Chapter Tax 2

Tax 2.41(2) (2) Net rentals received from real estate held purely for investment purposes and not used in the operation of the business are not subject to allocation but are taxable in full if the property is located in Wisconsin. Gross rentals must be reduced by all expenses related to such investment property.

Tax 2.41 Note Note: Section Tax 2.41 interprets ss. 71.04 (4) and 71.25 (6), Stats.

Tax 2.41 History History: 1-2-56; am. Register, February, 1958, No. 26, eff. 3-1-58; am. Register, November, 1977, No. 263, eff. 12-1-77.

Tax 2.44 Tax 2.44 Permission to change basis of allocation. Except when income must be reported on the apportionment basis, permission to make a change either from separate accounting to apportionment, or vice versa shall be obtained in writing from the department upon written application setting forth in detail the reasons why the desired change will more clearly reflect the taxpayer’s Wisconsin income. Such application shall be mailed to the Wisconsin Department of Revenue, P.O. Box 8906, Madison, WI 53708-8906 before the end of the tax year for which the change is desired.

Tax 2.44 Note Note: Section Tax 2.44 interprets ss. 71.04 (4) and 71.25 (6), Stats.

Tax 2.44 History History: 1-2-56, am. Register, September, 1964, No. 105, eff. 10-1-64; am. Register, February, 1975, No. 230, eff. 3-1-75; am. Register, September, 1983, No. 333, eff. 10-1-83; corrections made under s. 13.93 (2m) (b) 6., Stats., Register, March, 1999, No. 519.

Tax 2.45 Tax 2.45 Apportionment in special cases. When the business of any person, other than an interstate professional sports club or “financial organization” or“public utility,” as defined in s. 71.25 (10), Stats., within Wisconsin is an integral part of a unitary business conducted within and without Wisconsin, but because of unusual or unique circumstances the portion of the income of the person derived from business transacted in Wisconsin cannot be ascertained with reasonable certainty by use of the apportionment formula provided in s. 71.25 (6), Stats., or by separate accounting in view of the unitary nature of the business, the department will substitute in the place of some or all of the statutory apportionment factors another factor or other factors as will reasonably apportion to Wisconsin the business income properly assignable to Wisconsin. In any case in which an apportionment of business income is made pursuant to this regulation the taxpayer, at the time of the assessment, will be apprised of the factors used in the formula adopted.

Tax 2.45 Note Note: Section Tax 2.45 interprets s. 71.25 (12), Stats.

Tax 2.45 History History: Cr. Register, December, 1956, No. 12, eff. 1-1-57; am. Register, August, 1973, No. 212, eff. 9-1-73; am. Register, September, 1983, No. 333, eff. 10-1-83; am. Register, July, 1989, No. 403, eff. 8-1-89.

Tax 2.46 Tax 2.46 Apportionment of apportionable income of interstate air carriers.

Tax 2.46(1) (1) General. The apportionable income of an air carrier engaged in business in and outside this state shall be apportioned to Wisconsin as described in this section, except if the air carrier is in a combined group, its Wisconsin share of the combined group’s apportionable income is computed as provided in s. 71.255 (5), Stats., and further detailed in s. Tax 2.61 (7).

Tax 2.46 Note Note: An air carrier that is a corporation may be in a combined group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61 (2) for a description of corporations required to use combined reporting.

Tax 2.46(2) (2) Definition. In this section, “engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b).

Tax 2.46(3) (3) Apportionment formula computation. An air carrier that is engaged in business in and outside this state shall apportion its apportionable income to this state on the basis of the ratio obtained by taking the arithmetical average of the following 3 ratios:

Tax 2.46(3)(a) (a) The ratio which the aircraft arrivals and departures within this state scheduled by such carrier during the calendar or fiscal year bears to the total aircraft arrivals and departures within and without this state scheduled by such carrier during the same period; provided that in the case of nonscheduled operations all arrivals and departures shall be substituted for scheduled arrivals and departures.

Tax 2.46(3)(b) (b) The ratio which the revenue tons handled by such carrier at airports within this state during the calendar or fiscal year bears to the total revenue tons handled at airports within and without this state during the same period.

Tax 2.46(3)(c) (c) The ratio which such air carrier’s originating revenue within this state for the calendar or fiscal year bears to the total originating revenue within and without this state for the same period.

Tax 2.46 Note Note: Air carriers that are in combined groups must adjust the numerator and denominator of each of these factors and then convert the arithmetical average of these factors to the modified sales factor. The modified sales factor then determines the company’s Wisconsin share of the combined group’s apportionable income. See s. 71.255 (5), Stats., and s. Tax 2.61 (7) for details.

Tax 2.46 Note Note: Section Tax 2.46 interprets ss. 71.04 (8) (c) and 71.25 (10) (c), Stats.

