71.25(5)(b)1.1. 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 sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state shall be allocated to this state.
71.25(5)(b)2.
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 sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state shall be allocated to this state.
71.25(6)
(6) Allocation and separate accounting and apportionment formula. Corporations engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state. The amount of such income attributable to Wisconsin may be determined by an allocation and separate accounting thereof, when the business of such corporation within the state is not an integral part of a unitary business, but the department of revenue may permit an allocation and separate accounting in any case in which it is satisfied that the use of such method will properly reflect the income taxable by this state. In all cases in which allocation and separate accounting is not permissible, the determination shall be made in the following manner: for all businesses except financial organizations, public utilities, railroads, sleeping car companies, car line companies and corporations or associations that are subject to a tax on unrelated business income under
s. 71.26 (1) (a) there shall first be deducted from the total net income of the taxpayer the part thereof (less related expenses, if any) that follows the situs of the property or the residence of the recipient. The remaining net income shall be apportioned to Wisconsin by use of an apportionment fraction composed of a sales factor under
sub. (9) representing 50% of the fraction, a property factor under
sub. (7) representing 25% of the fraction and a payroll factor under
sub. (8) representing 25% of the fraction.
71.25(7)
(7) Property factor. For purposes of
sub. (5):
71.25(7)(a)
(a) The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period. Cash on hand or in the bank, shares of stock, notes, bonds, accounts receivable, or other evidence of indebtedness, special privileges, franchises, goodwill, or property the income of which is not taxable or is separately allocated, shall not be considered tangible property nor included in the apportionment.
71.25(7)(b)
(b) Property used in the production of nonapportionable income or losses shall be excluded from the numerator and denominator of the property factor. Property used in the production of both apportionable and nonapportionable income or losses shall be partially excluded from the numerator and denominator of the property factor so as to exclude, as near as possible, the portion of such property producing the nonapportionable income or loss.
71.25(7)(c)
(c) Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at 8 times the net annual rental. Net annual rental is the annual rental paid by the taxpayer less any annual rental received by the taxpayer from sub-rentals.
71.25(7)(d)
(d) The average value of property shall be determined by averaging the values at the beginning and ending of the tax period but the secretary of revenue may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer's property.
71.25(8)(a)
(a) The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period.
71.25(8)(b)1.
1. The individual's service is performed entirely within this state;
71.25(8)(b)2.
2. The individual's service is performed within and without this state, but the service performed without this state is incidental to the individual's service within this state;
71.25(8)(b)3.
3. A portion of the service is performed within this state and the base of operations of the individual is in this state;
71.25(8)(b)4.
4. A portion of the service is performed within this state and, if there is no base of operations, the place from which the individual's service is directed or controlled is in this state;
71.25(8)(b)5.
5. A portion of the service is performed within this state and neither the base of operations of the individual nor the place from which the service is directed or controlled is in any state in which some part of the service is performed, but the individual's residence is in this state; or
71.25(8)(b)6.
6. The individual is neither a resident of nor performs services in this state but is directed or controlled from an office in this state and returns to this state periodically for business purposes and the state in which the individual resides does not have jurisdiction to impose income or franchise taxes on the employer.
71.25(8)(c)
(c) Compensation related to the operation, maintenance, protection or supervision of property used in the production of both apportionable and nonapportionable income or losses shall be partially excluded from the numerator and denominator of the payroll factor so as to exclude, as near as possible, the portion of pay related to the operation, maintenance, protection and supervision of property used in the production of nonapportionable income.
71.25(8)(d)
(d) In this subsection, compensation includes deductible management or service fees paid to a related corporation as consideration for the performance of personal services, and the situs of those fees is in this state if the services fulfill one of the requirements under
par. (b). The recipient of the fees may not include the compensation paid to its employees with respect to personal services in either the numerator or denominator of its payroll factor. Except for management or service fees, payments made to a related corporation, an independent contractor or any person not properly classifiable as an employee are excluded. In this paragraph, "related corporation" means a corporation which is part of a controlled group as defined in section
267 (f) (1) of the internal revenue code.
71.25(8)(e)
(e) If the company has no employees and pays no management or service fees or the department determines that employees are not a substantial income-producing factor and that the management or service fees paid are insubstantial, the department may order or permit the elimination of the payroll factor.
71.25(9)(a)
(a) The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period. For sales of tangible personal property, the numerator of the sales factor is the sales of the taxpayer during the tax period under
par. (b) 1. and
2. plus 50% of the sales of the taxpayer during the tax period under
pars. (b) 2m. and
3. and
(c).
71.25(9)(b)
(b) Sales of tangible personal property are in this state if any of the following occur:
71.25(9)(b)1.
1. The property is delivered or shipped to a purchaser, other than the federal government, within this state regardless of the f.o.b. point or other conditions of the sale.
71.25(9)(b)2.
2. The property is shipped from an office, store, warehouse, factory or other place of storage in this state and delivered to the federal government within this state regardless of the f.o.b. point or other conditions of sale.
71.25(9)(b)2m.
2m. The property is shipped from an office, store, warehouse, factory or other place of storage in this state and delivered to the federal government outside this state and the taxpayer is not within the jurisdiction, for income or franchise tax purposes, of the destination state.
71.25(9)(b)3.
3. The property is shipped from an office, store, warehouse, factory or other place of storage in this state to a purchaser other than the federal government and the taxpayer is not within the jurisdiction, for income or franchise tax purposes, of the destination state.
71.25(9)(c)
(c) Sales of tangible personal property by an office in this state to a purchaser in another state and not shipped or delivered from this state are in this state if the taxpayer is not within the jurisdiction for income tax purposes of either the state from which the property is delivered or shipped or of the destination state.
71.25(9)(d)
(d) Sales, other than sales of tangible personal property, are in this state if the income-producing activity is performed in this state. If the income-producing activity is performed both in and outside this state the sales shall be divided between those states having jurisdiction to tax such business in proportion to the direct costs of performance incurred in each such state in rendering this service. Services performed in states which do not have jurisdiction to tax the business shall be deemed to have been performed in the state to which compensation is allocated by
sub. (8).
71.25(9)(e)
(e)
Sales defined. In this subsection, "sales" includes, but is not limited to, the following items related to the production of business income:
71.25(9)(e)2.
2. Gross receipts from the operation of farms, mines and quarries.
71.25(9)(e)3.
3. Gross receipts from the sale of scrap or by-products.
71.25(9)(e)5.
5. Gross receipts from personal and other services.
71.25(9)(e)6.
6. Gross rents from real property or tangible personal property.
71.25(9)(e)7.
7. Interest on trade accounts and trade notes receivable.
71.25(9)(e)8.
8. A partner's share of the partnership's gross receipts or a member's share of the limited liability company's gross receipts.
71.25(9)(e)11.
11. Gross franchise fees from income-producing activities.
71.25(9)(f)
(f)
Items that are not sales. The following items are among those that are not included in "sales" in this subsection:
71.25(9)(f)1.
1. Gross receipts and gain or loss from the sale of tangible business assets, except those under
par. (e) 1.,
2. and
3.
71.25(9)(f)2.
2. Gross receipts and gain or loss from the sale of nonbusiness real or tangible personal property.
71.25(9)(f)3.
3. Gross rents and rental income or loss from real property or tangible personal property if that real property or tangible personal property is not used in the production of business income.
71.25(9)(f)4.
4. Royalties from nonbusiness real property or nonbusiness tangible personal property.
71.25(9)(f)5.
5. Proceeds and gain or loss from the redemption of securities.
71.25(9)(f)7.
7. Gross receipts and gain or loss from the sale of intangible assets, except those under
par. (e) 1.
71.25(9)(f)8.
8. Dividends deductible by corporations in determining net income.
71.25(9)(f)9.
9. Gross receipts and gain or loss from the sale of securities.
71.25(9)(f)10.
10. Proceeds and gain or loss from the sale of receivables.
71.25(9)(f)11.
11. Refunds, rebates and recoveries of amounts previously expended or deducted.
71.25(9)(f)12.
12. Other items not includable in apportionable income.
71.25(10)
(10) Railroads, financial organizations and public utilities. 71.25(10)(a)(a) In this section, "financial organization" means any bank, trust company, savings bank, industrial bank, land bank, safe deposit company, private banker, savings and loan association, credit union, cooperative bank, small loan company, sales finance company, investment company, brokerage house, underwriter or any type of insurance company.
71.25(10)(b)
(b) In this section, "public utility" means any business entity which owns or operates any plant, equipment, property, franchise, or license for the transmission of communications or the production, transmission, sale, delivery, or furnishing of electricity, water or steam the rates of charges for goods or services of which have been established or approved by a federal, state or local government or governmental agency. "Public utility" also means any business entity providing service to the public and engaged in the transportation of goods and persons for hire, as defined in
s. 194.01 (4), regardless of whether or not the entity's rates or charges for services have been established or approved by a federal, state or local government or governmental agency.
71.25(10)(c)
(c) The net business income of railroads, sleeping car companies, car line companies, financial organizations and public utilities requiring apportionment shall be apportioned pursuant to rules of the department of revenue, but the income taxed is limited to the income derived from business transacted and property located within the state.
71.25(11)
(11) Department may waive factor. Where, in the case of any corporation engaged in business within and without the state of Wisconsin and required to apportion its income as provided in
sub. (6), it shall be shown to the satisfaction of the department of revenue that the use of any one of the 3 factors provided in
sub. (6) gives an unreasonable or inequitable final average ratio because of the fact that such corporation does not employ, to any appreciable extent in its trade or business in producing the income taxed, the factors made use of in obtaining such ratio, this factor may, with the approval of the department of revenue, be omitted in obtaining the final average ratio which is to be applied to the remaining net income.
71.25(12)
(12) Department may apportion by rule. If the income of any such corporation properly assignable to the state of Wisconsin cannot be ascertained with reasonable certainty by the methods under this section, then the same shall be apportioned and allocated under such rules as the department of revenue may prescribe.
71.25(13)
(13) Unrelated business taxable income. The unrelated business taxable income of organizations that are subject to tax on that income under
s. 71.26 (1) (a) shall be apportioned under the department of revenue's rules.
71.25(14)(a)(a) Upon request by a corporation on or before January 1, 2000, the department of revenue may authorize a corporation or a subsidiary thereof to use or continue to use a different method of apportioning its income to this state for purposes of this subchapter, and may specify the method of apportionment that the corporation or subsidiary shall use. This paragraph is to be used exclusively in the event of a corporate restructuring that would result in an unfair representation of the degree of business activity in this state. In no instance may the alternative method proposed under the new corporate structure result in less franchise or income tax revenue to the state than the current corporate structure is liable for, given the same overall level of sales, payroll and property.
71.25(14)(b)
(b) Before the department of revenue grants permission to any corporation to use an alternative method of allocation under
par. (a), the department of revenue shall promulgate rules that specify in more detail the circumstances in which that authority may be granted and the kinds of alternative methods that the department may authorize.
71.25(14)(c)
(c) At least 14 days before giving final approval to an alternative method of apportionment under
par. (a), the department of revenue shall submit the proposed alternative method of apportionment to the cochairpersons of the joint committee for review of administrative rules, together with a description of the proposed alternative and the reasons for the proposed alternative. If, within 14 days after receipt of the proposed alternative method, the cochairpersons of the joint committee for review of administrative rules do not notify the department of revenue that the proposed alternative must be promulgated as an administrative rule in order to be used, the department of revenue may give final approval to the proposed method without promulgating an administrative rule. If the cochairpersons of the joint committee for review of administrative rules notify the department of revenue within 14 days after receipt of the proposed alternative that the proposed alternative must be promulgated as an administrative rule, the proposed alternative may not be used until it is promulgated as an administrative rule under
ch. 227.
71.25(15)
(15) Partnerships and limited liability companies. 71.25(15)(a)(a) A general or limited partner's share of the numerator and denominator of a partnership's apportionment factors under this section are included in the numerator and denominator of the general or limited partner's apportionment factors under this section.
71.25(15)(b)
(b) If a limited liability company is treated as a partnership, for federal tax purposes, a member's share of the numerator and denominator of a limited liability company's apportionment factors under this section are included in the numerator and denominator of the member's apportionment factors under this section.
71.25 Annotation
Under sub. (6), it is within the department's discretion to decide whether to permit a multistate business to deviate from the apportionment method. Nelson Bros. v. DOR,
152 Wis. 2d 746,
449 N.W.2d 328 (Ct. App. 1989.)
71.25 Annotation
Subjecting an entity's income to apportionment when the entity's operations constitute a "unitary business" under sub. (6) is discussed. Chilstrom Erecting Corp. v. DOR,
174 Wis. 2d 517,
497 N.W.2d 785 (Ct. App. 1993).
71.25 Annotation
A corporation's investment income that served an "operational" function and was not unrelated to corporate functions within the state was subject to apportionment. Port Affiliates, Inc. v. DOR,
190 Wis. 2d 271,
526 N.W.2d 806 (Ct. App. 1994).
71.26
71.26
Income computation. 71.26(1)(1)
Exempt and excludable income. There shall be exempt from taxation under this subchapter income as follows:
71.26(1)(a)
(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 sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state. 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.
71.26(1)(b)
(b)
Political units. Income received by the United States, the state and all counties, cities, villages, towns, school districts, technical college districts, joint local water authorities created under
s. 66.0823, family care districts under
s. 46.2895 or other political units of this state.
71.26(1)(be)
(be)
Certain authorities. Income of the University of Wisconsin Hospitals and Clinics Authority and of the Fox River Navigational System Authority.
71.26(1)(bm)
(bm)
Certain local districts. Income of a local exposition district created under
subch. II of ch. 229, a local professional baseball park district created under
subch. III of ch. 229, a local professional football stadium district created under
subch. IV of ch. 229, or a local cultural arts district created under
subch. V of ch. 229.
71.26(1)(c)
(c)
Cooperative associations or corporations. Income of cooperative associations or corporations engaged in marketing farm products for producers, which turn back to such producers the net proceeds of the sales of their products; provided that such corporations or associations have at least 25 stockholders or members delivering such products and that their dividends have not, during the preceding 5 years, exceeded 8% per year; also income of associations and corporations engaged solely in processing and marketing farm products for one such cooperative association or corporation and which do not charge for such marketing and processing more than a sufficient amount to pay the cost of such marketing and processing and 8% dividends on their capital stock and to add 5% to their surplus.
71.26(1)(d)
(d) Bank in liquidation. Income of any bank placed in the hands of the division of banking for liquidation under
s. 220.08, if the tax levied, assessed or collected under this chapter on account of such bank diminishes the assets thereof so that full payment of all depositors cannot be made. Whenever the division of banking certifies to the department of revenue that the tax or any part thereof levied and assessed under this chapter against any such bank will so diminish the assets thereof that full payment of all depositors cannot be made, the department of revenue shall cancel and abate such tax or part thereof, together with any penalty thereon. This paragraph shall apply to unpaid taxes which were levied and assessed subsequent to the time the bank was taken over by the division of banking.
71.26(1)(e)
(e) Menominee Indian tribe; distribution of assets. No distribution of assets from the United States to the members of the Menominee Indian tribe as defined in
s. 49.385 or their lawful distributees, or to any corporation, or organization, created by the tribe or at its direction pursuant to section 8 of
P.L. 83-399, as amended, and no issuance of stocks, bonds, certificates of indebtedness, voting trust certificates or other securities by any such corporation or organization, or voting trust, to such members of the tribe or their lawful distributees shall be subject to income or franchise taxes under this chapter; provided that so much of any cash distribution made under said
P.L. 83-399 as consists of a share of any interest earned on funds deposited in the treasury of the United States pursuant to the supplemental appropriation act, 1952, (65 Stat. 736, 754) shall not by virtue of this paragraph be exempt from the individual income tax of this state in the hands of the recipients for the year in which paid. For the purpose of ascertaining the gain or loss resulting from the sale or other disposition of such assets and stocks, bonds, certificates of indebtedness and other securities under this chapter, the fair market value of such property, on termination date as defined in s.
70.057 (1), 1967 stats., shall be the basis for determining the amount of such gain or loss.
71.26(1)(f)
(f)
Real estate mortgage investment conduits. The income of a real estate mortgage investment conduit that is exempt for federal income tax purposes under section
860A of the internal revenue code.
71.26(1m)
(1m) Exemption from the income tax. The interest and income from the following obligations are exempt from the tax imposed under
s. 71.23 (1):
