AB44: Bill Text

This bill also authorizes the Department of Revenue (DOR) to allow the tax consequences of a transaction, as asserted by a taxpayer, even if DOR initially disallows the consequences by asserting the sham transaction doctrine or a related doctrine, if a taxpayer meets certain conditions. The conditions include the taxpayer's ability to demonstrate that the transaction had a valid, good faith business purpose other than tax avoidance, that the business purpose is commensurate with the transaction's tax benefit, and that the transaction had economic substance apart from the taxpayer's asserted tax benefit.

Also under the bill, a taxpayer is not required to add to the taxpayer's federal taxable income certain expenses or costs as specified in the bill if a number of conditions apply. The conditions include the following:

1. The transaction to which the expenses and costs apply did not have as its principal purpose tax avoidance.

2. The related entity to whom the taxpayer paid the expenses or costs paid, accrued, or incurred such amounts to a person who is not a related entity.

3. The related entity was subject to tax on its net income, and a measure of the tax included the expenses or costs received from the taxpayer.

Computers

Under current law, computers and certain computer-related equipment are exempt from the property tax imposed on the real and personal property of a business. Under the bill, no property owner may claim the property tax exemption for computers and computer-related equipment unless the property owner is a business that has less than $5,000,000 in gross receipts, as determined by DOR, in the year that is two years prior to the year in which the property owner claims the exemption.

Luxury boxes

Under the bill, the furnishing of luxury boxes, sky boxes, and club seats at a sports facility is subject to a sales tax at the rate of 5 percent of the gross receipts from the furnishing of such boxes and seats.

This bill will be referred to the Joint Survey Committee on Tax Exemptions for a detailed analysis, which will be printed as an appendix to this bill.

For further information see the state and local 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:

AB44, s. 1 Section 1. 20.566 (2) (am) of the statutes is repealed.

AB44, s. 2 Section 2. 20.566 (2) (r) of the statutes is amended to read:

AB44,4,3 20.566 (2) (r) Lottery and gaming Homeowner's tax credit administration. From the lottery fund, the amounts in the schedule for the administration of the lottery and gaming homeowner's tax credit.

AB44, s. 3 Section 3. 20.835 (3) (b) of the statutes is repealed.

AB44, s. 4 Section 4. 20.835 (3) (bm) of the statutes is created to read:

AB44,4,7 20.835 (3) (bm) Homeowner's tax credit; general fund. A sum sufficient to make the payments under s. 79.10 (5) and (6m) (c), not to exceed $469,305,000.

AB44, s. 5 Section 5. 20.835 (3) (q) of the statutes is amended to read:

AB44,4,11 20.835 (3) (q) Lottery and gaming Homeowner's tax credit. From the lottery fund, a sum sufficient to make the payments under s. 79.10 (5) and (6m) (c), not including the amount paid under par. (bm).

AB44, s. 6 Section 6. 20.835 (3) (s) of the statutes is amended to read:

AB44,4,15 20.835 (3) (s) Lottery and gaming Homeowner's tax credit; late applications. From the lottery fund, a sum sufficient to make payments for the lottery and gaming homeowner's tax credit under s. 79.10 (10) (bm) and (bn).

AB44, s. 7 Section 7. 41.41 (10) (c) 1. of the statutes is amended to read:

AB44,4,25 41.41 (10) (c) 1. Except as provided in par. (d), on or before each January 31, the department shall pay to the treasurer of each taxation district specified in par. (b), with respect to all land in the Kickapoo valley reserve and all land acquired by the board on or before January 1 of the preceding year, an amount determined by multiplying the estimated value of the land equated to the average level of assessment in the taxation district by the aggregate gross general property tax rate, exclusive of the rate that applies under s. 70.58 and without respect to the school levy tax credit under s. 79.10, that would apply to the land in that taxation district for that year if it were taxable.

AB44, s. 8 Section 8. 70.11 (39) of the statutes is amended to read:

AB44,5,14 70.11 (39) Computers. If the owner of the property fulfills the requirements under s. 70.35 and if the property owner is a business that has less than $5,000,000 in gross receipts, as determined by the department of revenue, in the year that is 2 years prior to the year in which the owner claims an exemption under this subsection, mainframe computers, minicomputers, personal computers, networked personal computers, servers, terminals, monitors, disk drives, electronic peripheral equipment, tape drives, printers, basic operational programs, systems software, and prewritten software. The exemption under this subsection does not apply to custom software, fax machines, copiers, equipment with embedded computerized components or telephone systems, including equipment that is used to provide telecommunications services, as defined in s. 76.80 (3). For the purposes of s. 79.095, the exemption under this subsection does not apply to property that is otherwise exempt under this chapter.

