NOTICE IS HEREBY GIVEN That pursuant to ss.
125.03 (1) (b) and
125.545 (6) (b), Stats., the Department of Revenue will hold public hearings to consider emergency rules and the creation of permanent rules revising Chapter
Tax 2, relating to combined reporting for corporation franchise and income tax purposes.
This proposed rule order will:
•
Reflect the changes in Wisconsin's franchise and income tax laws affected by
2009 Act 2, and
•
Provide guidance to taxpayers and Department employees so they can properly apply the Wisconsin franchise and income tax laws.
Hearing Information
The hearings will be held:
Date and Time:
|
Location:
|
September 25, 2009 at 9:00 a.m.
|
Events Room
State Revenue Building
2135 Rimrock Road
Madison, Wisconsin
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October 16, 2009
at 9:00 a.m.
|
Events Room
State Revenue Building
2135 Rimrock Road
Madison, Wisconsin
|
Copies of Proposed Rules
A copy of the full text of the proposed rule order and the full fiscal estimate may be obtained at no cost by contacting the department. See Agency Contact Person listed below.
Submission of Written Comments
Interested persons are invited to appear at the hearings and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearings. Written comments may also be submitted to the Agency Contact Person listed below no later than October 16, 2009, and will be given the same consideration as testimony presented at the hearing.
Agency Contact Person
Wendy Miller
Department of Revenue
Mail Stop 6-40
2135 Rimrock Road
P.O. Box 8933
Madison, WI 53708-8933
Telephone: (608) 266-7177
Analysis Prepared by the Department of Revenue:
Statute interpreted
Statutory authority
General rulemaking authority in s.
227.24, Stats.; specific rulemaking authority granted in s.
71.255, Stats., as follows:
•
Section
71.255 (6) (b) 2. and
(c) 2., Stats., relating to net business loss carryforwards, credits, and credit carryforwards.
•
Section
71.255 (7) (a), Stats., relating to identifying the designated agent.
•
Section
71.255 (11), relating to the adoption of federal treasury regulations so that transactions among combined group members are treated consistently with transactions among federal consolidated group members.
Related statute or rule
Sections
71.24 (1),
(1m), and
(7),
71.29,
71.44 (1),
(1m), and
(3),
71.77,
71.82,
71.83, and
71.84, Stats.
Plain language analysis
This rule creates eight new rule sections. The purpose of each rule section is provided below:
Section Tax 2.60 Definitions Relating to Combined Reporting.
Provides
definitions relating to the other rule sections created by this rule order. Those other sections are ss.
Tax 2.61,
2.62,
2.63,
2.64,
2.65,
2.66, and
2.67.
•
Explains who must use combined reporting.
•
Provides rules for determining whether a corporation is a member of a “commonly controlled group."
•
Explains when a corporation's income is not subject to combination because of the degree of the corporation's activity outside the U.S. (“water's edge" rules).
•
Explains how to compute the combined group's combined unitary income, including the applicability of federal regulations that relate to consolidated groups. The following components of the computation are covered:
• Intercompany transactions
• Capital gains and losses
• Charitable contributions
• Dividends
• Stock basis adjustments
• Earnings and profits
• Allocation of expenses and deductions
•
Explains how to apportion the combined unitary income and rules that apply to various aspects of the apportionment computation.
•
Provides rules for determining the taxable income of combined groups that are not subject to apportionment.
•
Describes how to apply net business loss carryforwards, including rules relating to the sharing of net business losses.
•
Describes how to apply credits, including rules relating to the sharing of research credits.
•
Explains the concept of a “unitary business" and its relationship to the concept of a “combined group."
•
Enumerates several characteristics that are indicators of a “unitary business."
•
Lists some key U.S. Supreme Court cases which provide further guidance on the extent to which a business enterprise is considered a “unitary business" under the U.S. Constitution. This is significant because the statute provides that “unitary business" shall be construed to the broadest extent permitted by the U.S. Constitution.
•
Provides several presumptions to aid taxpayers in determining whether a unitary business exists.
•
Provides specific rules relating to the inclusion of passive holding companies and pass-through entities in the unitary business.
Section Tax 2.63 Controlled Group Election.
•
Explains how to make the election and how to renew it after its 10-year duration.
•
Provides rules relating to the department's authority to disregard the election in cases where it has the primary effect of tax avoidance rather than its intended purpose of simplifying the determination of who must be included in the combined report.
Section Tax 2.64 Alternative Apportionment for Combined Groups Including Specialized Industries.
•
Specifies how and when a qualifying group may file a petition for alternative apportionment and what information must be submitted to the department.
•
Provides that once the department approves the alternative method, that same method must be used for a 7-year period, subject to a limitation that the tax computation under the alternative method cannot be lower than what it would have been if each corporation apportioned its income separately.
Section Tax 2.65 Designated Agent of Combined Group.
•
Explains how to identify which corporation is responsible to act on behalf of the combined group for matters relating to the combined return.
•
Defines the scope and limitations of the agency relationship.
Section Tax 2.66 Combined Estimated Tax Payments.
•
Explains when a combined group member may make its own estimated payments, rather than having the designated agent make the payments on its behalf.
•
Provides rules for determining the combined group's required estimated tax payments.
•
Provides rules for applying estimated payments and overpayments of prior year estimated payments.
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Enumerates the required components of a combined return and explains how to report separate entity items.
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Explains how to determine the taxable year of a combined return.
•
Provides rules relating to interest, penalties, and statutes of limitations as they relate to combined returns.
Comparison with federal regulations
The rules are very similar to the federal regulations relating to consolidated groups. The federal regulations listed below are specifically referenced or adopted in this rule order, but modified to apply to combined groups instead of federal consolidated groups.
•
Treas. Reg. §
1.1502-13, relating to intercompany transactions. This federal regulation was actually adopted by statute (s.
71.255 (4) (g), Stats.), but is interpreted in this rule order (s.
Tax 2.61 (6) (b)).
The general purpose of the above federal regulations is to treat the members of a federal consolidated group as if they were divisions of a single corporation. Likewise, the purpose of adopting these rules for Wisconsin purposes is to treat the members of a combined group as if they were divisions of a single corporation.
Comparison with rules in adjacent states
Illinois
Illinois has comprehensive regulations relating to its combined reporting statute. (including IL Regs. 100.2340, 100.2570, 100.5200, 100.5201, 100.5210, 100.5220, 100.5230, 100.5240, 100.5250, 100.5260, 100.5265, 100.5280, and 100.9700). The following aspects of the rules in this rule order were modeled after the Illinois regulations, with some modifications:
•
Adoption of federal consolidated return regulations
•
Combined estimated tax payments
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Rules relating to the duties of the designated agent
Iowa
Iowa does not have a statute which permits or allows combined reporting. Thus, it has no rules or regulations relating to combined reporting.
Michigan
