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Tax 2.62(3)(a)3. 3. The economic enterprise offers one or more participants some economies of scale or economies of scope that benefit the enterprise.
Tax 2.62(3)(a)4. 4. The prices charged on transactions between participants in the enterprise are inconsistent with the arms-length principle. However, if these prices are consistent with the arms-length principle, that fact does not negate in any way the existence of a unitary business (Exxon Corp.
Tax 2.62(3)(a)4.v.v. Dept. of Revenue of Wisconsin, 447 U.S. 207, 100 S. Ct. 2109 (1980)).
Tax 2.62(3)(b) (b) Examples of flow of value. Activities between participants that constitute a flow of value between them include any of the following:
Tax 2.62(3)(b)1. 1. Assisting in acquisition of assets.
Tax 2.62(3)(b)2. 2. Assisting with filling personnel needs.
Tax 2.62(3)(b)3. 3. Lending funds, guaranteeing loans, or pledging assets.
Tax 2.62(3)(b)4. 4. Interplay in the area of corporate expansion, including but not limited to common future planning or development of the enterprise.
Tax 2.62(3)(b)5. 5. Providing technical assistance, general operational guidance, or overall operational strategic advice.
Tax 2.62(3)(b)6. 6. Supervising.
Tax 2.62(3)(b)7. 7. Sharing use of trade names, patents, or other intellectual property.
Tax 2.62(4) (4)Unity of operation and use. This subsection explains when participants in a commonly controlled economic enterprise are considered a unitary business because they have unity of operation and use.
Tax 2.62(4)(a) (a) General. If the participants in a commonly controlled economic enterprise have both unity of operation and unity of use, they shall be considered engaged in a unitary business.
Tax 2.62(4)(b) (b) Unity of operation. Unity of operation means there is functional integration among the participants, and is evidenced generally by shared support functions. Activities that indicate unity of operation include:
Tax 2.62(4)(b)1. 1. Centralized purchasing, marketing, advertising, accounting, or research and development.
Tax 2.62(4)(b)2. 2. Intercorporate sales or leases, including equipment and real estate.
Tax 2.62(4)(b)3. 3. Intercorporate services, including administrative, data management, computer support, employee benefits, human resources, insurance, tax compliance, legal, financial, and cash management services.
Tax 2.62(4)(b)4. 4. Intercorporate debts.
Tax 2.62(4)(b)5. 5. Intercorporate use of proprietary materials, including trade names, trademarks, service marks, patents, copyrights, and trade secrets.
Tax 2.62(4)(c) (c) Unity of use. Unity of use is evidenced generally by centralized management or use of centralized policies. Factors that indicate unity of use include:
Tax 2.62(4)(c)1. 1. Centralized executive force.
Tax 2.62(4)(c)2. 2. Interlocking directorates or corporate officers.
Tax 2.62(4)(c)3. 3. Intercompany employee transfers.
Tax 2.62(4)(c)4. 4. Common employee and executive training programs.
Tax 2.62(4)(c)5. 5. Common hiring and personnel policies.
Tax 2.62(4)(c)6. 6. Common recruiting programs.
Tax 2.62(4)(c)7. 7. Common employee handbooks.
Tax 2.62(4)(c)8. 8. Common employee benefit programs.
Tax 2.62(5) (5)Factors considered by u.s. supreme court. Since, as provided in s. 71.255 (1) (n), Stats., the definition of "unitary business" shall be construed to the broadest extent permitted by the U.S. Constitution, case law provides further guidance to determine whether a unitary business exists. Subsections (3) and (4) are reflective of that case law. Factors that have been considered by the U.S. Supreme Court to be determinative of a unitary business include:
Tax 2.62(5)(a) (a) Unity of use and management (Butler Bros. v. McColgan, 315 U.S. 501, 508, 62 S. Ct. 701, 704 (1942)).
Tax 2.62(5)(b) (b) A concrete relationship between the out-of-state and the in-state activities that is established by the existence of the unitary business (Container Corp. of America v. Franchise Tax Bd. of California, 463 U.S. 159, 167, 103 S. Ct. 2983, 2941 (1983)).
Tax 2.62(5)(c) (c) Functional integration, centralization of management, and economies of scale (Mobil Oil Corp. v. Comm'r of Taxes of Vermont, 445 U.S. 425, 438, 100 S. Ct. 1223, 1232 (1980)).
Tax 2.62(5)(d) (d) Substantial mutual interdependence (F.W. Woolworth Co. v. Taxation and Revenue Dept. of New Mexico, 458 U.S. 354, 371, 102 S. Ct. 3128, 3139 (1982)).
Tax 2.62(5)(e) (e) Some sharing or exchange of value not capable of precise identification or measurement — beyond the mere flow of funds arising out of a passive investment or a distinct business operation (Container, 463 U.S. at 166, 103 S. Ct. at 2940).
Tax 2.62(6) (6)Presumptions. The presumptions in pars. (a) to (g) apply when determining whether participants in a commonly controlled economic enterprise are considered a unitary business. Any of these presumptions may be rebutted by the taxpayer or by the department. However, the noncontrolling factors in par. (h) may not be used to rebut these presumptions.
Tax 2.62(6)(a) (a) Horizontal integration. An entity or commonly controlled group of entities is presumed to be engaged in a unitary business when all of its activities are in the same general line of business.
Tax 2.62(6)(b) (b) Vertical integration. An entity or commonly controlled group of entities is presumed to be engaged in a unitary business when its various divisions, segments, branches, or affiliates are engaged in different steps in a vertically structured enterprise.
Tax 2.62(6)(c) (c) Centralized management. An entity or commonly controlled group of entities that might otherwise be considered as engaged in more than one unitary business is presumed to be engaged in one unitary business when there is strong central management coupled with the existence of centralized departments or affiliates for such functions as financing, advertising, research and development, or purchasing.
Tax 2.62(6)(d) (d) Different business segments. An entity operating different business segments within the organizational structure of the single business entity is presumed to be engaged in a single unitary business with respect to the business segments.
Tax 2.62(6)(e) (e) Newly acquired corporations.
Tax 2.62(6)(e)1.1. Except as provided in subd. 2., when a corporation acquires another corporation so that the acquired corporation is a member of a commonly controlled group for the first time, it shall be presumed that the acquiring and acquired corporations are not engaged in a unitary business for the purchaser's taxable year that includes the acquisition. If the purchaser is already a combined group member, the taxable year that includes the acquisition is the taxable year of the combined group.
Tax 2.62(6)(e)2. 2. The presumption against unity in subd. 1. shall not apply if, immediately preceding the acquisition, the acquiring and acquired corporations were engaged in a unitary business apart from being in the same commonly controlled group, or if the designated agent of the combined group has properly made the controlled group election as provided in s. Tax 2.63.
Tax 2.62(6)(e)3. 3. If either the taxpayer or the department rebuts the presumption in subd. 1., the provisions of s. 71.255 (9), Stats., relating to part-year members of a combined group, shall apply.
Tax 2.62(6)(f) (f) Newly formed corporations. Where a corporation or more than one corporation forms, or has formed, a new corporation, it shall be presumed that the formed corporation is engaged in a unitary business with the forming corporation or corporations from the date of its formation.
Tax 2.62(6)(g) (g) Refusal to provide information. The department's determination of whether an entity is engaged in a unitary business is presumed to be correct if the taxpayer unreasonably refuses to provide information pertinent to the determination of a unitary business.
Tax 2.62(6)(h) (h) Noncontrolling factors. The following factors may not negate the presumptions in pars. (a) to (g):
Tax 2.62(6)(h)1. 1. The use of arms-length pricing for sales, exchanges, or transfers between entities (Exxon Corp.
Tax 2.62(6)(h)1.v.v. Dept. of Revenue of Wisconsin, 447 U.S. 207, 100 S. Ct. 2109 (1980)).
Tax 2.62(6)(h)2. 2. The fact that a business uses a separate accounting system, including separate accounting by division, by entity, by geographical area, by business function, or by business segment.
Tax 2.62(7) (7)Passive holding companies.
Tax 2.62(7)(a)(a) A passive holding company that is in a commonly controlled economic enterprise and holds intangible assets that are used by the enterprise in a unitary business shall be deemed to be engaged in the unitary business, even if the holding company's activities are primarily passive.
Tax 2.62(7)(b) (b) A passive parent holding company that directly or indirectly controls one or more operating company subsidiaries engaged in a unitary business shall be deemed to be engaged in a unitary business with the subsidiary or subsidiaries, even if the holding company's activities are primarily passive.
Tax 2.62(8) (8)Pass-through entities. For purposes of pars. (a) and (b), "pass-through entity" includes a partnership, limited liability company treated as a partnership, tax-option corporation, estate, or trust, but does not include corporations treated as real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, or financial asset securitization investment trusts.
Tax 2.62(8)(a) (a) For purposes of determining the scope of the unitary business, any business conducted by a pass-through entity that is controlled directly or indirectly by a corporation shall be treated as conducted by the corporation to the extent of the corporation's distributive share of the pass-through entity's income, regardless of the percentage of the corporation's ownership interest.
Tax 2.62(8)(b) (b) Any business conducted directly or indirectly by one corporation is unitary with that portion of a business conducted by another corporation through its direct or indirect interest in a pass-through entity if the requirements of s. 71.255 (1) (n), Stats., are otherwise met with respect to the corporations' interests in the pass-through entity and the corporations are members of the same commonly controlled group.
Tax 2.62 Note Note: Section Tax 2.62 interprets s. 71.255 (1) (n), Stats.
Tax 2.62 History History: EmR1001: emerg. cr. eff. 1-15-10; CR 09-064: cr. Register April 2010 No. 652, eff. 5-1-10; correction in (8) (intro.) and renumbering of (7) (a), (b), (8) (a) and (b) made under s. 13.92 (4) (b) 1. and 7., Stats., Register April 2010 No. 652.
Tax 2.62 Annotation Cross References: See s. Tax 2.60 for definitions that relate to this section. See s. Tax 2.61 (2) for more information on determining whether corporations are required to use combined reporting. See s. Tax 2.63 for more information on the controlled group election.
Tax 2.63 Tax 2.63 Controlled group election.
Tax 2.63(1) (1)Scope. Section 71.255 (2m), Stats., allows a commonly controlled group of corporations to elect to include every member of the commonly controlled group in a single combined group for combined reporting purposes. This section provides rules relating to making the election, continuity of the election, and limitations of the election.
Tax 2.63(2) (2)Making the election. Preapproval by the department is not required to make the election. The designated agent of the combined group shall make the election on behalf of the group as described in this subsection. Paragraph (c) provides rules relating to identifying the designated agent in cases where a commonly controlled group consists of corporations that previously filed as more than one combined group.
Tax 2.63(2)(a) (a) Time period for making election. The designated agent shall make the election on an original, timely filed combined return which includes all members of the commonly controlled group. A return shall be considered timely if it is filed by the designated agent on or before the due date of the return, including applicable extensions. If the return is timely filed without an extension, the designated agent may make the election by filing an amended combined return on or before the end of the automatic 7-month extension period provided in s. 71.24 (7) or 71.44 (3), Stats. A return filed after the end of the automatic 7-month extension period, whether an original or amended return, may not constitute a valid controlled group election for the taxable year to which the return applies, although an election may be filed for a subsequent taxable year subject to the limitation in sub. (3) (c).
Tax 2.63(2)(b) (b) Method of election and required documentation.
Tax 2.63(2)(b)1.1. For the first year the designated agent makes the election, the designated agent shall check a designated line of the combined return to indicate that a controlled group election is in effect.
Tax 2.63(2)(b)2. 2. For the first year the designated agent makes the election, the designated agent shall include a statement with the combined return which lists every corporation that is a member of the commonly controlled group, and indicates that each corporation has agreed to be bound by the election and that the election shall apply to any member that subsequently enters the group.
Tax 2.63(2)(c) (c) Multiple former combined groups.
Tax 2.63(2)(c)1.1. If a commonly controlled group consists of corporations that previously filed as more than one combined group, the controlled group election creates a new combined group. For purposes of application of loss carryforwards and research credits under s. Tax 2.61, each former combined group included in the new combined group is a subgroup as described in s. Tax 2.61 (9) (e) 1. and the corporations within each subgroup are eligible to share loss carryforwards and research credits from taxable years prior to the election with all the members of that subgroup, to the extent sharing would otherwise be allowed under s. Tax 2.61 (6) (c), (9), and (10).
Tax 2.63(2)(c)2. 2. A new combined group described in subd. 1. shall appoint the designated agent of one of the former combined groups to be the designated agent, and the provisions of s. Tax 2.65 apply to that designated agent. The corporation that files the first combined return under the election shall be deemed the appointed designated agent for the new combined group.
Tax 2.63(3) (3)Continuity of election.
Tax 2.63(3)(a)(a) Ten-year period. The controlled group election is binding for and applicable to all members of the commonly controlled group for the taxable year for which the election is made and for the next nine taxable years. The election is also binding on any corporations that join the commonly controlled group during the period the election is in effect. Any corporation that departs the commonly controlled group is not bound by the election for the taxable years after its departure from the group, except if par. (b) applies or if the corporation rejoins the commonly controlled group.
Tax 2.63(3)(b) (b) Reorganizations.
Tax 2.63(3)(b)1.1. When a merger or acquisition occurs between two combined groups where the acquiring group has not made the controlled group election but the target group has made the controlled group election, the controlled group election of the target group terminates on the date of the transaction. However, the designated agent of either the acquiring group or the target group may make the controlled group election with respect to all corporations that are in its commonly controlled group as determined after considering the effect of the merger or acquisition, provided the requirements in sub. (2) are met and the election is not precluded by par. (c).
Tax 2.63(3)(b)2. 2. When a merger or acquisition occurs between two combined groups where the acquiring group has made the controlled group election but the target group has not made the controlled group election, all corporations in the commonly controlled group as determined after considering the effect of the merger or acquisition are bound by the acquirer's controlled group election.
Tax 2.63(3)(b)3. 3. When a merger or acquisition occurs between two combined groups that have both made the controlled group election, the expiration date of the controlled group election for the entire commonly controlled group as determined after considering the effect of the merger or acquisition is the expiration date of the acquirer's controlled group election.
Tax 2.63(3)(b)4. 4. When a commonly controlled group that has made the controlled group election divests stock of one or more subgroups of members so that the subgroups are no longer in the commonly controlled group, those subgroups are no longer bound by the controlled group election, except if both the book value of total assets of a subgroup and its total fair market value are greater than those of the divesting group, then the subgroup is bound by the controlled group election and the controlled group election of the divesting group terminates on the date of the transaction.
Tax 2.63(3)(c) (c) Renewal.
Tax 2.63(3)(c)1.1. After the ten-year period described in par. (a), the designated agent may renew the election for another ten taxable years, without prior written approval from the department. The renewal shall be made on an original, timely filed return for the first taxable year after completion of the ten-year period. Except as provided in subd. 3., the requirements for a renewal of an election are the same as for making the original election as described in sub. (2).
Tax 2.63(3)(c)2. 2. If the election is not timely renewed as provided in subd. 1., the election is considered to be revoked by the designated agent. In the case of a controlled group election that is not timely renewed, a new election may not be permitted in any of the next three taxable years.
Tax 2.63(3)(c)3. 3. The designated agent may renew the election on an amended return filed after the end of the automatic 7-month extension period provided in s. 71.24 (7) or 71.44 (3), Stats., only if the original return was consistent with the controlled group election remaining in place and that the failure to comply with the requirements of sub. (2) was due to oversight or mistake.
Tax 2.63 Note Note: Section Tax 2.63 interprets s. 71.255 (2m), Stats.
Tax 2.63 History History: EmR1001: emerg. cr. eff. 1-15-10; CR 09-064: cr. Register April 2010 No. 652, eff. 5-1-10; CR 12-011: r. (4) Register July 2012 No. 679, eff. 8-1-12; correction in (3) (a), (b) 1. under s. 13.92 (4) (b) 7. Register July 2012 No. 679.
Tax 2.63 Annotation Cross References: See s. Tax 2.60 for definitions that relate to this section. See s. Tax 2.61 (2) (b) for more information on the effect of the controlled group election. See s. Tax 2.65 for more information on the duties of the designated agent. See s. Tax 2.67 for more information on combined returns.
Tax 2.64 Tax 2.64 Alternative apportionment for combined groups including specialized industries.
Tax 2.64(1) (1)Scope. Section 71.255 (5) (a), Stats., provides that a combined group is generally required to use the modified sales factor method to apportion its combined unitary income. However, s. 71.255 (5) (b), Stats., provides that a qualifying combined group may petition the department to use an alternative apportionment method. This section provides rules relating to the eligibility requirements, continuity, and limitations of this privilege.
Tax 2.64(2) (2)Eligibility requirements.
Tax 2.64(2)(a)(a) Qualifying combined group. A qualifying combined group is a combined group for which 30 percent or more of the combined unitary income would, in the absence of combined reporting, be required to be apportioned using more than one factor under a method described in ss. Tax 2.46, 2.47, 2.475, 2.48, 2.50, or 2.502.
Tax 2.64(2)(b) (b) Requirements for petition. The designated agent of the combined group requesting an alternative apportionment method shall file a petition no less than 60 days before filing the first original, timely filed return using the alternative method. If a return using the modified sales factor method has already been timely filed without an extension, the designated agent may file an amended return using the alternative method if it files a petition no less than 60 days before the end of the automatic 7-month extension period provided in ss. 71.24 (7) or 71.44 (3), Stats., as applicable, and the petition is approved by the department. The petition shall include the following:
Tax 2.64(2)(b)1. 1. The full name, address, and federal employer identification number of each member of the combined group.
Tax 2.64(2)(b)2. 2. The combined group's taxable year for which the alternative apportionment method as requested would begin to be effective.
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