Tax 2.46 History History: Cr. Register, December, 1956, No. 12, eff. 1-1-57; am. (intro.). Register, August, 1973, No. 212, eff. 9-1-73; EmR0943: emerg. r. and recr. eff 12-31-09; CR 10-001: r. and recr. Register June 2010 No. 654, eff. 7-1-10; correction to (1) (title) made under s. 13.92 (4) (b) 2., Stats., Register June 2010 No. 654.

Tax 2.465 Tax 2.465 Apportionment of apportionable income of interstate air freight forwarders affiliated with a direct air carrier.

Tax 2.465(1) (1) General. The apportionable income of a qualified air freight forwarder affiliated with a direct air carrier and engaged in business in and outside this state shall be apportioned to Wisconsin as described in this section, except if the qualified air freight forwarder is in a combined group, its Wisconsin share of the combined group’s apportionable income is computed as provided in s. 71.255 (5), Stats., and further detailed in s. Tax 2.61 (7).

Tax 2.465 Note Note: A qualified air freight forwarder that is a corporation may be in a combined group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61 (2) for a description of corporations required to use combined reporting.

Tax 2.465(2) (2) Definitions. In this section:

Tax 2.465(2)(a) (a) An air freight forwarder is “affiliated” with a direct air carrier if all of the following apply:

Tax 2.465(2)(a)1. 1. The air freight forwarder owns or controls either directly or indirectly at least 80% of the ownership interests of the direct air carrier, or at least 80% of the ownership interests of the air freight forwarder is owned or controlled either directly or indirectly by the direct air carrier, or at least 80% of the ownership interests of both the air freight forwarder and the direct air carrier is owned or controlled either directly or indirectly by the same interests.

Tax 2.465(2)(a)2. 2. The air freight forwarder is principally engaged in the business of air freight forwarding.

Tax 2.465(2)(a)3. 3. The air freight forwarder’s air freight forwarding business is carried on principally with the direct air carrier.

Tax 2.465(2)(b) (b) “Combined group” has the same meaning as in s. Tax 2.60 (2) (a).

Tax 2.465(2)(c) (c) “Direct air carrier” means a business entity principally engaged in air transportation through the direct operation of aircraft under a certificate issued by the federal aviation administration.

Tax 2.465(2)(d) (d) “Engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b).

Tax 2.465(2)(e) (e) “Originating revenue in this state” means all revenue derived from shipments that were first physically consigned to a qualified air freight forwarder in this state for transportation, regardless of the method or methods of transportation.

Tax 2.465(2)(f) (f) “Qualified air freight forwarder” means a person to whom all of the following apply:

Tax 2.465(2)(f)1. 1. The person is engaged primarily in the facilitation of the transportation of property by air.

Tax 2.465(2)(f)2. 2. The person does not operate aircraft.

Tax 2.465(2)(f)3. 3. The person is in the same combined group as an affiliated direct air carrier.

Tax 2.465(3) (3) Apportionment formula computation. For taxable years beginning on or after January 1, 2014, a qualified air freight forwarder that is engaged in business in and outside this state shall apportion its apportionable income to this state on the basis of the ratio obtained by taking the arithmetical average of the following 3 ratios:

Tax 2.465(3)(a) (a) The ratio which aircraft arrivals and departures within this state scheduled by the affiliated direct air carrier during the calendar or fiscal year bears to the total aircraft arrivals and departures within and without this state scheduled by such direct air carrier during the same period; provided that if the affiliated direct air carrier conducts nonscheduled operations all arrivals and departures shall be substituted for scheduled arrivals and departures.

Tax 2.465(3)(b) (b) The ratio which the revenue tons handled by the affiliated direct air carrier at airports within this state during the calendar or fiscal year bears to the total revenue tons handled at airports within and without this state during the same period.

Tax 2.465(3)(c) (c) The ratio which such qualified air freight forwarder’s originating revenue in this state for the calendar or fiscal year bears to the total revenue of such qualified air freight forwarder within and without this state for the same period.

Tax 2.465 History History: CR 13-078: cr. Register April 2014 No. 700, eff. 5-1-14.

Tax 2.47 Tax 2.47 Apportionment of apportionable income of interstate motor carriers.

Tax 2.47(1) (1) General. The apportionable income of a motor carrier engaged in business in and outside this state shall be apportioned to Wisconsin as described in this section, except if the motor carrier is in a combined group, its Wisconsin share of the combined group’s apportionable income is computed as provided in s. 71.255 (5), Stats., and further detailed in s. Tax 2.61 (7).

Tax 2.47 Note Note: A motor carrier that is a corporation may be in a combined group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61 (2) for a description of corporations required to use combined reporting.

Tax 2.47(1m) (1m) Definitions. In this section:

Tax 2.47(1m)(a) (a) “Engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b).

