SB62: Bill Text

SB62,55,23 71.10 (1m) Transactions without economic substance. (a) If any person, directly or indirectly, engages in a transaction or series of transactions without economic substance to create a loss or to reduce taxable income or to increase credits allowed in determining Wisconsin tax, the department shall determine the amount of a taxpayer's taxable income or tax so as to reflect what would have been the taxpayer's taxable income or tax if not for the transaction or transactions without economic substance causing the reduction in taxable income or tax.

SB62,55,25 (b) A transaction has economic substance only if the taxpayer shows all of the following:

SB62,56,2 1. The transaction changes the taxpayer's economic position in a meaningful way, apart from federal, state, local, and foreign tax effects.

SB62,56,6 2. The taxpayer has a substantial nontax purpose for entering into the transaction and the transaction is a reasonable means of accomplishing the substantial nontax purpose. A transaction has a substantial nontax purpose if it has substantial potential for profit, disregarding any tax effects.

SB62,56,12 (c) With respect to transactions between members of a controlled group as defined in section 267 (f) (1) of the Internal Revenue Code, such transactions shall be presumed to lack economic substance and the taxpayer shall bear the burden of establishing by clear and convincing evidence that a transaction or a series of transactions between the taxpayer and one or more members of the controlled group has economic substance.

SB62, s. 112 Section 112. 71.10 (4) (gv) of the statutes is created to read:

SB62,56,14 71.10 (4) (gv) Economic development tax credit under s. 71.07 (2dy).

SB62, s. 113 Section 113. 71.10 (4) (i) of the statutes is amended to read:

SB62,56,24 71.10 (4) (i) The total of claim of right credit under s. 71.07 (1), farmland preservation credit under subch. IX, homestead credit under subch. VIII, farmland tax relief credit under s. 71.07 (3m), farmers' drought property tax credit under s. 71.07 (2fd), dairy manufacturing facility investment credit under s. 71.07 (3p), meat processing facility investment credit under s. 71.07 (3r), film production services credit under s. 71.07 (5f) (b) 2., veterans and surviving spouses property tax credit under s. 71.07 (6e), enterprise zone jobs credit under s. 71.07 (3w), earned income tax credit under s. 71.07 (9e), estimated tax payments under s. 71.09, and taxes withheld under subch. X.

SB62, s. 114 Section 114. 71.21 (4) of the statutes is amended to read:

SB62,57,4 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2ds), (2dx), (2dy), (3g), (3h), (3n), (3p), (3r), (3s), (3t), (3w), (5e), (5f), (5g), (5h), (5i), (5j), and (5k) and passed through to partners shall be added to the partnership's income.

SB62, s. 115 Section 115. 71.22 (1g) of the statutes is amended to read:

SB62,57,11 71.22 (1g) For purposes of s. 71.25 (9) (df) and, (dh), (dj), and (dk), "commercial domicile" means the location from which a trade or business is principally managed and directed, based on any factors the department determines are appropriate, including the location where the greatest number of employees of the trade or business work, have their office or base of operations, or from which the employees are directed or controlled.

SB62, s. 116 Section 116. 71.22 (1r) of the statutes is amended to read:

SB62,58,2 71.22 (1r) "Doing business in this state" includes issuing credit, debit, or travel and entertainment cards to customers in this state; regularly selling products or services of any kind or nature to customers in this state that receive the product or service in this state; regularly soliciting business from potential customers in this state; regularly performing services outside this state for which the benefits are received in this state; regularly engaging in transactions with customers in this state that involve intangible property and result in receipts flowing to the taxpayer from within this state; holding loans secured by real or tangible personal property located in this state; owning, directly or indirectly, a general or limited partnership interest in a partnership that does business in this state, regardless of the percentage of ownership; and owning, directly or indirectly, an interest in a limited liability company that does business in this state, regardless of the percentage of ownership, if the limited liability company is treated as a partnership for federal income tax purposes.

SB62, s. 117 Section 117. 71.22 (1t) of the statutes is amended to read:

SB62,58,8 71.22 (1t) For purposes of s. 71.25 (9) (df) and, (dh), (dj), and (dk), "domicile" means an individual's true, fixed, and permanent home where the individual intends to remain permanently and indefinitely and to which, whenever absent, the individual intends to return, except that no individual may have more than one domicile at any time.

SB62, s. 118 Section 118. 71.22 (3g) of the statutes is created to read:

SB62,58,13 71.22 (3g) For purposes of ss. 71.26 (2) (a) 7. and 9. and 71.255 (2) (d) 1., "intangible expenses" include the following, to the extent that the amounts would otherwise be deductible in determining net income under the Internal Revenue Code as modified under s. 71.26 (3):

SB62,58,16 (a) Expenses, losses, and costs for, related to, or directly or indirectly in connection with the acquisition, use, maintenance, management, ownership, sale, exchange, or any other disposition of intangible property.