AB44, s. 9 Section 9. 71.01 (5p) of the statutes is created to read:

AB44,5,25 71.01 (5p) "Intangible expenses and costs" includes expenses, losses, and costs for, related to, or directly or indirectly in connection with the direct or indirect acquisition of, use of, maintenance or management of, ownership of, sale of, exchange of, or any other direct or indirect disposition of intangible property to the extent that such expenses, losses, and costs are allowed as deductions or costs to determine federal taxable income under the Internal Revenue Code. For purposes of this subsection, "expenses, losses, and costs" include losses related to or incurred directly or indirectly in connection with factoring transactions and discounting transactions; royalty, patent, technical, and copyright fees; licensing fees; and other similar expenses and costs.

AB44, s. 10 Section 10. 71.01 (9b) of the statutes is created to read:

AB44,6,4 71.01 (9b) "Related entity" means any person related to a taxpayer as provided under section 267, 318, or 1563 of the Internal Revenue Code during all or a portion of the taxpayer's taxable year.

AB44, s. 11 Section 11. 71.05 (6) (a) 21. of the statutes is created to read:

AB44,6,10 71.05 (6) (a) 21. Any amount deducted or excluded under the Internal Revenue Code for management and service fees, interest expenses and costs, intangible expenses and costs, and any other expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related entities.

AB44, s. 12 Section 12. 71.07 (9) (b) 5. of the statutes is amended to read:

AB44,6,18 71.07 (9) (b) 5. For taxable years beginning after December 31, 1999, subject to the limitations under this subsection a claimant may claim as a credit against, but not to exceed the amount of, taxes under s. 71.02, 12% 12 percent of the first $2,500 of property taxes or 16 percent of the first $2,500 of rent constituting property taxes, or 12% except that a married person filing separately may claim12 percent of the first $1,250 of property taxes or 16 percent of the first $1,250 of rent constituting property taxes of a married person filing separately.

AB44, s. 13 Section 13. 71.22 (3m) of the statutes is created to read:

AB44,7,4 71.22 (3m) "Intangible expenses and costs" includes expenses, losses, and costs for, related to, or directly or indirectly in connection with the direct or indirect acquisition of, use of, maintenance or management of, ownership of, sale of, exchange of, or any other direct or indirect disposition of intangible property to the extent that such expenses, losses, and costs are allowed as deductions or costs to determine federal taxable income under the Internal Revenue Code. For purposes of this subsection, "expenses, losses, and costs" include losses related to or incurred directly or indirectly in connection with factoring transactions and discounting transactions; royalty, patent, technical, and copyright fees; licensing fees; and other similar expenses and costs.

AB44, s. 14 Section 14. 71.22 (9b) of the statutes is created to read:

AB44,7,8 71.22 (9b) "Related entity" means any person related to a taxpayer as provided under section 267, 318, or 1563 of the Internal Revenue Code during all or a portion of the taxpayer's taxable year.

AB44, s. 15 Section 15. 71.26 (2) (a) of the statutes is renumbered 71.26 (2) (a) (intro.) and amended to read:

AB44,7,13 71.26 (2) (a) (intro.) Corporations in general. The "net income" of a corporation means the gross income as computed under the Internal Revenue Code as modified under sub. (3) minus and modified as follows:

AB44,7,14 1. Minus the amount of recapture under s. 71.28 (1di) plus.

AB44,7,15 2. Plus the amount of credit computed under s. 71.28 (1), (3), (4), and (5) minus,.

AB44,7,18 3. Minus as provided under s. 71.28 (3) (c) 7., the amount of the credit under s. 71.28 (3) that the taxpayer added to income under this paragraph at the time that the taxpayer first claimed the credit plus.

AB44,7,23 4. Plus the amount of the credit computed under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (3g), (3n), (3t), and (5b) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, limited liability company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g) plus.

AB44,8,2 5. Plus the amount of losses from the sale or other disposition of assets the gain from which would be wholly exempt income, as defined in sub. (3) (L), if the assets were sold or otherwise disposed of at a gain and minus deductions, as computed under the Internal Revenue Code as modified under sub. (3), plus.

AB44,8,6 6. Plus or minus, as appropriate, an amount equal to the difference between the federal basis and Wisconsin basis of any asset sold, exchanged, abandoned, or otherwise disposed of in a taxable transaction during the taxable year, except as provided in par. (b) and s. 71.45 (2) and (5).

