AB942: Bill Text

LRB-5158/1

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1997 - 1998 LEGISLATURE

1997 Assembly BILL 942

March 20, 1998 - Introduced by Representatives Kaufert, Hubler and Albers, cosponsored by Senators Moen and Schultz. Referred to calendar.

AB942,1,7 An Act to renumber and amend 565.30 (5m) and 565.37 (5r); to amend 71.04 (1) (a), 71.04 (9), 71.23 (1), 71.23 (2), 71.25 (5) (b), 71.26 (1) (a), 71.362 (1), 71.362 (2), 71.43 (1), 71.43 (2), 71.45 (1), 71.46 (3), 71.67 (4) (a) and 565.30 (5); to repeal and recreate 565.30 (5) and 565.30 (6); and to create 71.45 (2) (a) 15., 71.45 (3r), 565.02 (2) (e), 565.30 (5m) (b), 565.30 (5t) and 565.37 (5r) (b) of the statutes; relating to: the assignment of lottery prizes, taxation of persons that buy or sell lottery tickets and granting rule-making authority.

Analysis by the Legislative Reference Bureau

Assignment of lottery prizes

Under current law, the right of any person to a lottery prize may not be assigned. This bill establishes a process through which a person may make a voluntary assignment of a lottery prize or part of a lottery prize pursuant to a court order. Under the bill, a person who intends to voluntarily assign part or all of a lottery prize must petition the circuit court of the county in which he or she resides or the circuit court of Dane County for a court order confirming the assignment. The circuit court is required to issue an order confirming the assignment only if all of the following conditions are satisfied:

1. The assignor is represented by independent legal counsel.

2. A copy of the assignment is attached to the petition.

3. The assignment is in writing, is executed by the assignor and is subject to the laws of this state.

4. The contract for the assignment provides that the assignor has the right to cancel the contract until midnight of the 3rd business day after the date on which the assignor entered into the contract.

5. The contract for the assignment provides that the assignor, from the proceeds received from the individual or organization to whom part or all of the lottery prized is assigned, agrees to pay in full any delinquent tax or support payments that may be owed by the assignor.

6. The assignor attests, by sworn affidavit, that he or she is of sound mind, is not acting under duress and acknowledges that the state will not make any of the assigned lottery prize payments or parts of lottery prize payments to the assignor.

7. The assignor, by sworn affidavit, provides the court with an accounting of all claims to, or judgments, liens, security interests, garnishments, assignments or attachments against, all or any part of the lottery prize payments.

8. The assignment does not include the amounts of any withholdings otherwise required to be withheld by law.

9. The assignor provides the court a certification from the administrator that lists the amounts of the lottery prize payments, if any, that the administrator is required to withhold for the assignor.

10. The payment that the assignor will receive as compensation for the assignment is at least equal to the present value of the assigned lottery prize payments, discounted at a rate no greater than the weekly prime rate for the week prior to the date on which the court received a copy of the assignment, as reported by the federal reserve board in federal reserve statistical release H. 15, plus 6%.

11. The individual or organization to whom part or all of the lottery prized is assigned specifies in an affidavit that the individual or organization agrees to report and pay any state income or franchise tax that is owed on any income or gain realized from the purchase and subsequent sale or redemption of any lottery prize.

If the court issues an order confirming the assignment, the individual or organization to whom the lottery prize is assigned must provide a certified copy of the court order to the administrator of the lottery division in the department of revenue. The administrator must acknowledge receipt of the court order in writing to the individual or organization and must make all lottery prize payments according to the terms specified in the court order. Under the bill, the administrator is authorized to charge an initial processing fee, in an amount determined by rule, to cover any costs associated with processing the lottery prize payments in accordance with the terms specified in the court order.

Use of lottery prizes as security for loans

In addition, the bill establishes a process through which a person may use a lottery prize or part of a lottery prize as security for a loan. Under the bill, a lottery prize winner who intends to use part or all of a lottery prize as security for a loan shall petition the circuit court of the county in which the prize winner resides or the circuit court of Dane County for a court order confirming the use of a lottery prize as security for a loan. The circuit court of the county in which the prize winner resides or the circuit court of Dane County shall issue an order confirming the use of a lottery prize as security for a loan only if all of the following occur:

1. The prize winner is represented by independent legal counsel.

2. A copy of the contract that provides for using any part of the lottery prize as security for the loan is attached to the petition.

3. The contract is executed by the prize winner, is subject to the laws of this state and provides that the prize winner has the right to cancel the contract until midnight of the 3rd business day after the date on which the prize winner entered into the contract.

4. The prize winner attests, by sworn affidavit, that he or she is of sound mind, is not acting under duress and acknowledges that the state will not make any of the lottery prize payments or parts of lottery prize payments to the prize winner that are being used as security for the loan in the event the prize winner defaults on the loan.

5. The prize winner, by sworn affidavit, provides the court with an accounting of all claims to, or judgments, liens, security interests, garnishments, assignments or attachments against, all or any part of the lottery prize payments.

6. The prize winner provides the court a certification from the administrator that lists the amounts of the lottery prize payments, if any, that the administrator is required to withhold for the prize winner.

7. The part of the lottery prize that is being used as security for the loan does not include the amounts of any withholdings otherwise required to be withheld by law.

8. The court determines that the interest rate on the loan does not exceed the weekly prime rate for the week prior to the date on which the court received a copy of the contract, as reported by the federal reserve board in federal reserve statistical release H. 15, plus 6%.

If the court issues an order confirming the use of the lottery prize as security for a loan, the individual or organization making the loan must provide a certified copy of the court order to the administrator of the lottery division in the department of revenue. The administrator must acknowledge receipt of the court order in writing to the individual or organization making the loan and must make all lottery prize payments according to the terms specified in the court order. Under the bill, the administrator is authorized to charge an initial processing fee, in an amount determined by rule, to cover any costs associated with processing the lottery prize payments in accordance with the terms specified in the court order.

Taxation of lottery prizes

Finally, the bill imposes the income tax and franchise tax on all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB942, s. 1 Section 1. 71.04 (1) (a) of the statutes, as affected by 1997 Wisconsin Act 27, is amended to read:

AB942,5,17 71.04 (1) (a) All income or loss of resident individuals and resident estates and trusts shall follow the residence of the individual, estate or trust. Income or loss of nonresident individuals and nonresident estates and trusts from business, not requiring apportionment under sub. (4), (10) or (11), shall follow the situs of the business from which derived, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state. All items of income, loss and deductions of nonresident individuals and nonresident estates and trusts derived from a tax-option corporation not requiring apportionment under sub. (9) shall follow the situs of the business of the corporation from which derived, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state. Income or loss of nonresident individuals and nonresident estates and trusts derived from rentals and royalties from real estate or tangible personal property, or from the operation of any farm, mine or quarry, or from the sale of real property or tangible personal property shall follow the situs of the property from which derived. Income from personal services of nonresident individuals, including income from professions, shall follow the situs of the services. A nonresident limited partner's distributive share of partnership income shall follow the situs of the business, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state. A nonresident limited liability company member's distributive share of limited liability company income shall follow the situs of the business , except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state. Income of nonresident individuals, estates and trusts from the state lottery under ch. 565 is taxable by this state. Income of nonresident individuals, estates and trusts from any multijurisdictional lottery under ch. 565 is taxable by this state, but only if the winning lottery ticket or lottery share was purchased from a retailer, as defined in s. 565.01 (6), located in this state or from the department. Income of nonresident individuals, nonresident trusts and nonresident estates from pari-mutuel winnings or purses under ch. 562 is taxable by this state. All other income or loss of nonresident individuals and nonresident estates and trusts, including income or loss derived from land contracts, mortgages, stocks, bonds and securities or from the sale of similar intangible personal property, shall follow the residence of such persons, except as provided in par. (b) and sub. (9), except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.

AB942, s. 2 Section 2. 71.04 (9) of the statutes is amended to read:

AB942,6,7 71.04 (9) Nonresident income from multistate tax-option corporation. Nonresident individuals and nonresident estates and trusts deriving income from a tax-option corporation which is engaged in business within and without this state shall be taxed only on the income of the corporation derived from business transacted and property located in this state and losses and other items of the corporation deductible by such shareholders shall be limited to their proportionate share of the Wisconsin loss or other item, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state. For purposes of this subsection, all intangible income of tax-option corporations passed through to shareholders is business income that follows the situs of the business , except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.

AB942, s. 3 Section 3. 71.23 (1) of the statutes is amended to read:

AB942,6,18 71.23 (1) Income tax. For the purpose of raising revenue for the state and the counties, cities, villages and towns, there shall be assessed, levied, collected and paid a tax as provided under this chapter on all Wisconsin net incomes of corporations which are not subject to the franchise tax under sub. (2) and which own property within this state or; whose business within this state during the taxable year, except as provided under sub. (3), consists exclusively of foreign commerce, interstate commerce, or both, or that buy or sell lottery prizes if the winning tickets were originally bought in Wisconsin; except as exempted under s. 71.26 (1). This section shall not be construed to prevent or affect the correction of errors or omissions in the assessments of income for former years under s. 71.74 (1) and (2).

AB942, s. 4 Section 4. 71.23 (2) of the statutes is amended to read:

AB942,7,14 71.23 (2) Franchise tax. For the privilege of exercising its franchise, buying or selling lottery prizes if the winning tickets were originally bought in Wisconsin or doing business in this state in a corporate capacity, except as provided under sub. (3), every domestic or foreign corporation, except corporations specified in s. 71.26 (1), and every nuclear decommissioning trust or reserve fund shall annually pay a franchise tax according to or measured by its entire Wisconsin net income of the preceding taxable year at the rate set forth in s. 71.27 (2). In addition, except as provided in sub. (3) and s. 71.26 (1), a corporation that ceases doing business in this state and a nuclear decommissioning trust or reserve fund that is terminated shall pay a special franchise tax according to or measured by its entire Wisconsin net income for the taxable year during which the corporation ceases doing business in this state or the nuclear decommissioning trust or reserve fund is terminated at the rates under s. 71.27 (2). Every corporation organized under the laws of this state shall be deemed to be residing within this state for the purposes of this franchise tax. All provisions of this chapter and ch. 73 relating to income taxation of corporations shall apply to franchise taxes imposed under this subsection, unless the context requires otherwise. The tax imposed by this subsection on national banking associations shall be in lieu of all taxes imposed by this state on national banking associations to the extent it is not permissible to tax such associations under federal law.

AB942, s. 5 Section 5. 71.25 (5) (b) of the statutes is amended to read:

AB942,7,23 71.25 (5) (b) Nonapportionable income. 1. Income, gain or loss from the sale of nonbusiness real property or nonbusiness tangible personal property, rental of nonbusiness real property or nonbusiness tangible personal property and royalties from nonbusiness real property or nonbusiness tangible personal property are nonapportionable and shall be allocated to the situs of the property , except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.

AB942,8,4 2. All income, gain or loss from intangible property that is earned by a personal holding company, as defined in section 542 of the internal revenue code, as amended to December 31, 1974, shall be allocated to the residence of the taxpayer, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.

AB942, s. 6 Section 6. 71.26 (1) (a) of the statutes is amended to read:

AB942,9,6 71.26 (1) (a) Certain corporations. Income of corporations organized under ch. 185, except income of a cooperative sickness care association organized under s. 185.981, or of a service insurance corporation organized under ch. 613, that is derived from a health maintenance organization as defined in s. 609.01 (2) or a limited service health organization as defined in s. 609.01 (3), or operating under subch. I of ch. 616 which are bona fide cooperatives operated without pecuniary profit to any shareholder or member, or operated on a cooperative plan pursuant to which they determine and distribute their proceeds in substantial compliance with s. 185.45, and the income, except the unrelated business taxable income as defined in section 512 of the internal revenue code and except income that is derived from a health maintenance organization as defined in s. 609.01 (2) or a limited service health organization as defined in s. 609.01 (3), of all religious, scientific, educational, benevolent or other corporations or associations of individuals not organized or conducted for pecuniary profit. This paragraph does not apply to the income of savings banks, mutual loan corporations or savings and loan associations. This paragraph does not apply to income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin. This paragraph applies to the income of credit unions except to the income of any credit union that is derived from public deposits for any taxable year in which the credit union is approved as a public depository under ch. 34 and acts as a depository of state or local funds under s. 186.113 (20). For purposes of this paragraph, the income of a credit union that is derived from public deposits is the product of the credit union's gross annual income for the taxable year multiplied by a fraction, the numerator of which is the average monthly balance of public deposits in the credit union during the taxable year, and the denominator of which is the average monthly balance of all deposits in the credit union during the taxable year.

AB942, s. 7 Section 7. 71.362 (1) of the statutes is amended to read:

AB942,9,13 71.362 (1) All tax-option items of nonresident individuals, nonresident estates and nonresident trusts derived from a tax-option corporation not requiring apportionment under sub. (2) shall follow the situs of the business of the corporation from which they are derived, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.

AB942, s. 8 Section 8. 71.362 (2) of the statutes is amended to read:

AB942,9,25 71.362 (2) Nonresident individuals, nonresident estates and nonresident trusts deriving income from a tax-option corporation which is engaged in business within and without this state shall be taxed only on the income of the corporation derived from business transacted and property located in this state and losses and other items of the corporation deductible by such shareholders shall be limited to their proportionate share of the Wisconsin loss or other item, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state. For purposes of this subsection, all intangible income of tax-option corporations passed through to shareholders is business income that follows the situs of the business, except that all income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.

AB942, s. 9 Section 9. 71.43 (1) of the statutes is amended to read:

AB942,10,13 71.43 (1) Income tax. For the purpose of raising revenue for the state and the counties, cities, villages and towns, there shall be assessed, levied, collected and paid a tax as provided under this chapter on all Wisconsin net incomes of corporations which are not subject to the franchise tax under sub. (2) and which own property within this state or; whose business within this state during the taxable year, except as provided under s. 71.23 (3), consists exclusively of foreign commerce, interstate commerce, or both, or that buy or sell lottery prizes if the winning tickets were originally bought in Wisconsin; except as exempted under ss. 71.26 (1) and 71.45 (1). This section shall not be construed to prevent or affect the correction of errors or omissions in the assessments of income for former years under s. 71.74 (1) and (2).

AB942, s. 10 Section 10. 71.43 (2) of the statutes is amended to read:

AB942,11,10 71.43 (2) Franchise tax on corporations. For the privilege of exercising its franchise, buying or selling lottery prizes if the winning tickets were originally bought in Wisconsin or doing business in this state in a corporate capacity, except as provided under s. 71.23 (3), every domestic or foreign corporation, except corporations specified in ss. 71.26 (1) and 71.45 (1), shall annually pay a franchise tax according to or measured by its entire Wisconsin net income of the preceding taxable year at the rates set forth in s. 71.46 (2). In addition, except as provided in ss. 71.23 (3), 71.26 (1) and 71.45 (1), a corporation that ceases doing business in this state shall pay a special franchise tax according to or measured by its entire Wisconsin net income for the taxable year during which the corporation ceases doing business in this state at the rate under s. 71.46 (2). Every corporation organized under the laws of this state shall be deemed to be residing within this state for the purposes of this franchise tax. All provisions of this chapter and ch. 73 relating to income taxation of corporations shall apply to franchise taxes imposed under this subsection, unless the context requires otherwise. The tax imposed by this subsection on insurance companies subject to taxation under this chapter shall be based on Wisconsin net income computed under s. 71.45, and no other provision of this chapter relating to computation of taxable income for other corporations shall apply to such insurance companies. All other provisions of this chapter shall apply to insurance companies subject to taxation under this chapter unless the context clearly requires otherwise.

AB942, s. 11 Section 11. 71.45 (1) of the statutes is amended to read:

AB942,12,5 71.45 (1) Exempt and excludable income. There shall be exempt from taxation under this subchapter income of insurers exempt from federal income taxation pursuant to section 501 (c) (15) of the internal revenue code, town mutuals organized under or subject to ch. 612, foreign insurers, and domestic insurers engaged exclusively in life insurance business, domestic insurers insuring against financial loss by reason of nonpayment of principal, interest and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust or other instrument constituting a lien or charge on real estate and corporations organized under ch. 185, but not including income of cooperative sickness care associations organized under s. 185.981, or of a service insurance corporation organized under ch. 613, that is derived from a health maintenance organization as defined in s. 609.01 (2) or a limited service health organization as defined in s. 609.01 (3), or operating under subch. I of ch. 616 which are bona fide cooperatives operated without pecuniary profit to any shareholder or member, or operated on a cooperative plan pursuant to which they determine and distribute their proceeds in substantial compliance with s. 185.45. This subsection does not apply to income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin.

AB942, s. 12 Section 12. 71.45 (2) (a) 15. of the statutes is created to read:

AB942,12,9 71.45 (2) (a) 15. By subtracting from federal taxable income all income that is realized from the purchase and subsequent sale or redemption of lottery prizes that is treated as nonapprotionable income under sub. (3r).

AB942, s. 13 Section 13. 71.45 (3r) of the statutes is created to read:

AB942,12,13 71.45 (3r) Allocation of certain proceeds. All income that is realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in Wisconsin shall be allocated to this state.