Tax 2.60(2)(a)2.
2. A combined group remains in existence for as long as two or more corporations meet all three conditions described in s.
Tax 2.61 (2) (a) with regard to the same unitary business. The mere addition of new members or departure of existing members does not create a new combined group.
Tax 2.60(2)(a)3.
3. Any commonly controlled group that has made a controlled group election is a combined group, and each member of a commonly controlled group that has made the controlled group election is a combined group member.
Tax 2.60(2)(b)
(b) “Combined group member" means a corporation for which any part of the corporation's net income or loss is subject to combination and therefore required to be included in a combined report, or any member of a commonly controlled group that is subject to a controlled group election.
Tax 2.60(2)(c)
(c) “Combined report" has the meaning given in s.
71.255 (1) (b), Stats. A combined report is considered a return filed pursuant to ss.
71.24 (1) or
(1m) or
71.44 (1) or
(1m), Stats., as applicable, by each corporation included in the combined report. For this reason, the term “combined return" is used throughout the rules of this chapter to refer to a combined report.
Tax 2.60(2)(d)
(d) “Combined return" has the same meaning as “combined report" as explained in par.
(c). In general, a combined return includes the computation of combined unitary income, the apportionment of the income to each combined group member, as applicable, any separate entity items, loss carryforwards, and credits of each combined group member, and the net tax and economic development surcharge liability of each combined group member. To be considered complete, a combined return shall contain all the items required in s.
Tax 2.67 (2) (c).
Tax 2.60(2)(e)
(e) “Combined unitary income" means the combined group's net income or loss attributable to the unitary business which is subject to combination under s.
71.255, Stats., before apportionment and net business loss carryforwards. Combined unitary income excludes any amounts that are not subject to combination because of the water's edge rules.
Tax 2.60(2)(f)
(f) “Controlled group election" means an election to include every member of the commonly controlled group in the combined group as provided by s.
71.255 (2m), Stats., and further described in s.
Tax 2.63.
Tax 2.60(2)(g)
(g) “Corporation" includes corporations, publicly traded partnerships treated as corporations in section
7704 of the Internal Revenue Code, limited liability corporations treated as corporations under the Internal Revenue Code, joint stock companies, associations, common law trusts and all other entities treated as corporations under section
7701 of the Internal Revenue Code, unless the context requires otherwise in this chapter or in ch.
71, Stats.
Tax 2.60(2)(h)
(h) “Designated agent" means the corporation in the combined group responsible for acting on behalf of the group for matters relating to the combined return, as further described in s.
Tax 2.65.
Tax 2.60(2)(i)
(i) “Income" and “net income" include net losses, unless the context requires otherwise.
Tax 2.60(2)(j)
(j) “Intercompany transaction" means a transaction between two members of the same combined group.
Tax 2.60(2)(L)
(L) “Nonincludable corporation" means a corporation that is not required to use combined reporting even if it satisfies all three conditions described in s.
Tax 2.61 (2) (a). A nonincludable corporation cannot be a combined group member even if the nonincludable corporation is a member of a commonly controlled group which has made the controlled group election.
Tax 2.60(2)(m)
(m) “Separate entity item" means a combined group member's item of net income or loss or apportionment factor amount which is not subject to combination but instead must be accounted for on a separate entity basis. Separate entity items may include those listed in s.
Tax 2.61 (5) (b) to
(g). Net business loss carryforwards may be separate entity items if they are non-sharable loss carryforwards as provided in s.
Tax 2.61 (9).
Tax 2.60(2)(n)
(n) “State" means a state of the United States, the District of Columbia, the commonwealth of Puerto Rico, or any territory or possession of the United States.
Tax 2.60(2)(o)
(o) “Unitary business income" means the net income or loss derived from the unitary business, whether or not the income or loss is subject to combination. “Unitary business" is explained further in s.
Tax 2.62.
Tax 2.60(2)(p)
(p) “Unitary combination" means the computation of combined unitary income and of each member's share of the combined unitary income.
Tax 2.60(2)(q)
(q) “Water's edge rules" means the rules provided under s.
Tax 2.61 (4) under which some or all of a corporation's items attributable to a unitary business are not subject to combination because of the degree of the corporation's activity outside the United States.
Tax 2.60 History
History: EmR1001: emerg. cr. eff. 1-15-10;
CR 09-064: cr.
Register April 2010 No. 652, eff. 5-1-10;
CR 12-006: cr. (2) (Lm)
Register July 2012 No. 679, eff. 8-1-12;
CR 12-011: am. 2.60 (2) (d)
Register July 2012 No. 679, eff. 8-1-12.
Tax 2.61(1)(1)
Scope. Section
71.255, Stats., generally requires corporations that are commonly controlled and engaged in a unitary business to compute their net income on a combined basis. This section explains when combined reporting is required and how to compute a corporation's net income and tax liability under combined reporting. Subsections
(2) to
(4) describe who must use combined reporting and what income is subject to combination. Subsections
(5) to
(9) explain how to compute the taxable income of a combined group member, including net business loss carryforwards. Subsection
(10) provides rules relating to credits and credit carryforwards.
Tax 2.61(2)
(2)
Corporations required to use combined reporting. Tax 2.61(2)(a)
(a) General. A corporation is required to use combined reporting if it satisfies each of the following three conditions:
Tax 2.61(2)(a)1.
1. The corporation is a member of a “commonly controlled group" as defined in s.
71.255 (1) (c), Stats. See sub.
(3) for rules that apply to identifying a commonly controlled group of corporations.
Tax 2.61(2)(a)2.
2. The corporation is engaged in a “unitary business," as defined in s.
71.255 (1) (n), Stats., with one or more other corporations in its commonly controlled group, or the commonly controlled group makes a controlled group election. See s.
Tax 2.62 for rules to determine whether corporations are engaged in a unitary business. See s.
Tax 2.63 for rules pertaining to the controlled group election.
Tax 2.61(2)(a)3.
3. The corporation has unitary business income that is subject to combination under the water's edge rules described in sub.
(4).
Tax 2.61(2)(b)
(b) Effect of controlled group election. If a controlled group election applies as indicated in par.
(a) 2., all corporations in the commonly controlled group are deemed to be engaged in the same unitary business, and all of their net income or loss and apportionment factors are deemed to be derived from that unitary business. In general, this means that if the controlled group election applies, all members of the commonly controlled group are included in a combined report. However, despite this election, a corporation may be required to exclude some or all of its net income, loss, and apportionment factors from the unitary combination if so required under the water's edge rules described in sub.
(4).
Tax 2.61(2)(c)
(c) Corporations treated as pass-through entities. Except as provided in par.
(f), corporations that are included in the definition of “pass-through entity" in s.
71.255 (1) (m), Stats., including tax-option corporations, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, and financial asset securitization investment trusts, are nonincludable corporations. However, to the extent the net income or loss of these corporations is included in the net income of, or distributed to, a combined group member, the net income or loss is subject to combination to the extent derived from the unitary business and otherwise subject to combination under the water's edge rules described in sub.
(4). The provisions of s.
71.255 (1) (m), Stats., do not affect the taxation of tax-option corporations, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, or financial asset securitization investment trusts, other than to exclude them from combined reporting except where their inclusion is required under par.
(f).
Tax 2.61(2)(d)
(d) Tax exempt organizations. A corporation that is exempt from income and franchise taxes under ss.
71.26 (1) or
71.45 (1), Stats., is a nonincludable corporation except to the extent it has unrelated business taxable income as defined in section
512 of the Internal Revenue Code. The net unrelated business taxable income, and any corresponding apportionment factors are subject to combination to the extent the net income or loss is derived from the unitary business and is otherwise subject to combination under the water's edge rules described in sub.
(4).
Tax 2.61(2)(e)
(e) Disregarded entities. An entity that is disregarded as a separate entity for federal income tax purposes under section
7701 of the Internal Revenue Code is considered a branch or division of its owner for Wisconsin income and franchise tax purposes. A corporation shall include the net income or loss and apportionment factors of any disregarded entity of which it is an owner in the combined report to the extent they would be included if the corporation itself earned the income. The water's edge rules described in sub.
(4) do not apply to disregarded entities except insofar as the rules apply to the owner of the disregarded entity.
Tax 2.61(2)(f)
(f) Other provisions that may apply. Nothing in ss.
Tax 2.60 to
2.67 is intended or should be construed as a waiver of the department's authority under s.
71.255 (2) (f), Stats., or any other authority granted to the department by law. Section
71.255 (2) (f), Stats., provides the following:
Tax 2.61(2)(f)1.
1. The department may require that a combined report include the items of any person or entity who is not otherwise a combined group member but who is a member of the unitary business, in order to reflect proper apportionment of income of the entire unitary business.
Tax 2.61(2)(f)2.
2. If the reported income or loss of a combined group member engaged in a unitary business with a person or entity who is not otherwise a combined group member represents an avoidance or evasion of tax by either party, the department may require all or any part of the income or loss and apportionment factors of either party to be included in or excluded from a combined report, or may require the use of a different apportionment factor or factors.
Tax 2.61(3)
(3)
Commonly controlled group. In general, s.
71.255 (1) (c), Stats., provides that a commonly controlled group exists in cases where there is common ownership or control of stock representing more than 50 percent of the voting power of the corporations in the group. The corporations in a commonly controlled group shall be determined as provided in s.
71.255 (1) (c), Stats., which is further explained in the following paragraphs:
Tax 2.61(3)(a)
(a) Stock attribution rules. For purposes of s.
71.255 (1) (c) 1. and
2., Stats., a shareholder is considered to have indirect ownership of stock or indirectly own stock if the shareholder has constructive ownership of the stock by operation of section
318 of the Internal Revenue Code, except as provided in subds.
1. and
2. Tax 2.61 Note
Example: Corporation A owns stock representing 40% of the voting power of Corporation B and has a 50% interest in Partnership C. Partnership C owns stock representing 30% of the voting power of Corporation B. By operation of section
318 of the Internal Revenue Code, Corporation A constructively owns stock representing 55% (= 40% + (50% x 30%)) of the voting power of Corporation B.
Tax 2.61(3)(a)1.
1. In applying section
318(a)(2) of the Internal Revenue Code, if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50 percent of an entity, it shall be considered to own all of the stock or other ownership or control interests owned by that entity.
Tax 2.61 Note
Example: Corporation D owns stock representing 10% of the voting power of Corporation E and has a 75% interest in Partnership F. Partnership F owns stock representing 45% of the voting power of Corporation E. Corporation D is considered to constructively own stock representing 55% (= 10% + 45%) of the voting power of Corporation E. This is because Corporation D owns more than 50% of Partnership F and is therefore considered to own all of the Corporation E stock owned by Partnership F.
Tax 2.61(3)(a)2.
2. If a person has an option to acquire stock or other ownership interests in an entity, the stock or ownership interests are not considered owned by the person unless the department determines it to be necessary to prevent tax avoidance.
Tax 2.61(3)(b)
(b) Common owner or owners. The common owner or owners need not be combined group members, and the common owner or owners may be persons other than corporations.
Tax 2.61(3)(c)
(c) Multiple unitary businesses. A commonly controlled group may be engaged in one or more unitary businesses. Therefore, a commonly controlled group may contain more than one combined group.
Tax 2.61(3)(d)1.1. A shareholder has ownership or control of stock representing more than 50 percent of the voting power of a corporation only if the shareholder has ownership or control of more than 50 percent of the total combined voting power of all classes of stock of the corporation entitled to vote.
Tax 2.61(3)(d)2.
2. A group of two or more corporations need not be commonly owned to be commonly controlled. As provided in s.
71.255 (1) (c) 3., Stats., a group of corporations may be a commonly controlled group if stock representing more than 50 percent of the voting power in each corporation are interests that cannot be separately transferred. If a group of 2 or more corporations would be considered stapled entities under section
269B of the Internal Revenue Code and the regulations that interpret it, without regard to whether the corporations are foreign or domestic, the corporations shall be considered part of a commonly controlled group.
Tax 2.61(3)(d)3.
3. The mere ownership of stock entitled to vote does not by itself mean that the shareholder owning the stock has the voting power of the stock. If there is any agreement, whether express or implied, that any shareholder will not vote its stock or will vote it only in a specified manner, or that shareholders owning stock having 50 percent or less of the total combined voting power will exercise voting power normally possessed by a majority of stockholders, the department may presume that the nominal ownership of the voting power is not determinative of which shareholders actually hold the voting power and may disregard the nominal ownership. This presumption may be rebutted by the taxpayer.
Tax 2.61(3)(d)4.
4. If a shareholder owns shares of stock of a corporation which has another class of stock outstanding, the voting power of that other class of stock will be deemed owned by any person or persons on whose behalf it is exercised if the facts indicate that the shareholders of that other class of stock do not exercise their voting rights independently or fail to exercise their voting rights. If the voting power in that other class of stock is not exercised and the percentage of voting power of that class of stock is substantially greater than its proportionate share of the corporate earnings, the department may presume that the principal purpose of the arrangement was avoid the inclusion of the corporation in the commonly controlled group and may disregard the voting power of the class of stock that was not exercised. This presumption may be rebutted by the taxpayer.
Tax 2.61(4)
(4)
Water's edge. This subsection describes how a corporation that is otherwise a combined group member must determine and report items that are not subject to combination due to the extent of the corporation's activities outside the United States, as provided in s.
71.255 (2), Stats. In general, the corporation must consider whether it is a foreign corporation or domestic corporation, whether it qualifies as an “80/20 corporation," and whether its income is from foreign sources or U.S. sources. The following rules apply:
Tax 2.61(4)(a)
(a) Qualifying as a “foreign corporation". For purposes of the water's edge rules in pars.
(d) and
(e), a “foreign corporation" means any corporation that is not incorporated, organized, or created in the United States or under the laws of the United States or any state. For purposes of determining whether a corporation is a foreign corporation or a domestic corporation, the following rules apply:
Tax 2.61(4)(a)1.
1. If, for federal purposes, a corporation is treated as created or organized under the laws of both the U.S. and a foreign jurisdiction, it is a domestic corporation.
Tax 2.61(4)(a)2.
2. A foreign corporation that domesticates and is treated by a state as organized under the laws of that state is a domestic corporation.
Tax 2.61(4)(a)3.
3. If an entity is organized in a foreign country and is recognized in that country as a corporation, but the entity's owner elects to treat that entity as a branch for U.S. taxation purposes or the entity is a disregarded entity, the entity shall be treated as a branch of its owner.
Tax 2.61(4)(b)1.1. For purposes of the water's edge rules in pars.
(d) and
(e), a corporation is an “80/20 corporation" if 80 percent or more of its worldwide gross income during the testing period is “active foreign business income" as defined in subchapter N of the Internal Revenue Code.
Tax 2.61(4)(b)2.
2. The testing period for purposes of subd.
1. is the tested corporation's taxable year that would be included in the combined group's taxable year, as determined by s.
71.255 (8), Stats. If the tested corporation was not otherwise eligible to be a combined group member for any part of that taxable year (for example, the corporation did not satisfy the conditions in sub.
(2) (a) 1. or
2.), the testing period is the portion of that taxable year in which the corporation was otherwise eligible to be a member.
Tax 2.61(4)(b)3.
3. An 80/20 corporation may be either a foreign corporation or a domestic corporation.
Tax 2.61(4)(b)4.
4. For purposes of this paragraph, a corporation's active foreign business income includes gross income attributed from subsidiary corporations as provided in subchapter N of the Internal Revenue Code, but only to the extent the gross income of the subsidiary corporations is derived from the combined group's unitary business.
Tax 2.61(4)(b)5.
5. A disregarded entity's active foreign business income and worldwide gross income shall be combined with those of its owner for purposes of applying the test in subd.
1. Tax 2.61(4)(c)1.1. For purposes of the water's edge rules in pars.
(d) and
(e), income is foreign source income if it is from sources without the United States as provided in sections
861 through
865 of the Internal Revenue Code, except as provided in subd.
2. “United States" has the same meaning as in sections
861 through
865 of the Internal Revenue Code.
Tax 2.61(4)(c)2.
2. For a foreign corporation, foreign source income does not include income that is subject to United States taxation because it is effectively connected with the conduct of a trade or business within the United States under sections
861 through
865 of the Internal Revenue Code, even if the income is otherwise from sources without the United States. However, this subdivision shall be disregarded in applying the test under par.
(b) 1. Tax 2.61(4)(c)3.
3. All income that is not foreign source income is U.S. source income.
Tax 2.61(4)(d)1.1. A domestic corporation that is not an 80/20 corporation shall include in the unitary combination all net income or loss from the unitary business regardless of whether it is foreign source income or U.S. source income, and any apportionment factors related to that net income or loss.
Tax 2.61(4)(d)2.
2. A domestic corporation that is an 80/20 corporation is a consolidated foreign operating corporation. A consolidated foreign operating corporation shall include in the unitary combination its net income or loss from the unitary business to the extent it is both U.S. source income and is income described in s.
71.255 (2) (d), Stats., and any apportionment factors related to that net income or loss. The consolidated foreign operating corporation may not include in the unitary combination any foreign source income, income not described in s.
71.255 (2) (d), Stats., expenses or deductions related to the excluded income as provided in sub.
(6) (h), or apportionment factors related to the excluded income. However, the excluded income may still be taxable as described in par.
(h). The income described in s.
71.255 (2) (d), Stats., is explained further in par.
(f).
Tax 2.61(4)(e)1.1. A foreign corporation that is not an 80/20 corporation shall include in the unitary combination its net income or loss from the unitary business to the extent it is U.S. source income, and any apportionment factors related to that net income or loss. The corporation may not include in the unitary combination any foreign source income, expenses or deductions related to the excluded income as provided in sub.
(6) (h), or apportionment factors related to the excluded income. However, this foreign source income may still be taxable as described in par.
(h).
Tax 2.61(4)(e)2.
2. Except as provided in subd.
3., a foreign corporation that is an 80/20 corporation may not include any income, expenses, or apportionment factors in the unitary combination, but may still have taxable income as described in par.
(h).
Tax 2.61(4)(e)3.
3. A foreign corporation that is an 80/20 corporation but elects to be included in a federal consolidated return for the taxable year shall be treated as if it is a domestic corporation, in which case the rules of par.
(d) 2. apply to the corporation. This subdivision applies regardless of whether the combined group has made the controlled group election.
Tax 2.61(4)(f)
(f) Includable income of consolidated foreign operating corporations. The net income that a consolidated foreign operating corporation shall include in a unitary combination, as described in par.
(d) 2., includes the items described in subds.
1. to
5. to the extent the income is U.S. source income and from the unitary business, regardless of whether earned or incurred directly by that corporation or by a pass-through entity in which the corporation has an interest:
Tax 2.61(4)(f)1.
1. Interest income or income generated from intangible property, whether or not the income is derived from persons or entities related to the consolidated foreign operating corporation. Income generated from intangible property includes income related to the direct or indirect acquisition, use, maintenance, management, ownership, sale, exchange, or any other disposition of intangible property; income from factoring transactions or discounting transactions; royalty, patent, technical, and copyright fees; and licensing fees. For purposes of this subdivision, “intangible property" has the meaning given in s.
71.22 (3h), Stats.
Tax 2.61(4)(f)2.
2. Income derived from interest expenses or intangible expenses that were paid, accrued, or incurred by combined group members to or for the benefit of the consolidated foreign operating corporation; to the extent those amounts were not already included under subd.
1. For purposes of this subdivision, “interest expenses" has the meaning given in s.
71.22 (3m), Stats., and “intangible expenses" has the meaning given in s.
71.22 (3g), Stats.
Tax 2.61(4)(f)3.
3. Dividend income received from a real estate investment trust that is not a qualified real estate investment trust as defined in s.
71.22 (9ad), Stats.
Tax 2.61(4)(f)4.
4. Gains or losses derived from the sale or lease of real or personal property located in the United States.
Tax 2.61(4)(f)5.
5. Expenses or deductions related to the income, gains, and losses described in subds.
1. to
4., determined in the manner provided in sub.
(6) (h).
Tax 2.61(4)(g)
(g) Applicability of federal treaties. If a corporation's income is not included in gross income for federal income tax purposes under the provisions of a federal treaty, the income is not included in gross income for Wisconsin purposes and shall not be included in combined unitary income.
Tax 2.61(4)(h)
(h) Taxation of income not subject to combination under water's edge. Any income, expenses, and apportionment factors that are excluded from the unitary combination under pars.
(d) and
(e) shall be taken into account by the separate corporation that earned the income. The following rules apply to determining and reporting Wisconsin net income or loss not subject to combination under the water's edge rules:
Tax 2.61(4)(h)1.
1. The net income or loss is presumed to be from a unitary business and therefore apportionable.
Tax 2.61(4)(h)2.
2. The corporation's nexus depends on whether the corporation is a “combined group member" as defined in s.
Tax 2.60 (2) (b). If the corporation is a combined group member, the provisions of subd.
3. apply. If the corporation is not a combined group member, the provisions of subd.
4. apply.
Tax 2.61(4)(h)3.
3. Under s.
71.255 (5) (a), Stats., a corporation that is a combined group member is doing business in this state if any member of the combined group is doing business in this state relating to the unitary business. If the corporation is a combined group member because of the controlled group election, that corporation is doing business in this state if any member of the combined group is doing business in this state. In either case, an apportioned share of the corporation's net income or loss that is not subject to combination under the water's edge rules may be taxed by Wisconsin. “Doing business in this state" is defined in s.
71.22 (1r), Stats., and further explained in s.
Tax 2.82.
Tax 2.61(4)(h)4.
4. If the corporation is not a combined group member, s.
71.255 (5) (a), Stats., does not apply. Instead, the corporation is doing business in this state if, when considered as a separate entity, it is “doing business in this state" as defined in s.
71.22 (1r), Stats., and further explained in s.
Tax 2.82. For example, and without limitation, the corporation may have nexus in this state if any agent of the corporation, including a member of the combined group, acts on the corporation's behalf in this state in a manner that would create nexus under s.
71.22 (1r), Stats., s.
Tax 2.82, or otherwise.
Tax 2.61(4)(h)5.
5. The provisions of ss.
71.26 (2) (a) 7. and
71.45 (2) (a) 16., Stats., requiring an addition modification for interest expenses, rent expenses, intangible expenses, and management fees paid, accrued, or incurred to a related entity, apply to any amounts not subject to combination which were paid, accrued, or incurred by the corporation to any related entity, even if the related entity was a combined group member.
Tax 2.61(4)(h)6.
6. The numerator and denominator of the apportionment ratio shall include only that corporation's apportionment factors attributable to unitary business income that is not subject to combination. Intercompany transactions may not be eliminated from the apportionment factors unless the department determines those transactions have no economic substance as determined under the provisions of ss.
71.30 (2m) or
71.80 (1m), Stats., as applicable, or if the department determines that those transactions have no business purpose other than tax avoidance. If the corporation is a combined group member, it must apply the provisions of sub.
(7) (c) in computing the amount of throwback sales includable in the numerator.
Tax 2.61(4)(h)7.
7. Income separately apportioned as described in this paragraph may be reported on a designated line of the combined return, supported by a department-prescribed schedule, instead of reporting that income on a separate return. This separately apportioned income shall be considered a separate entity item. See s.
Tax 2.67 (2) (d) for filing requirements relating to separate entity items.
Tax 2.61 Note
Examples: 1) A, B, and C are corporations in a commonly controlled group and engaged in a unitary business. All of the income of the corporations is derived from the unitary business. A and B are incorporated in Delaware. C is incorporated in France. The income of A and B is derived exclusively from U.S. sources. Ninety percent of C's worldwide gross income is active foreign business income. The remaining 10% of C's worldwide gross income is U.S. source income, some of which has situs in Wisconsin. C has agents acting on its behalf in Wisconsin which create nexus because their activities exceed the protection of P.L. 86-272. Since C is a foreign 80/20 corporation, none of its net income, expenses, or apportionment factors may be included in the unitary combination. Thus, C is not a combined group member.
Tax 2.61 Note
However, C is subject to tax on an apportioned share of its worldwide net income, to the extent the income is not exempt by federal treaty. In determining the apportioned share, the numerator and denominator of C's apportionment factors are its numerator and denominator computed for C on a separate entity basis. Since C is not a combined group member, it cannot consider the activities of A or B when it computes its throwback sales for purposes of the numerator. C is required to report this income to Wisconsin as a separate entity item.
Tax 2.61 Note
2) Combined Group DE consists of Member D and Member E. Both D and E are Delaware corporations. All of the income of D and E is derived from the unitary business. All of D's income is from sources within the U.S. However, 85% of E's worldwide gross income is active foreign business income, making E a domestic 80/20 corporation. E has total of $150,000 of income from the unitary business, net of expenses. Of this amount, $100,000 is derived from intangible property and $50,000 is derived from service fees. D and E must include in the unitary combination all of D's income, expenses, and apportionment factors and E's income, expenses, and apportionment factors only to the extent related to its income derived from intangible property. Since E is a domestic 80/20 corporation and service fees are not one of the types of income subject to combination for a domestic 80/20 corporation, E's service fee income, and expenses and apportionment factors relating to that income, must be excluded from the unitary combination.
Tax 2.61 Note
However, E is subject to tax on an apportioned share of its service fee income. E has nexus in Wisconsin because it is a member of Group DE, which is doing business in Wisconsin. In determining the apportioned share, the numerator and denominator of E's apportionment factors are its numerator and denominator including only the factors relating to its service fee income and computed for E on a separate entity basis. However, since E is a combined group member, it may consider the activities of D when it computes its throwback sales for purposes of the numerator. E is required to report this income to Wisconsin as a separate entity item.