AB44, s. 16 Section 16. 71.26 (2) (a) 6. of the statutes is created to read:

AB44,8,12 71.26 (2) (a) 6. Plus any amount deducted or excluded under the Internal Revenue Code for management and service fees, interest expenses and costs, intangible expenses and costs, and any other expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related entities.

AB44, s. 17 Section 17. 71.34 (1) (j) of the statutes is created to read:

AB44,8,19 71.34 (1) (j) An addition shall be made for any amount deducted or excluded under the Internal Revenue Code for management and service fees, interest expenses and costs, intangible expenses and costs, and any other expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related entities.

AB44, s. 18 Section 18. 71.42 (1p) of the statutes is created to read:

AB44,9,5 71.42 (1p) "Intangible expenses and costs" includes expenses, losses, and costs for, related to, or directly or indirectly in connection with the direct or indirect acquisition of, use of, maintenance or management of, ownership of, sale of, exchange of, or any other direct or indirect disposition of intangible property to the extent that such expenses, losses, and costs are allowed as deductions or costs to determine federal taxable income under the Internal Revenue Code. For purposes of this subsection, "expenses, losses, and costs" include losses related to or incurred directly or indirectly in connection with factoring transactions and discounting transactions; royalty, patent, technical, and copyright fees; licensing fees; and other similar expenses and costs.

AB44, s. 19 Section 19. 71.42 (4m) of the statutes is created to read:

AB44,9,9 71.42 (4m) "Related entity" means any person related to a taxpayer as provided under section 267, 318, or 1563 of the Internal Revenue Code during all or a portion of the taxpayer's taxable year.

AB44, s. 20 Section 20. 71.45 (2) (a) 16. of the statutes is created to read:

AB44,9,16 71.45 (2) (a) 16. By adding to federal taxable income any amount deducted or excluded under the Internal Revenue Code for management and service fees, interest expenses and costs, intangible expenses and costs, and any other expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related entities.

AB44, s. 21 Section 21. 71.738 (3m) of the statutes is created to read:

AB44,9,20 71.738 (3m) "Related entity" means any person related to a taxpayer as provided under section 267, 318, or 1563 of the Internal Revenue Code during all or a portion of the taxpayer's taxable year.

AB44, s. 22 Section 22. 71.80 (23) of the statutes is created to read:

AB44,9,25 71.80 (23) Transactions. (a) Subject to par. (b), if the department asserts the sham transaction doctrine, or any other related tax doctrine, to disallow the tax consequences, as asserted by the taxpayer, of a transaction, the department may allow the tax consequences, as asserted by the taxpayer, of the transaction, if the taxpayer demonstrates by clear and convincing evidence that the transaction had a valid, good faith, business purpose other than tax avoidance and had economic substance apart from any tax benefit asserted by the taxpayer.

AB44,10,9 (b) For all instances in which the department disallows the tax consequences, as asserted by the taxpayer, of a transaction, the department may allow the tax consequences, as asserted by the taxpayer, of the transaction, if the taxpayer demonstrates by clear and convincing evidence that the transaction's nontaxable business purpose, as asserted by the taxpayer, is commensurate with the transaction's tax benefit, as asserted by the taxpayer.

AB44,10,12 (c) The adjustments under ss. 71.05 (6) (a) 21., 71.26 (2) (a) 6., 71.34 (1) (j), and 71.45 (2) (a) 16. shall not apply to any expenses or costs if all of the following apply to the expenses or costs:

AB44,10,14 1. The transaction to which the expenses or costs are related did not have tax avoidance as its principal purpose.

AB44,10,22 2. The related entity to whom the taxpayer paid interest expenses or costs, intangible expenses, or management or service fees during the taxable year directly or indirectly paid, accrued, or incurred such amounts to a person who is not a related entity. For purposes of this subdivision, "interest" means interest on a debt for which the taxpayer is the guarantor, if the interest rate is the market rate in effect at the time of the debt's origination, but excludes interest that is paid in connection with any debt that is incurred to acquire the taxpayer's assets or stock under section 368 of the Internal Revenue Code.

AB44,11,11 3. The related entity was subject to tax on its net income in this state, or any state, U.S. possession, or foreign country; a measure of the tax paid included the interest income, intangible income, or management or service fees received from the taxpayer; and the tax rate applied to the interest income, intangible income, or management or service fees was not less than 3 percentage points below the tax rate that would have applied under s. 71.27. For purposes of this subdivision, "any state, U.S. possession, or foreign country" does not include any state, U.S. possession, or foreign country under the laws of which the taxpayer files or could have elected to file with the related entity, or the related entity files or could have elected to file with another entity, a combined income tax report or return, a consolidated income tax report or return, or any other report or return that is due because of the imposition of a tax that is measured on or by income, if the report of return results in eliminating the tax effects of transactions directly or indirectly between either the taxpayer and the related entity or between the related entity and another entity.

