Chapter 71

71.04(4) (4) Nonresident allocation and apportionment formula. Nonresident individuals and nonresident estates and trusts 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 nonresident individual or nonresident estate or trust 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 air carriers, financial organizations, telecommunications companies, pipeline companies, public utilities, railroads, and car line companies 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 this state by use of the following:

71.04(4)(a) (a) For taxable years beginning before January 1, 2006, an apportionment fraction composed of a sales factor under sub. (7) representing 50 percent of the fraction, a property factor under sub. (5) representing 25 percent of the fraction, and a payroll factor under sub. (6) representing 25 percent of the fraction.

71.04(4)(b) (b) For taxable years beginning after December 31, 2005, and before January 1, 2007, an apportionment fraction composed of a sales factor under sub. (7) representing 60 percent of the fraction, a property factor under sub. (5) representing 20 percent of the fraction, and a payroll factor under sub. (6) representing 20 percent of the fraction.

71.04(4)(c) (c) For taxable years beginning after December 31, 2006, and before January 1, 2008, an apportionment fraction composed of a sales factor under sub. (7) representing 80 percent of the fraction, a property factor under sub. (5) representing 10 percent of the fraction, and a payroll factor under sub. (6) representing 10 percent of the fraction.

71.04(4)(d) (d) For taxable years beginning after December 31, 2007, an apportionment fraction composed of the sales factor under sub. (7).

71.04(4)(e) (e) For taxable years beginning after December 31, 2005, and before January 1, 2008, the apportionment fraction for the remaining net income of a financial organization shall include a sales factor that represents more than 50 percent of the apportionment fraction, as determined by rule by the department. For taxable years beginning after December 31, 2007, the apportionment fraction for the remaining net income of a financial organization is composed of a sales factor, as determined by rule by the department.

71.04 Cross-reference Cross-reference: See also s. Tax 2.41, Wis. adm. code.

71.04(4m) (4m) Apportionment formula computation.

71.04(4m)(a) (a)

71.04(4m)(a)1. 1. For taxable years beginning before January 1, 2008, if both the numerator and the denominator of the sales factor under sub. (7) related to a taxpayer’s remaining net income are zero, the sales factor under sub. (7) is eliminated from the apportionment formula to determine the taxpayer’s remaining net income under sub. (4).

71.04(4m)(a)2. 2. For taxable years beginning after December 31, 2007, if both the numerator and the denominator of the sales factor under sub. (7) related to a taxpayer’s remaining net income are zero, none of the taxpayer’s remaining net income is apportioned to this state.

71.04(4m)(b) (b)

71.04(4m)(b)1. 1. For taxable years beginning before January 1, 2008, if the numerator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is a negative number and the denominator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is a positive number, a negative number, or zero, the sales factor under sub. (7) is zero.

71.04(4m)(b)2. 2. For taxable years beginning after December 31, 2007, if the numerator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is a negative number and the denominator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is a positive number, a negative number, or zero, none of the taxpayer’s remaining net income is apportioned to this state.

71.04(4m)(c) (c)

71.04(4m)(c)1. 1. For taxable years beginning before January 1, 2008, if the numerator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is a positive number and the denominator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is zero or a negative number, the sales factor under sub. (7) is one.

71.04(4m)(c)2. 2. For taxable years beginning after December 31, 2007, if the numerator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is a positive number and the denominator of the sales factor under sub. (7) related to a taxpayer’s remaining net income is zero or a negative number, all of the taxpayer’s remaining net income is apportioned to this state.

71.04(5) (5) Property factor. For purposes of sub. (4) and for taxable years beginning before January 1, 2008:

71.04(5)(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.

71.04(5)(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.

71.04(5)(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.

71.04(5)(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.

71.04(6) (6) Payroll factor. For purposes of sub. (4) and for taxable years beginning before January 1, 2008:

71.04(6)(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.

71.04(6)(b) (b) Compensation is paid in this state if:

71.04(6)(b)1. 1. The individual’s service is performed entirely within this state;

71.04(6)(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;

71.04(6)(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;

71.04(6)(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;

71.04(6)(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

71.04(6)(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.

71.04(6)(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.

71.04(6)(d) (d) Payments made to an independent contractor or any person not properly classified as an employee are excluded from the payroll factor.

71.04(6)(e) (e) If the taxpayer has no employees or the department determines that employees are not a substantial income-producing factor, the department may order or permit the elimination of the payroll factor.

71.04(7) (7) Sales factor. For purposes of sub. (4):

71.04(7)(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 100 percent of the sales of the taxpayer during the tax period under pars. (b) 2m. and 3. and (c). For purposes of applying pars. (b) 2m. and 3. and (c), if a taxpayer is within another state’s jurisdiction for income or franchise tax purposes for any part of the taxable year, it is considered to be within that state’s jurisdiction for income or franchise tax purposes for the entire taxable year.

71.04(7)(b) (b) Sales of tangible personal property are in this state if any of the following occur:

71.04(7)(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.

71.04(7)(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.

71.04(7)(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.

71.04(7)(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.

71.04(7)(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.

71.04(7)(df) (df)

71.04(7)(df)1. 1. Gross receipts from the use of computer software are in this state if the purchaser or licensee uses the computer software at a location in this state.

71.04(7)(df)2. 2. Computer software is used at a location in this state if the purchaser or licensee uses the computer software in the regular course of business operations in this state, for personal use in this state, or if the purchaser or licensee is an individual whose domicile is in this state. If the purchaser or licensee uses the computer software in more than one state, the gross receipts shall be divided among those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the computer software in those states. To determine computer software use in this state, the department may consider the number of users in each state where the computer software is used, the number of site licenses or workstations in this state, and any other factors that reflect the use of computer software in this state.

71.04(7)(dh) (dh)

71.04(7)(dh)1. 1. Gross receipts from services are in this state if the purchaser of the service received the benefit of the service in this state.

71.04(7)(dh)2. 2. The benefit of a service is received in this state if any of the following applies:

71.04(7)(dh)2.a. a. The service relates to real property that is located in this state.

71.04(7)(dh)2.b. b. The service relates to tangible personal property that is delivered directly or indirectly to customers in this state.

71.04(7)(dh)2.c. c. The service is purchased by an individual who is physically present in this state at the time that the service is received.

71.04(7)(dh)2.d. d. The service is provided to a person engaged in a trade or business in this state and relates to that person’s business in this state.

71.04(7)(dh)3. 3. Except as provided in subd. 4., if the purchaser of a service receives the benefit of a service in more than one state, the gross receipts from the performance of the service are included in the numerator of the sales factor according to the portion of the service received in this state.

71.04(7)(dh)4. 4. For taxable years beginning after December 31, 2018, a broadcaster’s gross receipts from advertising are in this state only if the advertiser’s commercial domicile is in this state. With regard to a broadcaster who is a member of a combined group, as defined in s. 71.255 (1) (a), this subdivision does not apply to the gross receipts of the members who are not broadcasters.

71.04(7)(dj) (dj)

71.04(7)(dj)1. 1. Except as provided in subd. 2. and 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:

71.04(7)(dj)1.a. a. The purchaser or licensee uses the intangible property in the operation of a trade or business at a location in this state. Except as provided in subd. 2., 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.

71.04(7)(dj)1.b. 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.

71.04(7)(dj)1.c. c. The purchaser or licensee of the use of the intangible property has its commercial domicile in this state.

71.04(7)(dj)2. 2. For taxable years beginning after December 31, 2018, a broadcaster’s gross royalties and other gross receipts received for the use or license of intangible property are sales in this state only if the commercial domicile of the purchaser or licensee is in this state and the purchaser or licensee has a direct connection or relationship with the broadcaster pursuant to a contract under which the royalties or receipts are derived. With regard to a broadcaster who is a member of a combined group, as defined in s. 71.255 (1) (a), this subdivision does not apply to the gross royalties and receipts of the members who are not broadcasters.

71.04(7)(dk) (dk)

71.04(7)(dk)1. 1. Sales of intangible property, excluding securities, are sales in this state if any of the following applies:

71.04(7)(dk)1.a. 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.

71.04(7)(dk)1.b. b. The purchaser is billed for the purchase of the intangible property at a location in this state.

71.04(7)(dk)1.c. c. The purchaser of the intangible property has its commercial domicile in this state.

71.04(7)(e) (e) In this subsection, “sales” includes, but is not limited to, the following items related to the production of business income:

71.04(7)(e)1. 1. Gross receipts from the sale of inventory.

71.04(7)(e)2. 2. Gross receipts from the operation of farms, mines and quarries.

71.04(7)(e)3. 3. Gross receipts from the sale of scrap or by-products.

71.04(7)(e)4. 4. Gross commissions.

71.04(7)(e)5. 5. Gross receipts from personal and other services.

71.04(7)(e)6. 6. Gross rents from real property or tangible personal property.

71.04(7)(e)7. 7. Interest on trade accounts and trade notes receivable.

71.04(7)(e)8. 8. A partner’s or member’s share of the partnership’s or limited liability company’s gross receipts.

71.04(7)(e)9. 9. Gross management fees.

71.04(7)(e)10. 10. Gross royalties from income-producing activities.

71.04(7)(e)11. 11. Gross franchise fees from income-producing activities.

71.04(7)(f) (f) The following items are among those that are not included in “sales” in this subsection:

71.04(7)(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.

71.04(7)(f)2. 2. Gross receipts and gain or loss from the sale of nonbusiness real or tangible personal property.

71.04(7)(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.

71.04(7)(f)4. 4. Royalties from nonbusiness real property or nonbusiness tangible personal property.

71.04(7)(f)5. 5. Proceeds and gain or loss from the redemption of securities.

71.04(7)(f)6. 6. Interest, except interest under par. (e) 7., and dividends.

71.04(7)(f)7. 7. Gross receipts and gain or loss from the sale of intangible assets, except those under par. (e) 1.

71.04(7)(f)8. 8. Dividends deductible by corporations in determining net income.

71.04(7)(f)9. 9. Gross receipts and gain or loss from the sale of securities.

71.04(7)(f)10. 10. Proceeds and gain or loss from the sale of receivables.

71.04(7)(f)11. 11. Refunds, rebates and recoveries of amounts previously expended or deducted.