SB62,58,18 (b) Losses related to, or incurred in connection directly or indirectly with, factoring transactions or discounting transactions.

SB62,58,19 (c) Royalty, patent, technical, and copyright fees.

SB62,58,20 (d) Licensing fees.

SB62,58,21 (e) Other similar expenses, losses, and costs.

SB62, s. 119 Section 119. 71.22 (3h) of the statutes is created to read:

SB62,58,25 71.22 (3h) "Intangible property" includes stocks, bonds, financial instruments, patents, patent applications, trade names, trademarks, service marks, copyrights, mask works, trade secrets, and similar types of intangible assets.

SB62, s. 120 Section 120. 71.22 (3m) of the statutes is amended to read:

SB62,59,4 71.22 (3m) For purposes of s. ss. 71.26 (2) (a) 7. and 9. and 71.255 (2) (d) 1., "interest expenses" means interest that would otherwise be deductible under section 163 of the Internal Revenue Code, as modified under s. 71.26 (3).

SB62, s. 121 Section 121. 71.22 (6d) of the statutes is created to read:

SB62,59,12 71.22 (6d) For purposes of s. 71.26 (2) (a) 7. and 9., "management fees" include expenses and costs, not including interest expenses, pertaining to accounts receivable, accounts payable, employee benefit plans, insurance, legal matters, payroll, data processing, purchasing, taxation, financial matters, securities, accounting, or reporting and compliance matters or similar activities, to the extent that the amounts would otherwise be deductible in determining net income under the Internal Revenue Code as modified by s. 71.26 (3).

SB62, s. 122 Section 122. 71.22 (9g) of the statutes is amended to read:

SB62,59,17 71.22 (9g) For purposes of s. 71.25 (9) (df) and, (dh), (dj), and (dk), "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, unless the context requires that "state" means only the state of Wisconsin.

SB62, s. 123 Section 123. 71.25 (intro.) of the statutes is amended to read:

SB62,59,21 71.25 Situs of income; allocation and apportionment. (intro.) For purposes of determining the situs of income under this section and s. 71.255 (5) (a) 1. and 2.:

SB62, s. 124 Section 124. 71.25 (5) (b) 1. of the statutes is renumbered 71.25 (5) (b).

SB62, s. 125 Section 125. 71.25 (5) (b) 2. of the statutes is repealed.

SB62, s. 126 Section 126. 71.25 (9) (d) of the statutes is repealed.

SB62, s. 127 Section 127. 71.25 (9) (dj) of the statutes is created to read:

SB62,60,6 71.25 (9) (dj) 1. Except as provided in par. (df), gross royalties and other gross receipts received for the use or license of intangible property, including patents, copyrights, trademarks, trade names, service names, franchises, licenses, plans, specifications, blueprints, processes, techniques, formulas, designs, layouts, patterns, drawings, manuals, technical know-how, contracts, and customer lists, are sales in this state if any of the following applies:

SB62,60,12 a. The purchaser or licensee uses the intangible property in the operation of a trade or business at a location in this state. If the purchaser or licensee uses the intangible property in the operation of a trade or business in more than one state, the gross royalties and other gross receipts from the use of the intangible property shall be divided between those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the intangible property in those states.

SB62,60,14 b. The purchaser or licensee is billed for the purchase or license of the use of the intangible property at a location in this state.

SB62,60,16 c. The purchaser or licensee of the use of the intangible property has its commercial domicile in this state.

SB62,60,21 2. If the taxpayer is not within the jurisdiction, for income or franchise tax purposes, in the state in which the gross royalties or other gross receipts are apportioned under this paragraph, but the taxpayer's commercial domicile is in this state, 50 percent of those gross royalties or other gross receipts shall be included in the numerator of the sales factor.

SB62, s. 128 Section 128. 71.25 (9) (dk) of the statutes is created to read:

SB62,60,24 71.25 (9) (dk) 1. Sales of intangible property, excluding securities, are sales in this state if any of the following applies:

SB62,61,5 a. The purchaser uses the intangible property in the regular course of business operations in this state or for personal use in this state. If the purchaser uses the intangible property in more than one state, the sales shall be divided between those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the intangible property in those states.

SB62,61,7 b. The purchaser is billed for the purchase of the intangible property at a location in this state.

SB62,61,9 c. The purchaser of the intangible property has its commercial domicile in this state.