AB44, s. 23 Section 23. 74.09 (3) (b) 3. of the statutes is amended to read:

AB44,11,16 74.09 (3) (b) 3. The tax levied on the property by the school district where the property is located minus the credit under s. 79.10 (4) allocable to the property, for the previous year and the current year, and the percentage change in that net tax between those years.

AB44, s. 24 Section 24. 77.52 (2) (a) 13. of the statutes is created to read:

AB44,11,21 77.52 (2) (a) 13. The furnishing of luxury boxes, sky boxes, and club seats at a sports facility, as defined in s. 167.32 (1) (f), for dues, fees, or other considerations, if the sale of admissions to sporting events at the facility is subject to the tax imposed under this section.

AB44, s. 25 Section 25. 79.10 (1) (b) of the statutes is repealed.

AB44, s. 26 Section 26. 79.10 (1) (e) of the statutes is repealed.

AB44, s. 27 Section 27. 79.10 (1m) (b) of the statutes is amended to read:

AB44,12,3 79.10 (1m) (b) Counties and municipalities shall submit to the department of revenue all data related to the lottery and gaming homeowner's tax credit and requested by the department of revenue.

AB44, s. 28 Section 28. 79.10 (2) of the statutes is amended to read:

AB44,12,12 79.10 (2) Notice to municipalities. On or before December 1 of the year preceding the distribution under sub. (7m) (a), the department of revenue shall notify the clerk of each town, village, and city of the estimated fair market value, as determined under sub. (11), to be used to calculate the lottery and gaming homeowner's tax credit under sub. (5) and of the amount to be distributed to it under sub. (7m) (a) on the following 4th Monday in July. The anticipated receipt of such distribution shall not be taken into consideration in determining the tax rate of the municipality but shall be applied as tax credits.

AB44, s. 29 Section 29. 79.10 (4) of the statutes is repealed.

AB44, s. 30 Section 30. 79.10 (5) of the statutes is amended to read:

AB44,12,21 79.10 (5) Lottery and gaming Homeowner's tax credit. Each municipality shall receive, from the appropriation appropriations under s. 20.835 (3) (bm) and (q), an amount determined by multiplying the school tax rate by the estimated fair market value, not exceeding the value as determined under sub. (11), but not to exceed $60,000, of every principal dwelling that is located in the municipality and for which a claim for the credit under sub. (9) (bm) is made by the owner of the principal dwelling.

AB44, s. 31 Section 31. 79.10 (6m) (a) of the statutes is amended to read:

AB44,13,10 79.10 (6m) (a) Except as provided in pars. (b) and (c), if the department of administration or the department of revenue determines by October 1 of the year of any distribution under subs. (4) and sub. (5) that there was an overpayment or underpayment made in that year's distribution by the department of administration to municipalities, as determined under subs. (4) and sub. (5), because of an error by the department of administration, the department of revenue or any municipality, the overpayment or underpayment shall be corrected as provided in this paragraph. Any overpayment shall be corrected by reducing the subsequent year's distribution, as determined under subs. (4) and sub. (5), by an amount equal to the amount of the overpayment. Any underpayment shall be corrected by increasing the subsequent year's distribution, as determined under subs. (4) and sub. (5), by an amount equal to the amount of the underpayment. Corrections shall be made in the distributions to all municipalities affected by the error. Corrections shall be without interest.

AB44, s. 32 Section 32. 79.10 (7m) (a) of the statutes is repealed.

AB44, s. 33 Section 33. 79.10 (7m) (b) (title) of the statutes is amended to read:

AB44,13,13 79.10 (7m) (b) (title) Lottery and gaming Homeowner's tax credit.

AB44, s. 34 Section 34. 79.10 (7m) (b) 1. of the statutes is amended to read:

AB44,13,18 79.10 (7m) (b) 1. The amount determined under sub. (5) with respect to claims filed for which the town, village, or city has furnished notice under sub. (1m) by March 1 shall be distributed from the appropriation appropriations under s. 20.835 (3) (bm) and (q) by the department of administration on the 4th Monday in March.

AB44, s. 35 Section 35. 79.10 (9) (b) of the statutes is repealed.

AB44, s. 36 Section 36. 79.10 (9) (bm) of the statutes is amended to read: