The bill requires that DOR make a determination no later than eight months
after the person being audited receives the notice unless, at DOR's request, the
person consents in writing to extending the deadline. If the person agrees to an
extension, the interest on any taxes the person owes as a result of the audit do not
accrue during the extended period.
Under the bill, DOR may, with the taxpayer's consent, make a sales and use tax
field audit determination using statistical sampling. The bill defines "statistical
sampling" as a method by which a random, unbiased sample of not more than 7.5
percent of the taxpayer's annual sales transactions or 7.5 percent of the taxpayer's
annual purchases of nondepreciable property are analyzed to determine a net error
rate. Under the bill, the "net error rate" is, generally, a computation used to
determine whether the taxpayer has properly collected, reported, and submitted the

appropriate sales or use tax for the year being audited within an acceptable margin
of error. If the net error rate is within the acceptable margin of error, the taxpayer
owes no additional tax, penalty, or interest on amounts that the taxpayer would
otherwise owe and DOR must instruct the taxpayer on methods for reducing the net
error rate.
Finally, the bill requires DOR to promulgate rules and suggest statutory
changes in order to require the use of random, statistical sampling for making sales
and use tax audit determinations.
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:
AB219,1 1Section 1. 71.74 (2) (d) of the statutes is created to read:
AB219,2,92 71.74 (2) (d) Before commencing any field audit of a person regarding a year
3for which the person filed a return, the department shall send a notice to the person
4by certified mail, return receipt requested, or by personal service. The department
5shall send the notice to the person's address as indicated on the return or to the most
6recent address known to the department. The notice shall specify the years that are
7subject to the audit, the contact information for the department employee who is
8conducting the audit or who is responsible for the audit, and the deadline for making
9an assessment, as determined under s. 71.77 (5m).
AB219,2 10Section 2. 71.77 (5) of the statutes is amended to read:
AB219,3,411 71.77 (5) The Except as provided in sub. (5m), the limitation periods provided
12in this section may be extended by written agreement between the taxpayer and the
13department prior to the expiration of such limitation periods or any extension of such
14limitation periods. During any such extension period, the department may issue an
15assessment or a refund, and the taxpayer may file a claim for a refund, relating to
16the year which the extension covers. Subsection (4) shall not apply to any
17assessment made in any such extended period. The department of revenue shall

1assess the taxes owed or compute the refund due for taxable years beginning before
2January 1, 1990, by using the definition of "Internal Revenue Code" that applied to
3the year for which the assessment was made, as modified by P.L. 104-188 and P.L.
4105-34 if P.L. 104-188 or P.L. 105-34 applied for federal purposes for that year.
AB219,3 5Section 3. 71.77 (5m) of the statutes is created to read:
AB219,3,146 71.77 (5m) The department shall issue an assessment for any year subject to
7a field audit for which the department provides notice under s. 71.74 (2) (d) no later
8than 8 months after the date on which the person being audited received the notice,
9except that, at the department's request, the person being audited may consent in
10writing to extend the time for issuing an assessment. If the person being audited
11consents to an extension under this subsection, no interest shall accrue under s.
1271.82 (1) on any assessment resulting from the audit during the period beginning on
13the date that is 8 months after the date on which the person received notice under
14s. 71.74 (2) (d) and ending on the extended deadline for issuing the assessment.
AB219,4 15Section 4. 77.59 (1) of the statutes is amended to read:
AB219,4,216 77.59 (1) The department may, by office audit, determine the tax required to
17be paid to the state or the refund due to any person pursuant to this subchapter. The
18determination may be made upon the basis of the facts contained in the return being
19audited or upon the basis of any other information within the department's
20possession. The determination shall be presumed to be correct and the burden of
21proving it to be incorrect shall be upon the person challenging the correctness
22thereof. One or more such office audit determinations may be made of the amount
23due for any one or for more than one period, except that the department may not
24make an office audit determination of a person for any period for which the
25department has made a field office determination of that person or for any period for

