(6)(c)2.c. c. The proportion 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.
Tax 2.39(6)(c)2.d. 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, licensee, or sublessee takes possession of the property.
Tax 2.39(6)(d) (d) Sales, leases, rentals, or licensing of real property attributable to Wisconsin. The numerator of the sales factor includes gross receipts from the sale, lease, rental, licensing, or other use of real property owned by the taxpayer if the real property is located in this state and gross receipts from the sublease of real property if the real property is located in this state.
Tax 2.39(6)(e) (e) Receipts attributable to Wisconsin from the use of computer software. Receipts attributable to Wisconsin from providing the use of computer software are determined as provided in ss. 71.04 (7) (df) and 71.25 (9) (df), Stats.
Tax 2.39 Note Note: For taxable years beginning after December 31, 2004 and before January 1, 2009, subd. 3. of ss. 71.04 (7) (df) and 71.25 (9) (df), Stats., provided that if the taxpayer is not subject to income tax in the state in which the gross receipts are considered received but the taxpayer's commercial domicile is in Wisconsin, 50 percent of the taxpayer's receipts from the transaction are included in the numerator of the sales factor. This provision was repealed by 2009 Wis. Act 28.
Tax 2.39(6)(f) (f) Sales of services attributable to Wisconsin. Sales of services are attributable to Wisconsin if the benefit of the service is received in Wisconsin, as provided in ss. 71.04 (7) (dh) and 71.25 (9) (dh), Stats.
Tax 2.39 Note Note: For taxable years beginning after December 31, 2004 and before January 1, 2009, subd. 4. of ss. 71.04 (7) (dh) and 71.25 (9) (dh), Stats., provided that if the taxpayer is not subject to income tax in the state in which the benefit of the service is received, 50 percent of the taxpayer's receipts from the transaction are included in the numerator of the sales factor to the extent the taxpayer's employees or representatives performed the service from a location in Wisconsin. This provision was repealed by 2009 Wis. Act 28.
Tax 2.39(6)(g) (g) Receipts from intangible property for taxable years beginning before January 1, 2009. For taxable years beginning before January 1, 2009, the numerator of the sales factor includes gross receipts from the sale, licensing the use of, or other use of intangible property, if the income producing activity occurs in this state during the taxable year. If the income producing activity occurs in and outside this state, the gross receipts shall be allocated between those states having jurisdiction to tax the taxpayer based on the direct costs of performance. For purposes of this paragraph, "income producing activity" means the act or acts engaged in by the taxpayer, or persons acting on behalf of the taxpayer, for the ultimate purpose of obtaining gains or profit, and "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.
Tax 2.39 Note Note: Refer to ss. 71.04 (7) (d), (df), and (dh) and 71.25 (9) (d), (df), and (dh), 2007-08 Stats., as affected by 2005 Wis. Act 25.
Tax 2.39(6)(h) (h) Receipts from intangible property for taxable years beginning on or after January 1, 2009. For taxable years beginning on or after January 1, 2009, the amount includable in the numerator of the sales factor for gross receipts from the sale of, license of, or allowing use of intangible property in this state is determined as provided in ss. 71.04 (7) (dj) and (dk) and 71.25 (9) (dj) and (dk), Stats. For purposes of applying these paragraphs, the following rules apply:
Tax 2.39(6)(h)1. 1. To determine the purchaser's or licensee's use of intangible property in this state, factors that may be considered include the number of licensed sites in each state, the volume of property manufactured, produced, or sold pursuant to the arrangement at locations in this state, or other data that reflects the relative usage of the intangible property in this state.
Tax 2.39(6)(h)2. 2. If the purchaser's or licensee's billing address or commercial domicile is in this state, that billing address or commercial domicile may not conclusively determine that the transaction is in this state except in cases where the location of use of the intangible property cannot be determined. If the location of use of the intangible property cannot be determined, subds. 3. and 4. apply.
Tax 2.39(6)(h)3. 3. If the location of use of the intangible property cannot be determined, the gross receipts from the sale of, license of, or other receipts from allowing use of intangible property are in this state if the purchaser's or licensee's commercial domicile is in this state.
Tax 2.39(6)(h)4. 4. If subd. 3. would otherwise apply except that the state of the purchaser's or licensee's commercial domicile cannot be determined, the gross receipts from the sale of, license of, or allowing use of intangible property are in this state if the purchaser or licensee is billed for the purchase, license, or use of the intangible property at a location in this state.
Tax 2.39(6)(i) (i) The provisions of pars. (c) to (h) shall also apply to sales to the federal government.
Tax 2.39 Note Note: Section Tax 2.39 interprets ss. 71.04 (4), (4m), (5), (6), (7), (10), and (11), 71.25 (5), (6), (6m), (7), (8), (9), (11), and (15), and 71.255 (5), Stats.
Tax 2.39 Note Note: The provisions of s. Tax 2.39 first apply for taxable years beginning on January 1, 2005. For returns required under combined reporting, the provisions of s. Tax 2.39 first apply for taxable years beginning on January 1, 2009.
Tax 2.39 History History: Cr. Register, August, 1973, No. 212, eff. 9-1-73; cr. (1m); r. and recr. (5) (f) 5., Register, November, 1973, No. 215; eff. 12-1-73; cr. (intro.), Register, January, 1978, No. 265, eff. 2-1-78; r. and recr. Register, June, 1991, No. 426, eff. 7-1-91; am. (2) (f), (4) (c), (cm) 2. a. and (f), r. (6) (b) 2. b., renum. (6) (b) 2. c. to be (6) (b) 2. b., Register, May, 1995, No. 473, eff. 6-1-95; emerg. am. (3) (a) (intro.), eff. 9-19-98; am. (3) (a) (intro.), Register, March, 1999, No. 519, eff. 4-1-99; CR 06-063: am. (1) and (2) (a), (b) and (e), (6) (a) and (b) 4. a., r. and recr. (3) and (6) (c), r. (6) (b) 4. b. and (7), renum. (6) (b) 4. c. to be (6) (b) 4. b. and am., Register November 2006 No. 611, eff. 12-1-06; EmR0943: eff. 12-31-09 and CR 10-001: am. (1), (2) (b), (d), (3) (d), (e), (6) (b) 1. d., 2. (intro.), 3. b., 4. b., and (6) (c) (title), cr. (2) (ag), (ar), (cm), (6) (b) 5., and (d) to (i), r. (6) (c) 1. to 4., 7. and 8., renum. (6) (c) 5. and 6. to be (6) (c) 1. and 2. and am. (6) (c) 1. and 2. d. Register June 2010 No. 654, eff. 7-1-10; correction in (2) (cm) made under s. 13.92 (4) (b) 4., Stats., Register June 2010 No. 654.
Tax 2.395 Tax 2.395 Alternative method of apportionment.
Tax 2.395(1)(1) D efinitions. In this section:
Tax 2.395(1)(a) (a) "Corporate restructuring" means the transfer by a corporation of part or all of its property and employees to one or more subsidiaries in exchange for 100% of the subsidiary's stock.
Tax 2.395(1)(b) (b) "Corporation" means a corporation for profit that is incorporated under ch. 180, Stats., or under the law of another state, the District of Columbia or a foreign country and is subject to tax under s. 71.23 (1) or (2), Stats.
Tax 2.395(1)(c) (c) "Subsidiary" means a corporation that files an application under this section with a corporation that directly or indirectly owns 100% of the total value or share of all classes of its stock outstanding.
Tax 2.395(1)(d) (d) "Unfair representation of the degree of business activity in this state" means that the sum of the Wisconsin tax liability of the corporation and its subsidiaries calculated under s. 71.25 (6), Stats., exceeds 200% of the Wisconsin tax liability that the corporation would have owed if corporate restructuring had not occurred and results in at least $2 million of additional Wisconsin tax liability.
Tax 2.395 Note Note: This definition applies only for purposes of s. 71.25 (14), Stats.
Tax 2.395(1)(e) (e) "Wisconsin tax liability" means the gross tax computed under s. 71.23 (1) or (2), Stats.
Tax 2.395(2) (2) Who may file an application. A corporation together with its subsidiary may file an application on or before January 1, 2000 to use an alternative method of apportionment under this section if all of the following conditions are met:
Tax 2.395(2)(a) (a) The corporation is not a financial organization as defined in s. 71.25 (10) (a), Stats., a public utility as defined in s. 71.25 (10) (b), Stats., or a tax-option corporation as defined in s. 71.34 (2), Stats.
Tax 2.395(2)(b) (b) The corporation is a party to a corporate restructuring that occurs after June 30, 1998 and before January 1, 2000.
Tax 2.395(2)(c) (c) The corporation retains direct or indirect ownership of 100% of the subsidiary's stock and the subsidiary has not been engaged in business in or outside this state since the date of its incorporation.
Tax 2.395(2)(d) (d) As a result of the corporate restructuring, the use of the allocation and separate accounting method or the apportionment method prescribed under s. 71.25 (6), Stats., would result in an unfair representation of the degree of business activity in this state, given the same level of sales, payroll and property for the corporation and its subsidiaries.
Tax 2.395(3) (3) Content of the application. The application shall set forth a complete statement of the facts and reasons relating to the request to use an alternative method of apportioning income to Wisconsin, including the following:
Tax 2.395(3)(a) (a) The full name, address and federal employer identification number of the corporation applying for the change in apportionment method.
Tax 2.395(3)(b) (b) The full name, address and federal employer identification number of the subsidiaries that are a party to the corporate restructuring. If this information is not available when the application is filed, it shall be provided to the department as an amendment to the application at least 60 days before a return using an alternative apportionment method is filed.
Tax 2.395(3)(c) (c) The corporation's and the subsidiaries' taxable year. The subsidiaries shall have the same taxable year as the corporation.
Tax 2.395(3)(d) (d) The taxable year for which the corporation wishes the change to become effective.
Tax 2.395(3)(e) (e) A detailed description of the corporate structure and business operations before the corporate restructuring.
Tax 2.395(3)(f) (f) A detailed description of the corporate structure and business operations after the corporate restructuring.
Tax 2.395(3)(g) (g) The present allocation or apportionment method used in Wisconsin.
Tax 2.395(3)(h) (h) A description of the alternative apportionment method requested.
Tax 2.395(3)(i) (i) A complete and precise statement of the reasons for the modification requested, including why the present method does not fairly represent the activities of the corporation and its subsidiaries in Wisconsin.
Tax 2.395(3)(j) (j) Calculations using data from the most recently filed tax return prior to July 1, 1998, showing that the Wisconsin tax liability of the corporation and its subsidiaries using the present method of allocation or apportionment would result in an unfair representation of the degree of business activity in this state.
Tax 2.395(3)(k) (k) Calculations using data from the most recently filed tax return prior to July 1, 1998, showing that the Wisconsin tax liability of the corporation and its subsidiaries using the proposed alternative method of apportionment does not result in less Wisconsin franchise or income tax than the corporation would be liable for without restructuring.
Tax 2.395(3)(L) (L) Any other information relevant to the application the department requires or the corporation believes may have a bearing on the department's decision about whether to grant the apportionment method requested.
Tax 2.395(3)(m) (m) Whether the corporation is being audited by the department at the time of the application.
Tax 2.395 Note Note: The application shall be mailed to the following address: Administrator of the Division of Income, Sales and Excise Taxes, Wisconsin Department of Revenue, P.O. Box 8933, Madison, WI 53708-8933.
Tax 2.395(4) (4) Alternative methods of apportionment. The department may authorize any one or a combination of the following alternative methods of apportionment:
Tax 2.395(4)(a) (a) Excluding any one or more of the property, payroll and sales factors.
Tax 2.395(4)(b) (b) Weighting the factors other than 50% sales, 25% property and 25% payroll.
Tax 2.395(4)(c) (c) Allocating sales, other than sales of tangible personal property, to the state in which the corporation's customers are located for purposes of computing the numerator of the sales factor. For purposes of this paragraph:
Tax 2.395(4)(c)1. 1. A sale is allocated to the location where the customer receives the benefit of the service.
Tax 2.395(4)(c)2. 2. If the customer receives the benefit of the service in more than one state, the gross receipts are includable in the numerator of the apportionment factor in proportion to the extent the recipient receives the benefit of the service in each state.
Tax 2.395(4)(d) (d) Including one or more additional factors which will fairly represent the corporation's or the subsidiaries' business activity in this state.
Tax 2.395(4)(e) (e) Allowing one method for apportioning the business income of the corporation and another method for apportioning the business income of a subsidiary.
Tax 2.395(4)(f) (f) Allowing the corporation and one or more subsidiaries to compute their Wisconsin tax liability by adding together their apportionable income and apportionment factors, eliminating any intercompany transactions, computing the Wisconsin tax liability as though the group were one taxpayer and dividing the combined Wisconsin tax liability among the corporations based on their share of the group's Wisconsin business income.
Tax 2.395(4)(g) (g) Allowing any other apportionment method that will fairly represent the corporation's and the subsidiaries' business activity in this state.
Tax 2.395(5) (5)Review of the application. The department shall review the information submitted and follow the procedure specified in s. 71.25 (14) (c), Stats., before issuing a written decision regarding the use of an alternative method of apportionment. The corporation shall receive written approval before using the alternative method.
Tax 2.395(6) (6)Years for which use of alternative method of apportionment applies.
Tax 2.395(6)(a)(a) Except as provided in par. (b), once an alternative method of apportionment has been approved for a taxable year, the corporation shall use it for that taxable year and all subsequent taxable years, unless the department finds the use of the alternative apportionment method is no longer appropriate as determined under sub. (7) (b).
Tax 2.395(6)(b) (b) Notwithstanding par. (a), the aggregate of the corporation's and the subsidiaries' Wisconsin tax liability shall be the greater of the Wisconsin tax liability calculated using the approved alternative apportionment or the Wisconsin tax liability calculated as if the corporate restructuring had not taken place.
Tax 2.395(7) (7)Revocation of use of alternative method of apportionment.
Tax 2.395(7)(a)1.1. If the department upon audit or review finds that the use of the apportionment method prescribed in s. 71.25 (6), Stats., does not result in an unfair representation of the degree of business activity in this state for the first taxable year for which an alternative method of apportionment was approved, the corporation and its subsidiaries shall recalculate their Wisconsin tax liabilities under s. 71.25 (6), Stats.
Tax 2.395(7)(a)2. 2. If the department upon audit or review finds that the use of the alternative apportionment method in subsequent taxable years is no longer appropriate as determined under par. (b), the corporation and its subsidiaries shall recalculate their Wisconsin tax liabilities under s. 71.25 (6), Stats., for each of the subsequent taxable years.
Tax 2.395(7)(b) (b) In determining whether a corporation may continue to use the alternative method of apportionment, the department shall look for a continued substantial amount of difference between the tax liability calculated pursuant to s. 71.25 (6), Stats., and the tax liability had the restructuring not taken place. The department shall also consider any additional information the corporation has submitted pursuant to sub. (8).
Tax 2.395(7)(c) (c) If the department finds for a period of at least three consecutive taxable years that a substantial difference in tax liability as determined in par. (b) no longer exists, the corporation may no longer use the approved alternative apportionment method.
Tax 2.395(7)(d) (d) If the department terminates the approved alternative apportionment method, in a subsequent taxable year the corporation may request a new alternative method of apportionment. The department shall submit the new proposed alternative method of apportionment to the co-chairpersons of the joint committee for review of administrative rules pursuant to s. 71.25 (14) (c), Stats.
Tax 2.395(8) (8)Filing of return. For each taxable year, the corporation and its subsidiaries shall file with their Wisconsin corporate franchise or income tax returns schedules setting forth the calculations required under sub. (6), as well as a calculation of the tax liability of the corporation and its subsidiaries under s. 71.25 (6), Stats. The corporation and its subsidiaries shall attach a copy of the department's approval to use an alternative apportionment method to the front of each return filed. The corporation may also include additional explanatory material relative to its business activity. The returns shall be filed with the department's audit bureau.
Tax 2.395 Note Note: The address for mailing the returns is: Audit Bureau, Wisconsin Department of Revenue, P.O. Box 8906, Madison, WI 53708-8906.
Tax 2.395(9) (9)Confidentiality. All documents related to a request for an alternative method of apportionment shall be subject to the confidentiality provisions of s. 71.78, Stats.
Tax 2.395 Note Note: Section Tax 2.395 interprets s. 71.25 (14), Stats.
Tax 2.395 History History: Emerg. cr. eff. 9-19-98; cr. Register, March, 1999, No. 519, eff. 4-1-99.
Tax 2.41 Tax 2.41 Separate accounting method.
Tax 2.41(1) (1) When the separate accounting method is used, separate records must be kept of sales, cost of sales and expenses for the Wisconsin business as distinct from the remainder of the business. Overhead items of income and expense must then be allocated to the business within and without Wisconsin upon a basis or combination of bases justified by the facts and conditions. For example: the ratio of Wisconsin sales to total sales usually represents a satisfactory basis for a merchandising business, while the ratio of direct cost of material and labor in Wisconsin to the total gives a more accurate result for a construction business.
Tax 2.41(1)(a) (a) Federal income taxes are based upon income and should, therefore, be allocated to Wisconsin business on the basis of income. Federal income taxes are deductible for income years through 1974 only on the cash basis, and the allocation to Wisconsin business for any year, therefore, must be based upon the ratio of income within Wisconsin to the total income of the year on which the federal income taxes are assessed, even though that ratio differs from the ratio of the year in which the taxes are actually paid. Federal income taxes are not deductible for income years 1975 and thereafter.
Tax 2.41(1)(b) (b) The relationship of the general overhead items to Wisconsin operations will determine whether the home office income and expense should be allocated to the Wisconsin business. Miscellaneous income, such as income from intangibles and income from tangible property used in the business, and such overhead items as officers' salaries, office salaries, office rent and sundry office expenses should ordinarily be included in the allocation.
Tax 2.41(2) (2) Net rentals received from real estate held purely for investment purposes and not used in the operation of the business are not subject to allocation but are taxable in full if the property is located in Wisconsin. Gross rentals must be reduced by all expenses related to such investment property.
Tax 2.41 Note Note: Section Tax 2.41 interprets ss. 71.04 (4) and 71.25 (6), Stats.
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