SB62,61,13 2. If the taxpayer is not within the jurisdiction, for income or franchise tax purposes, in the state in which the sales of intangible property are apportioned under this paragraph, but the taxpayer's commercial domicile is in this state, 50 percent of those gross receipts shall be included in the numerator of the sales factor.

SB62, s. 129 Section 129. 71.25 (10) (a) of the statutes is renumbered 71.25 (10) (a) 1.

SB62, s. 130 Section 130. 71.25 (10) (a) 2. of the statutes is created to read:

SB62,61,19 71.25 (10) (a) 2. As used in this section, "financial organization" includes any subsidiary of an entity described in subd. 1., if a significant purpose for the subsidiary is to hold investments or if the subsidiary primarily functions to hold investments.

SB62, s. 131 Section 131. 71.255 of the statutes is created to read:

SB62,61,21 71.255 Combined Reporting. (1) Definitions. In this section:

SB62,61,25 (a) "Combined group" means the group of all persons whose income and apportionment factors are required to be taken into account under sub. (2) to determine a member's share of the net business income or loss apportionable to this state that is attributable to a unitary business.

SB62,62,4 (b) "Combined report" means a report in the form and manner prescribed by the department that specifies a combined group's income from the unitary business, apportionment factors attributable to the unitary business, and any other tax return information prescribed by the department.

SB62,62,5 (c) "Commonly controlled group" means any of the following:

SB62,62,12 1. A parent corporation and any one or more corporations or chains of corporations that are connected to the parent corporation by direct or indirect ownership by the parent corporation, if the parent corporation owns stock representing more than 50 percent of the voting power of at least one of the connected corporations or if the parent corporation or any of the connected corporations owns stock that cumulatively represents more than 50 percent of the voting power of each of the connected corporations.

SB62,62,15 2. Any 2 or more corporations if a common owner, regardless of whether the owner is a corporate entity, directly or indirectly owns stock representing more than 50 percent of the voting power of the corporations or connected corporations.

SB62,62,17 3. Any 2 or more corporations if stock representing more than 50 percent of the voting power in each corporation are interests that cannot be separately transferred.

SB62,62,22 4. Any 2 or more corporations if stock representing more than 50 percent of the voting power in each corporation is directly owned by, or for the benefit of, family members. In this subdivision, "family member" means an individual related by blood, marriage, or adoption within the 3rd degree of kinship, as computed under s. 990.001 (16), or the spouse of such individual.

SB62,62,24 (d) "Consolidated foreign operating corporation" means a corporation that, for the taxable year, satisfies all of the following conditions:

SB62,62,25 1. It is a member of a unitary business.

SB62,63,2 2. It is included in the same federal consolidated return as at least one other corporation in that unitary business.

SB62,63,5 3. It has active foreign business income, as defined in section 861 (c) (1) B of the Internal Revenue Code, in an amount that is 80 percent or more of the corporation's worldwide income.

SB62,63,8 (e) Corporation" means any corporation, as defined in s. 71.22 (1k), wherever located, which if it were doing business in this state would be subject to this chapter. "Corporation" does not include a tax-option corporation.

SB62,63,9 (f) "Department" means the department of revenue.

SB62,63,10 (g) "Doing business in this state" has the meaning given in s. 71.22 (1r).

SB62,63,12 (h) "Domestic" means incorporated, organized, or created in the United States or under the laws of the United States or any state.

SB62,63,13 (i) "File" has the meaning given in s. 71.22 (2m).

SB62,63,15 (j) "Foreign" means not incorporated, organized, or created in the United States or under the laws of the United States or any state.

SB62,63,18 (k) "Intangible expenses" has the meaning given in s. 71.22 (3g) for corporations taxable under this subchapter and the meaning given in s. 71.42 (1sg) for corporations taxable under subch. VII.

SB62,63,21 (L) "Interest expenses" has the meaning given in s. 71.22 (3m) for corporations taxable under this subchapter and the meaning given in s. 71.42 (1t) for corporations taxable under subch. VII.

SB62,64,2 (m) "Pass-through entity" means a general or limited partnership, an organization of any kind treated as a partnership for tax purposes under this chapter, a tax-option corporation, a real estate investment trust, a regulated investment company, a real estate mortgage investment conduit, a financial asset securitization investment trust, a trust, or an estate.

