Tax 2.502 NoteNote: Telecommunications companies that are in combined groups must adjust the numerator and denominator of each of their apportionment factors and then convert the arithmetical average of these factors to the modified sales factor. The modified sales factor then determines the company’s Wisconsin share of the combined group’s apportionable income. See s. 71.255 (5), Stats., and s. Tax 2.61 (7) for details. Tax 2.502 NoteNote: The provisions of s. Tax 2.502 first apply for taxable years beginning on January 1, 2005. Tax 2.502 HistoryHistory: Emerg. cr., eff. 12-5-05; CR 05-117: cr. Register June 2006 No. 606, eff. 7-1-06; corrections in (1) and (3) (intro.) made under s. 13.92 (4) (b) 7., Stats., Register April 2010 No. 652; EmR0943: eff. 12-31-09 and CR 10-001: am. (1) and (3), cr. (2) (am), (e), (4) and (5), r. (2) (d) and (f), renum. (2) (e) to be (2) (d) and am. Register June 2010 No. 654, eff. 7-1-10; correction in (5) (f) 3. made under s. 13.92 (4) (b) 4., Stats., Register June 2010 No. 654; correction in (2) (e) 14. made under s. 13.92 (4) (b) 7., Stats., Register June 2018 No. 750. Tax 2.505Tax 2.505 Apportionment of apportionable income of interstate professional sports clubs. Tax 2.505(1)(1) Scope. The apportionable income of professional sports clubs engaged in business in and outside Wisconsin during the year shall be apportioned to Wisconsin using the apportionment fraction described in s. 71.25 (6), Stats., and the apportionment formula computation described in s. 71.25 (6m), Stats., if applicable, except if the professional sports club is in a combined group, its Wisconsin share of the combined group’s apportionable income is computed as provided in s. 71.255 (5), Stats., and further detailed in s. Tax 2.61 (7). The property, payroll, and sales factors described in s. 71.25 (6) and (6m), Stats., shall be determined as described in this section. Tax 2.505 NoteNote: A professional sports club that is a corporation may be in a combined group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61 (2) for a description of corporations required to use combined reporting. Tax 2.505(2)(2) Definition. In this section, “engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b). Tax 2.505(3)(3) Property factor. The property factor is a fraction as defined in s. 71.25 (7), Stats. Owned or rented real and tangible personal property shall be included in the factor as provided in s. 71.25 (7), Stats., and s. Tax 2.39 (4). Minor equipment, such as uniforms, and playing and practice equipment, need not be included in the factor. Tax 2.505 NoteNote: The property factor does not apply to taxable years beginning after December 31, 2007.
Tax 2.505(4)(4) Payroll factor. The payroll factor is a fraction as defined in s. 71.25 (8), Stats. Compensation shall be reported as provided in s. 71.25 (8), Stats., and s. Tax 2.39 (5). Bonuses and payments shall be included in the payroll factor on a prorated basis in accordance with internal revenue service ruling 71-137, Cum. Bull., 1971-1. Compensation paid for optioned players shall be included in the factor only if paid directly to the player by the taxpayer. Tax 2.505 NoteNote: The payroll factor does not apply to taxable years beginning after December 31, 2007.
Tax 2.505(5)(5) Sales factor. The sales factor is a fraction as defined in s. 71.25 (9), Stats. Sales shall be included in the factor in accordance with s. 71.25 (9), Stats., s. Tax 2.39 (6) and the following rules: Tax 2.505(5)(a)(a) Gate receipts. Gate receipts include all receipts from games played at the taxpayer’s home facility plus any gate receipts received from games played away from the taxpayer’s home facility. The numerator of the sales fraction for taxpayers whose home facility is in Wisconsin shall include all gate receipts from games played in its home facility. The numerator of the sales fraction for taxpayers whose home facility is outside Wisconsin shall include the percentage of gate receipts received from games played in Wisconsin. Tax 2.505(5)(b)(b) Radio and television receipts. Radio and television receipts received by the taxpayer as its proportionate share from a league or association contract with the major communications networks are in Wisconsin in proportion to the number of games played in Wisconsin to total games played by the taxpayer covered by the contract during the season. Local television and radio receipts are in Wisconsin if the games are played in Wisconsin. Tax 2.505(5)(c)(c) Concession income and miscellaneous income. Concession income is assigned to the numerator if the concession is operated within Wisconsin. Miscellaneous income such as parking lot income, advertising income, and other similar income is assigned to the numerator if the activity is conducted within Wisconsin. Tax 2.505(5)(d)(d) Player contracts, franchises, and similar sources. Income from player contract transactions, franchise fees, and other similar sources shall be excluded from the numerator and the denominator of the sales fraction. Tax 2.505 NoteNote: Professional sports clubs that are in combined groups must adjust the numerator and denominator of the sales factor as described in s. Tax 2.61 (7). Tax 2.505 NoteNote: The provisions of s. Tax 2.505 first apply for taxable years beginning on January 1, 2005. Tax 2.505 HistoryHistory: Cr. Register, December, 1980, No. 300, eff. 1-1-81; am. (1) to (3) (intro.), (c) and (d), Register, July, 1989, No. 403, eff. 8-1-89; emerg. am. (title), (intro.) to (3) (intro.) and (d) (title), eff. 10-12-07; CR 07-091: am. (title), (intro.) to (3) (intro.) and (d) (title) Register March 2008 No. 627, eff. 4-1-08; EmR0943: emerg. am. (intro.), renum. (1) to (3) to be (2) to (4), cr. (1), eff. 12-31-09; CR 10-001: renum. (intro.) and (1) to (3) to be (1) and (3) to (5) and am. (1), cr. (2) Register June 2010 No. 654, eff. 7-1-10; correction to (1) (title) made under s. 13.92 (4) (b) 2., Stats., Register June 2010 No. 654. Tax 2.60Tax 2.60 Definitions relating to combined reporting. Tax 2.60(2)(a)1.1. If a group of corporations satisfies all three conditions described in s. Tax 2.61 (2) (a), it is considered a combined group even if the group is not eligible to apportion its income because all corporations in the group do business solely in Wisconsin. 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 HistoryHistory: 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 NoteExample: 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 NoteExample: 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.
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