Chapter 71

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.

71.04(7)(f)12. 12. Other items not includable in apportionable income.

71.04(7)(f)13. 13. Foreign exchange gain or loss.

71.04(7)(f)14. 14. Royalties and income from passive investments in the property under s. 71.25 (5) (a) 21.

71.04(7)(f)16. 16. Pari-mutuel wager winnings or purses under ch. 562.

71.04(7)(f)17. 17. Gross receipts from sales of property or services as part of performing disaster relief work, as defined in s. 323.12 (5) (a) 3.

71.04(7)(g) (g)

71.04(7)(g)1. 1. For taxable years beginning after December 31, 2018, the amount of a broadcaster’s gross receipts from advertising and the use or license of intangible property, as determined under pars. (dh) 4. and (dj) 2., shall be adjusted as follows:

71.04(7)(g)1.a. a. Determine the amount of the numerator of the sales factor for a broadcaster as provided in this subsection.

71.04(7)(g)1.b. b. Multiply .01 by the total amount of the domestic gross receipts of the broadcaster from advertising and royalties and other gross receipts for the use or license of intangible property.

71.04(7)(g)1.c. c. Determine the numerator of the sales for a broadcaster by substituting the amount determined under subd. 1. b. for the total amount determined under subd. 1. a.

71.04(7)(g)1.d. d. Except as provided in subd. 1. e., if the amount of the numerator determined under subd. 1. c. is more than the amount determined under subd. 1. a., substitute the amount of total gross receipts determined under subd. 1. b. for the total amount of the gross receipts determined under subd. 1. a. For purposes of this subd. 1. d., the amount of the numerator for a broadcaster is the amount determined under subd. 1. c.

71.04(7)(g)1.e. e. If the amount of the numerator computed under subd. 1. c. is more than 140 percent of the amount determined under subd. 1. a., adjust the total amount of the gross receipts under subd. 1. a. so that the amount of the numerator for a broadcaster is 140 percent of the numerator otherwise determined under subd. 1. a.

71.04(7)(g)2. 2. The department may promulgate rules to administer this paragraph.

71.04(8) (8) Railroads, financial organizations and public utilities.

71.04(8)(a) (a)

71.04(8)(a)1. 1. 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.

71.04(8)(a)2. 2. 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.

71.04(8)(b) (b)

71.04(8)(b)1. 1. In this section, for taxable years beginning before January 1, 2006, “public utility” means any business entity described under subd. 2. and 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.

71.04(8)(b)2. 2. In this section, for taxable years beginning after December 31, 2005, “public utility” 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.

71.04(8)(c) (c) The net business income of railroads, car line companies, pipeline companies, financial organizations, telecommunications companies, air carriers, 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.

71.04 Cross-reference Cross-reference: See also ss. Tax 2.46, 2.47, 2.475, 2.49, 2.495, 2.50, and 2.502, Wis. adm. code.

71.04(9) (9) Nonresident income from multistate tax-option corporation. Nonresident individuals and nonresident estates and trusts deriving income from a tax-option corporation which is engaged in business within and without this state shall be taxed only on the income of the corporation derived from business transacted and property located in this state and losses and other items of the corporation deductible by such shareholders shall be limited to their proportionate share of the Wisconsin loss or other item, 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. For purposes of this subsection, all intangible income of tax-option corporations passed through to shareholders is business income that follows the situs of the business, 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.

71.04(10) (10) Department may waive factor. Where, in the case of any nonresident individual or nonresident estate or trust engaged in business in and outside of this state and required to apportion its income as provided in this section, it shall be shown to the satisfaction of the department of revenue that the use of any one of the 3 factors provided under sub. (4) gives an unreasonable or inequitable final average ratio because of the fact that such nonresident individual or nonresident estate or trust 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. This subsection does not apply to taxable years beginning after December 31, 2007.

71.04(11) (11) Department may apportion by rule. If the income of any such nonresident individual or nonresident estate or trust 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.

71.04 History History: 1987 a. 312; 1987 a. 411 ss. 34 to 40, 61; 1989 a. 31; 1989 a. 56 s. 259; 1991 a. 39, 189, 269; 1993 a. 112, 204, 491; 1995 a. 27; 1997 a. 27, 237; 1999 a. 9; 2003 a. 37; 2005 a. 25; 2007 a. 20; 2009 a. 2, 28; 2015 a. 84, 196, 216; 2017 a. 59.

71.04 Cross-reference Cross-reference: See also s. Tax 2.39, Wis. adm. code.

71.05 71.05 Income computation.

71.05(1) (1) Exempt and excludable income. There shall be exempt from taxation under this subchapter the following:

71.05(1)(a) (a) Retirement systems. All payments received from the U.S. civil service retirement system, the U.S. military employee retirement system, the employee’s retirement system of the city of Milwaukee, Milwaukee County employees’ retirement system, sheriff’s annuity and benefit fund of Milwaukee County, police officer’s annuity and benefit fund of Milwaukee, fire fighter’s annuity and benefit fund of Milwaukee, or the public employee trust fund as successor to the Milwaukee public school teachers’ annuity and retirement fund and to the Wisconsin state teachers retirement system, which are paid on the account of any person who was a member of the paying or predecessor system or fund as of December 31, 1963, or was retired from any of the systems or funds as of December 31, 1963, but such exemption shall not exclude from gross income tax sheltered annuity benefits.

71.05 Cross-reference Cross-reference: See also s. Tax 2.94, Wis. adm. code.

71.05(1)(am) (am) Military retirement systems. All retirement payments received from the U.S. military employee retirement system, to the extent that such payments are not exempt under par. (a) or sub. (6) (b) 54.

71.05(1)(an) (an) Uniformed services retirement benefits. All retirement payments received from the U.S. government that relate to service with the coast guard, the commissioned corps of the national oceanic and atmospheric administration, or the commissioned corps of the public health service, to the extent that such payments are not exempt under par. (a) or (am) or sub. (6) (b) 54.