SB62,65,4 (n) "Unitary business" means a single economic enterprise that is made up either of separate parts of a single business entity, of multiple business entities that are related under section 267 or 1563 of the Internal Revenue Code, or of a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide 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. Two or more business entities are presumed to be a unitary business if the businesses have unity of ownership, operation, and use as indicated by a centralized management or a centralized executive force; centralized purchasing, advertising, or accounting; intercorporate sales or leases; intercorporate services, including administrative, employee benefits, human resources, legal, financial, and cash management services; intercorporate debts; intercorporate use of proprietary materials; interlocking directorates; or interlocking corporate officers. In no event and under no circumstances shall the preceding sentence be construed as exclusive of any and all other factors indicative of a unitary business. For purposes of this section, the term "unitary business" shall be broadly construed, to the extent permitted by the U.S. Constitution. The members of a combined group shall be jointly and severally liable for costs, penalties, interests, and taxes associated with the combined report. Any business conducted by a pass-through entity that is owned 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. A 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 there is a synergy and exchange and flow of value between the 2 parts of the business and the 2 corporations are members of the same commonly controlled group.

SB62,65,12 (2) Corporations required to use combined reporting. (a) A corporation, not including a corporation of which all its income is exempt from taxation under s. 71.26 (1), engaged in a unitary business with one or more other corporations shall report its share of income from that unitary business in the amount determined by a combined report filed by a designated agent of the unitary business, as determined under sub. (7). The combined report shall include the income, determined under sub. (3), and apportionment factor or factors determined under sub. (5), of every corporation engaged in the unitary business, except as provided in pars. (b) to (f).

SB62,65,17 (b) A foreign corporation that is a combined group member shall include in the combined report income that is derived only from sources within the United States as provided in sections 861 to 865 of the Internal Revenue Code. The foreign corporation shall include in the combined report its apportionment factor or factors related only to that income.

SB62,65,23 (c) Except as provided in par. (d), if 80 percent or more of a corporation's worldwide income is active foreign business income, as defined in section 861 (c) (1) (B) of the Internal Revenue Code, the income and apportionment factor or factors of the corporation shall not be included in the combined report, but the corporation shall compute and allocate or apportion its income from the unitary business separately.

SB62,66,2 (d) The combined report of the unitary business of which a consolidated foreign operating corporation is a member shall include, and the separate return filed by the consolidated foreign operating corporation shall exclude, the following amounts, to the extent that they are attributable to the unitary business:

SB62,66,8 1. An income amount equal to the interest expenses and intangible expenses that are paid, accrued, or incurred by any combined group member to or for the benefit of the consolidated foreign operating corporation, except to the extent such amounts constitute income to the consolidated foreign operating corporation from sources outside the United States under sections 861 to 865 of the Internal Revenue Code.

SB62,66,18 2. To the extent that the amounts were not included under subd. 1., interest income and income generated from intangible property received or accrued by the consolidated foreign operating corporation, except to the extent such amounts constitute income from sources outside the United States under sections 861 to 865 of the Internal Revenue Code. For purposes of this subdivision, 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; licensing fees; and other similar income.

SB62,66,23 3. Dividends paid or accrued by a real estate investment trust to the consolidated foreign operating corporation, if the real estate investment trust is not a qualified real estate investment trust as defined in s. 71.22 (9ad) and the dividend income is from sources within the United States under sections 861 to 865 of the Internal Revenue Code.

SB62,66,25 4. Income of the consolidated foreign operating corporation that is equal to gains derived from the sale of real or personal property located in the United States.

SB62,67,2 5. The apportionment factor or factors attributable to the income described in subds 1. to 4.

SB62,67,5 (e) Except for the amounts in par. (d), a consolidated foreign operating corporation shall compute and allocate or apportion its income from the unitary business separately.

SB62,67,11 (f) 1. The department may require that a combined report include the income and associated apportionment factor or factors of any person who is not otherwise included in a combined group under this subsection, but who is a member of a unitary business, in order to reflect proper apportionment of income of the entire unitary business. The department may require that a combined report include the income and associated apportionment factor or factors of persons that are not corporations.

SB62,67,21 2. If the department determines that the reported income or loss of a member of a combined group engaged in a unitary business with any person not otherwise included in the combined group under this subsection represents an avoidance or evasion of tax by the person or the combined group member, the department may require all or any part of the income or loss and associated apportionment factor or factors of the person be included in or excluded from the combined report for the unitary business or may require the use of a different apportionment factor or factors. The department may require that a combined report include or exclude the income or loss and associated apportionment factor or factors of persons that are not corporations.

SB62,68,2 3. The authority granted under this paragraph is in addition to, and not a limitation of or dependent on, the provisions in this chapter enacted to prevent tax avoidance or evasion or to clearly reflect the income of any person. Any determination by the department under this paragraph is presumed correct and the person challenging the determination has the burden of proving by clear and convincing evidence that the determination is incorrect.

SB62,68,4 (3) Components of income subject to tax. Each member is responsible for tax based on its taxable income or loss apportioned or allocated to this state, including: