(b) The corporation is a party to a corporate restructuring that occurs after June 30, 1998 and before January 1, 2000.
(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.
(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.
(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:
(a) The full name, address and federal employer identification number of the corporation applying for the change in apportionment method.
(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.
(c) The corporation's and the subsidiaries' taxable year. The subsidiaries shall have the same taxable year as the corporation.
(d) The taxable year for which the corporation wishes the change to become effective.
(e) A detailed description of the corporate structure and business operations before the corporate restructuring.
(f) A detailed description of the corporate structure and business operations after the corporate restructuring.
(g) The present allocation or apportionment method used in Wisconsin.
(h) A description of the alternative apportionment method requested.
(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.
(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.
(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.
(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.
(m) Whether the corporation is being audited by the department at the time of the application.
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.
(4) ALTERNATIVE METHODS OF APPORTIONMENT. The department may authorize any one or a combination of the following alternative methods of apportionment:
(a) Excluding any one or more of the property, payroll and sales factors.
(b) Weighting the factors other than 50% sales, 25% property and 25% payroll.
(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:
1. A sale is allocated to the location where the customer receives the benefit of the service.
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.
(d) Including one or more additional factors which will fairly represent the corporation's or the subsidiaries' business activity in this state.
(e) Allowing one method for apportioning the business income of the corporation and another method for apportioning the business income of a subsidiary.
(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.
(g) Allowing any other apportionment method that will fairly represent the corporation's and the subsidiaries' business activity in this state.
(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.
(6) YEARS FOR WHICH USE OF ALTERNATIVE METHOD OF APPORTIONMENT APPLIES. (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).
(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.
(7) REVOCATION OF USE OF ALTERNATIVE METHOD OF APPORTIONMENT.
(a) 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.
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.
(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).
(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.
(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.
(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.
Note: The address for mailing the returns is: Audit Bureau, Wisconsin Department of Revenue, P.O. Box 8906, Madison, WI 53708-8906.
(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.
Note: Section Tax 2.395 interprets s. 71.25(14), Stats.
Initial Regulatory Flexibility Analysis
This proposed rule order does not have a significant economic impact on a substantial number of small businesses.
Fiscal Estimate
Assumptions Used in Arriving at Fiscal Estimate
Under provisions of 1997 Wisconsin Act 299, corporations may request, and the Department may approve, an alternative method of apportionment of income in the event of a corporate restructuring that would result in unfair representation of the degree of business activity in the state. The alternative method may not result in less franchise or income tax revenue to the state than the current corporate structure is liable for, given the same overall level of sales, payroll and property.
Before granting a request for alternative apportionment, Act 299 requires the Department to promulgate rules specifying the circumstances in which alternative apportionment may be granted and the kinds of alternatives that may be authorized. The allowance of an alternative apportionment method takes effect for taxable years beginning on January 1,1998, and corporations must request use of an alternative method on or before January 1,2000.
Alternative Apportionment of Income
The rule specifies that certain corporations that are party to a restructuring that results in an unfair representation of business activity in the state may apply for an alternative apportionment method and specifies the required content of the application.
The rule defines an unfair representation of business activity as combined net tax liability of the parent and subsidiaries that exceeds 200% of the net tax liability the parent corporation would have computed if it had not contributed business operations to the subsidiaries and that results in at least $2 million of additional tax liability. Calculations are based on data from the most recently filed tax return prior to July 1, 1998.
Under the rule, the Department may authorize the following alternative methods of apportionment:
1. Excluding one or more of the property, payroll or sales factors.
2. Weighting the factors differently (generally factors are weighted as 50% sales, 25% payroll and 25% property).
3. 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. Sales are allocated to the location where the customer receives the benefit of the service; multi-state benefit is allocated proportionately to each state.
4. Including one or more additional factors.
5. Allowing different methods of apportionment for the parent and subsidiaries corporations.
6. Allowing a parent and subsidiary corporations to compute net tax liability as though the group were one taxpayer by adding apportionable income and factors and eliminating intercompany transactions.
7. Allowing any other apportionment method that will fairly represent business activity in the state.
The rule specifies that the aggregate of the corporations' and the subsidiaries' Wisconsin tax liability is the greater of the Wisconsin tax liability calculated using the alternative apportionment method or the tax liability calculated using the standard apportionment method as if the corporate restructuring had not occurred. These calculations and the calculations using the standard method of apportionment after corporate restructuring must be filed for each taxable year with the returns of the corporation and subsidiaries to the Department's Audit Bureau. This last calculation measures the change in tax revenues attributable to the provision.
Once granted, the alternative apportionment method continues in subsequent years until revoked. If upon audit or review the Department finds that the use of the standard apportionment method no longer results in unfair representation of the degree of business activity in the state, the corporation and subsidiaries must recalculate their Wisconsin tax liabilities for each year the alternative method was used and unfair representation did not exist.
Once the alternative method is granted, unfair representation of business activity continues to exist if there is a substantial amount of difference between the tax liability calculated under the standard apportionment method and the tax liability had the restructuring not occurred. If a substantial difference in tax liability does not exist for three consecutive years, the corporation may no longer use the alternative apportionment method.
If the Department terminates the alternative method, the corporation may request and the Department will resubmit the proposed alternative method to the co-chairpersons of the joint committee for review of administrative rules.
Fiscal Effect
Since the determination to grant an alternative apportionment method is based on projections of income of restructured corporations, the Department does not have actual data to estimate the fiscal effect of this provision. Because a change in a corporation's apportionment ratio could either raise or lower it's tax, the fiscal effect could be positive or negative in any given year. Discussions with other states that have similar provisions indicate that corporations seek changes in apportionment ratio in limited instances, which implies a small fiscal effect. However, apportionment ratio changes can have a substantial effect on a corporation's tax liability, so that the change in any year could be significant.
Administrative Rules Filed With The
Revisor Of Statutes Bureau
The following administrative rules have been filed with the Revisor of Statutes Bureau and are in the process of being published. The date assigned to each rule is the projected effective date. It is possible that the publication of these rules could be delayed. Contact the Revisor of Statutes Bureau at (608) 266-7275 for updated information on the effective dates for the listed rules.
Architects, Landscape Architects, Professional Geologists, Professional Engineers, Designers and Land Surveyors Examining Board
(CR 98-30):
An order affecting chs. A-E 1 to 10, relating to the registration and regulation of architects, landscape architects, professional geologists, professional engineers, designers and land surveyors.
Effective 02-01-99.
An order creating s. Comm 69.18 (2) (a) 2.c., relating to the exemption of elevator access to certain areas within government-owned or -operated buildings or facilities.
Effective 01-01-99.
An order affecting ch. ILHR 57, subch. II, relating to the exemption of accessibility requirements for certain multilevel, multifamily dwelling units.
Effective 01-01-99.
An order affecting ss. Ins 6.58 and 6.59 and ch. Ins 28, relating to the requirements for continuing education for insurance intermediaries.
Effective 02-01-99.
An order affecting ss. Ins 6.59 and 6.61 and ch. Ins 26, relating to the application process and requirements of prelicensing education for insurance agents.
Effective 02-01-99.
An order affecting s. Ins 4.10, relating to changes in the requirements for the Wisconsin Insurance Plan.
Effective 01-01-99.
An order affecting ss. NR 113.05, 113.07, 113.09 and 113.11, relating to septage management.