1which the department has made a field office determination as described in sub. (2r)
2(d) or (e)
.
AB219,5 3Section 5. 77.59 (2) of the statutes is amended to read:
AB219,4,244 77.59 (2) The Except as provided under sub. (2r), the department may, by field
5audit, determine the tax required to be paid to the state or the refund due to any
6person under this subchapter. The determination may be made upon the basis of the
7facts contained in the return being audited or upon any other information in the
8department's possession. The determination may be made on the basis of sampling,
9whether or not the person being audited has complete records of transactions and
10whether or not the person being audited consents. The department may examine
11and inspect the books, records, memoranda and property of any person in order to
12verify the tax liability of that person or of another person. The department may
13subpoena any person to give testimony under oath before it and to produce whatever
14books, records or memoranda are necessary in order to enable the department to
15verify the tax liability of that person or of another person. The determination shall
16be presumed to be correct and the burden of proving it to be incorrect shall be upon
17the person challenging its correctness. A determination by the department in a field
18audit becomes final at the expiration of the appeal periods provided in sub. (6), and
19the tax liability of the taxpayer for the period audited may not be subsequently
20adjusted except as provided in sub. (4) (b), (8) or (8m). If the taxpayer files or is
21required to file more than one return for the taxpayer's fiscal year or for a calendar
22year, the determination made by field audit for that fiscal or calendar year shall be
23based on the receipts, purchases, deductions and exemptions for the entire fiscal or
24calendar year.
AB219,6 25Section 6. 77.59 (2r) of the statutes is created to read:
AB219,5,1
177.59 (2r) (a) In this subsection:
AB219,5,22 1. "Net error rate" means:
AB219,5,73 a. For sales transactions, a fraction determined by the department's review of
4a statistical sample, the numerator of which is the amount of additional taxes owed
5by the person audited, not including interest, penalties, and amounts owed as a
6refund to the person audited, and the denominator of which is the total amount of
7the sales transactions in the statistical sample.
AB219,5,128 b. For purchases of nondepreciable property, a fraction determined by the
9department's review of a statistical sample, the numerator of which is the amount
10of additional taxes owed by the person audited, not including interest, penalties, and
11amounts owed as a refund to the person audited, and the denominator of which is the
12total amount of the purchases of nondepreciable property in the statistical sample.
AB219,5,1413 2. "Nondepreciable property" means tangible personal property that may not
14be depreciated or amortized under ch. 71.
AB219,5,1615 3. "Return" means a return filed under s. 77.58 or any other return, including
16a return filed under ch. 71, in which a person reports sales or use tax liability.
AB219,5,2017 4. "Statistical sample" means, for sales transactions, the sample of such
18transactions selected through statistical sampling and, for purchases of
19nondepreciable property, the sample of such purchases selected through statistical
20sampling.
AB219,5,2421 5. "Statistical sampling" means a sampling method by which a random,
22unbiased sample of not more than 7.5 percent of the year's sales transactions or not
23more than 7.5 percent of the year's purchases of nondepreciable property is analyzed
24to determine a net error rate.
AB219,6,5
1(b) With the consent of the person being audited, when conducting a field audit
2regarding a year for which the person filed a return, the department shall use
3statistical sampling to analyze sales transactions, if the person engaged in at least
4500 sales transactions in that year, and purchases of nondepreciable property, if the
5person engaged in at least 200 purchases in that year.
AB219,6,106 (c) 1. For purposes of par. (b), if for any a year under audit the net error rate
7of nondepreciable property purchases is 1 percent or less, no additional tax, penalty,
8or interest may be imposed on the person being audited for that year and the
9department shall instruct the person on methods to reduce the net error rate on such
10purchases.
AB219,6,1411 2. For purposes of par. (b), if for any a year under audit the net error rate of sales
12transactions is 0.75 percent or less, no additional tax, penalty, or interest may be
13imposed on the person being audited for that year and the department shall instruct
14the person on methods to reduce the net error rate on such transactions.
AB219,6,1815 (d) 1. For purposes of par. (b), if for the 2 most recent years under audit the net
16error rate of nondepreciable property purchases is 2 percent or less, the 4-year
17period for providing notice under sub. (3) shall be a 2-year period and no penalty or
18interest may be imposed on the person being audited for that year.
AB219,6,2219 2. If subd. 1. applies to an audit, the department may conduct only one field
20audit or one office audit of the person being audited with regard to the 4 years
21following the last year under audit to which subd. 1. applies, but only if the person
22continues to file returns during those 4 years.
AB219,7,223 (e) 1. For purposes of par. (b), if for the 2 most recent years under audit the net
24error rate of sales transactions is 1.5 percent or less, the 4-year period for providing

1notice under sub. (3) shall be a 2-year period and no penalty or interest may be
2imposed on the person being audited for that year.
AB219,7,63 2. If subd. 1. applies to an audit, the department may conduct only one field
4audit or one office audit of the person being audited with regard to the 4 years
5following the last year under audit to which subd. 1. applies, but only if the person
6continues to file returns during those 4 years.
AB219,7,187 (f) Before commencing a field audit of a person who has filed a return for each
8of the years under audit, the department shall send a notice to the person by certified
9mail, return receipt requested, or by personal service. The department shall send
10the notice to the person's address as indicated on the return or to the most recent
11address known to the department. The notice shall specify the years that are subject
12to the audit, the contact information for the department employee who is conducting
13the audit or who is responsible for the audit, and the deadline for making a issuing
14a determination based on the audit. Notwithstanding any other provision of this
15section, and unless the person being audited agrees to extend the deadline for
16making a determination, the department shall issue a determination with regard to
17any year identified in the notice no later than 240 days following the date on which
18person receives the notice.
AB219,7,2119 (g) In addition to any other means available to the person being audited to
20challenge the audit, if the audit is conducted using statistical sampling, the person
21may challenge the sampling validity or method.
AB219,7 22Section 7. 77.59 (3) of the statutes is amended to read:
AB219,8,923 77.59 (3) No Except as provided in sub. (2r) (d) and (e), no determination of the
24tax liability of a person may be made unless written notice of the determination is
25given to the taxpayer within 4 years after the due date of the taxpayer's Wisconsin

1income or franchise tax return or, if exempt, within 4 years of the 15th day of the 4th
2month of the year following the close of the calendar or fiscal year, within 4 years of
3the dissolution of a corporation or within 4 years of the date any sales and use tax
4return required to be filed for any period in that year was filed, whichever is later.
5The notice required under this paragraph shall specify whether the determination
6is an office audit determination or a field audit determination, and it shall be in
7writing. If the department is unable to obtain service by mail, publication of it as a
8class 3 notice, under ch. 985, shall be service of notice in any case where notice is
9required under this subchapter.
AB219,8 10Section 8. 77.59 (3r) of the statutes is created to read:
AB219,8,1811 77.59 (3r) (a) Notwithstanding subs. (3) and (3m), before commencing any field
12audit of a person regarding a year for which the person filed a return, the department
13shall send a notice to the person by certified mail, return receipt requested, or by
14personal service. The department shall send the notice to the person's address as
15indicated on the return or to the most recent address known to the department. The
16notice shall specify the years that are subject to the audit, the contact information
17for the department employee who is conducting the audit or who is responsible for
18the audit, and the deadline for making an assessment, as determined under par. (b).
AB219,9,219 (b) The department shall issue a determination for any year subject to a field
20audit for which the department provides notice under par. (a) no later than 8 months
21after the date on which the person being audited received the notice, except that, at
22the department's request, the person being audited may consent in writing to extend
23the time for issuing a determination. If the person being audited consents to an
24extension under this subsection, no interest shall accrue under s. 77.60 (1) on any
25determination resulting from the audit during the period beginning on the date that

1is 8 months after the date on which the person received notice under par. (a) and
2ending on the extended deadline for issuing the determination.
AB219,9 3Section 9. Nonstatutory provisions.
AB219,9,13 4(1) Sales and use tax audits; statistical sampling. No later than June 30, 2016,
5the department of revenue shall promulgate rules to require the use of random,
6statistical sampling for making audit determinations under section 77.59 (2) of the
7statutes in order to reduce the sample size and increase accuracy. The rules,
8however, shall provide that the department of revenue and taxpayers may enter into
9agreements not to use statistical sampling. The rules shall also create safe harbors
10for taxpayers who use such sampling to prepare their sales and use tax returns. The
11department of revenue shall prepare legislation, no later than October 1, 2015,
12allowing the department to enter into binding agreements with taxpayers to use
13statistical sampling.
AB219,10 14Section 10. Initial applicability.
AB219,9,16 15(1) This act first applies to audits commencing on the effective date of this
16subsection.
AB219,9,1717 (End)
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