Tax 2.61 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: am. (9) (intro.), (a) (intro.), 1., (b) (intro.), r. (9) (b) 1., r. and recr. (9) (c)
Register July 2012 No. 679, eff. 8-1-12;
CR 13-078: am. (7) (a) 4., (b) 4., (g) (intro.), 1.
Register April 2014 No. 700, eff. 5-1-14;
CR 16-046: am. (9) (c) 3. (Example)
Register January 2018 No. 745, eff. 2-1-18;
CR 19-141: am. (4) (b) 1., 4., (6) (a) 3., r. and recr. (7) (h)
Register September 2020 No. 777, eff. 10-1-20; correction in (6) (a) 3. made under s.
35.17, Stats.,
Register September 2020 No. 777.
Tax 2.61 Annotation
Cross Reference: See s. Tax 2.60 for definitions that relate to this section.
Tax 2.62(1)(1)
Scope. Section
71.255 (2) (a), Stats., provides that a corporation engaged in a unitary business with one or more other corporations in the same commonly controlled group is generally required to determine its share of income from that unitary business using a combined report. Section
71.255 (1) (n), Stats., defines “unitary business." The purpose of this section is to provide further interpretation of the meaning of “unitary business."
Tax 2.62(2)
(2)
General. A unitary business is a single, commonly controlled economic enterprise for which the components of the enterprise are sufficiently interdependent, integrated, and interrelated through their activities to such a degree that if the enterprise is doing business both within and outside a state, the state is permitted under the U. S. Constitution to tax a fairly apportioned share of the total net income of the enterprise.
Tax 2.62(2)(a)
(a) Commonly controlled. A unitary business may consist of a single entity or a group of two or more related entities, including corporations, tax-option corporations, partnerships, limited liability companies, sole proprietorships, estates, and trusts. A group of related entities may satisfy the commonly controlled requirement of a unitary business if they are related in any of the following ways:
Tax 2.62(2)(a)1.
1. The entities are related under the provisions of section
267 of the Internal Revenue Code which disallow losses on sales between related persons. By reference, this includes the rules in section
707(b) of the Internal Revenue Code, relating to partnerships.
Tax 2.62(2)(a)2.
2. The entities are related under section
1563 of the Internal Revenue Code, which defines a “controlled group of corporations" for federal income tax purposes.
Tax 2.62(2)(a)3.
3. The entities are corporations in the same “commonly controlled group" for Wisconsin purposes. “Commonly controlled group" has the meaning given in s.
71.255 (1) (c), Stats., as further interpreted by s.
Tax 2.61 (3).
Tax 2.62(2)(b)
(b) Components of enterprise. The components of a commonly controlled economic enterprise may consist either of divisions of a single entity or of multiple entities, or both. For purposes of this section, the term “participants" is used to describe these components of an economic enterprise.
Tax 2.62(2)(c)
(c) Sufficiently interdependent, integrated, and interrelated. Tax 2.62(2)(c)1.1. In general, the participants in a commonly controlled economic enterprise are considered a unitary business if their activities generate a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. Subsection
(3) presents indicators that sharing or exchange and flow of value are present.
Tax 2.62(2)(c)2.
2. The participants in a commonly controlled economic enterprise may also be considered a unitary business if there is unity of operation and use, as further explained in sub.
(4).
Tax 2.62(2)(c)3.
3. Under s.
71.255 (1) (n), Stats., the definition of “unitary business" shall be construed to the broadest extent permitted by the U.S. Constitution. Thus, case law provides additional guidance to determine whether a unitary business exists. Subsection
(5) presents factors that have been considered by the U.S. Supreme Court to be determinative of a unitary business.
Tax 2.62(2)(d)
(d) Fairly apportioned. If a unitary business has nexus in Wisconsin and is doing business both within and outside Wisconsin, an apportioned share of the unitary business's net income is taxable by Wisconsin under the rules of this paragraph. If a unitary business is doing business only in Wisconsin, no apportionment applies and all of the unitary business's income is taxable by Wisconsin unless specifically exempt. The following rules apply to the apportionment of income of a unitary business:
Tax 2.62(2)(d)1.
1. For any participant in the unitary business that is not a member of a commonly controlled group of corporations as provided in s.
Tax 2.61 (3), the participant's income from the unitary business is generally apportioned in the manner provided by ss.
Tax 2.39,
2.45,
2.46,
2.465,
2.47,
2.475,
2.48,
2.49,
2.495,
2.50, or
2.502, as applicable. However, the participant may be required to apportion its income under the combined reporting rules provided in s.
Tax 2.61 if certain conditions apply, as further explained in s.
Tax 2.61 (2) (f).
Tax 2.62(2)(d)2.
2. For any participant in the unitary business that is a member of a commonly controlled group of corporations as provided in s.
Tax 2.61 (3), the participant's income from the unitary business shall be apportioned under the combined reporting rules provided in s.
Tax 2.61.
Tax 2.62(2)(d)3.
3. A corporation that is engaged in the unitary business may have both apportionable income and nonapportionable income, as provided in s.
71.25 (5), Stats.
Tax 2.62(2)(e)
(e) Members of unitary business that are not in combined group. It is possible that one or more members of a unitary business may not be members of a combined group. Members of a unitary business that may not be members of a combined group include the following:
Tax 2.62(2)(e)1.
1. Individuals or entities that are considered “pass-through entities" for purposes of combined reporting under s.
71.255 (1) (m), Stats. This includes partnerships, limited liability companies treated as partnerships, tax-option corporations, estates, trusts, real estate investment trusts, regulated investment companies, real estate mortgage investment conduits, and financial asset securitization investment trusts.
Tax 2.62(2)(e)2.
2. Corporations whose net income and apportionment factors are not subject to combination under the water's edge rules of s.
Tax 2.61 (4).
Tax 2.62(2)(e)3.
3. Corporations that are related under the rules of sections
267 or
1563 of the Internal Revenue Code but are not in a “commonly controlled group" as provided under s.
Tax 2.61 (3).
Tax 2.62(2)(f)
(f) Members of combined group that are not in unitary business. A combined group may include corporations that are not engaged in a unitary business if the combined group's designated agent has properly made the controlled group election as provided in s.
Tax 2.63.
Tax 2.62(3)(a)
(a)
General. Participants in a commonly controlled economic enterprise have sharing or exchange of value among them and a significant flow of value to the separate parts, and thus are a unitary business, if any of the following are true:
Tax 2.62(3)(a)1.
1. The participants in the enterprise contribute or are expected to contribute in a nontrivial way to each other's profitability.
Tax 2.62(3)(a)2.
2. Each participant in the enterprise is either dependent on, or is depended upon by, one or more other participants in the enterprise for achieving one or more nontrivial business objectives.
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)(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)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)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)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(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)(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)(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)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)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)(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 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;
CR 13-078: am. (2) (d) 1.
Register April 2014 No. 700, eff. 5-1-14;
CR 19-141: am. (2) (d) 1.
Register September 2020 No. 777, eff. 10-1-20.
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.