Tax 2.47(1m)(b) (b) “Ton mile” means the movement of one ton of persons or property, or both, the distance of one mile. For carriage of persons, each person shall be considered the equivalent of 200 pounds.

Tax 2.47(2) (2) Apportionment formula computation. For taxable years beginning on or after January 1, 1997, a motor carrier that is engaged in business in and outside this state shall apportion its apportionable income to this state on the basis of the arithmetical average of the following 2 factors:

Tax 2.47(2)(a) (a) The ratio of the gross receipts from carriage of persons or property, or both, first acquired for carriage in Wisconsin to the total gross receipts from carriage of persons or property, or both, everywhere.

Tax 2.47(2)(b) (b) The ratio of ton miles of carriage in Wisconsin to ton miles of carriage everywhere.

Tax 2.47 Note Note: Motor carriers that are in combined groups must adjust the numerator and denominator of each of these factors and then convert the arithmetical average of these factors to the modified sales factor. The modified sales factor then determines the company’s Wisconsin share of the combined group’s apportionable income. See s. 71.255 (5), Stats., and s. Tax 2.61 (7) for details.

Tax 2.47(3) (3) Substitution of factors. Whenever gross receipts data is not available the department may authorize or direct substitution of a similar factor, such as gross tonnage, and whenever ton mile data is not available the department may similarly authorize substitution of a similar factor, such as revenue miles.

Tax 2.47(4) (4) Mercantile and manufacturing businesses. This section does not apply to any mercantile or manufacturing business which engages in some interstate carriage as an incident of the mercantile or manufacturing business.

Tax 2.47 Note Note: Section Tax 2.47 interprets ss. 71.04 (8) (c) and 71.25 (10) (c), Stats.

Tax 2.47 History History: Cr. Register, April, 1966, No. 124, eff. 5-1-66; am. (intro.). Register, August, 1973, No. 212, eff. 9-1-73; r. and recr. Register, October, 1996, No. 490, eff. 1-1-97; EmR0943: emerg. am. (title), (2) (title) and (intro.), cr. (intro.), r. and recr. (1), eff. 12-31-09; CR 10-001: am. (title), (2) (title) and (intro.), r. and recr. (1), cr. (1m) Register June 2010 No. 654, eff. 7-1-10; correction to (1) (title) made under s. 13.92 (4)(b) 7., Stats., Register June 2010 No. 654.

Tax 2.475 Tax 2.475 Apportionment of apportionable income of interstate railroads and car line companies.

Tax 2.475(1) (1) General. The apportionable income of a railroad or car line company engaged in business in and outside this state shall be apportioned to Wisconsin as described in this section, except if the company is in a combined group, its Wisconsin share of the combined group’s apportionable income is computed as provided in s. 71.255 (5), Stats., and further detailed in s. Tax 2.61 (7).

Tax 2.475 Note Note: A railroad or car line company that is a corporation may be in a combined group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61 (2) for a description of corporations required to use combined reporting.

Tax 2.475(1m) (1m) Definitions.

Tax 2.475(1m)(a) (a) “Engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b).

Tax 2.475(1m)(b) (b) “Gross receipts from carriage” means gross receipts received for the carriage of property or persons net of interline payments made to other railroads as a result of the interchange of carriage between and among railroads. Gross receipts from carriage includes interline payments received from other railroads.

Tax 2.475(1m)(c) (c) “Revenue ton mile” means the movement of one net ton of property or persons, or both, the distance of one mile, for consideration. For carriage of persons, each person shall be considered the equivalent of 150 pounds, and the average weight of the contents of head end cars, or “baggage cars,” is considered to be 4 tons.

Tax 2.475(2) (2) Interstate railroads. With respect to the imposition of Wisconsin franchise or income tax measured by or on net income for taxable years beginning on or after January 1, 1991, the apportionable income of a railroad engaged in business in and outside this state shall be apportioned to Wisconsin on the basis of the arithmetical average of the following 2 factors:

Tax 2.475(2)(a) (a) The ratio of the gross receipts from carriage of property or persons, or both, first acquired for carriage in Wisconsin to the total gross receipts from carriage of property or persons, or both, everywhere.

Tax 2.475(2)(b) (b) The ratio of revenue ton miles of carriage in Wisconsin to revenue ton miles of carriage everywhere.

Tax 2.475 Note Note: Railroads that are in combined groups must adjust the numerator and denominator of each of these factors and then convert the arithmetical average of these factors to the modified sales factor. The modified sales factor then determines the company’s Wisconsin share of the combined group’s apportionable income. See s. 71.255 (5), Stats., and s. Tax 2.61 (7) for details.

Tax 2.475(3) (3) Substitution of factors. Whenever gross receipts data is not available the department may authorize or direct substitution of a similar factor, such as gross tonnage, and whenever revenue ton mile data is not available the department may similarly authorize substitution of a similar factor, such as revenue miles.

Tax 2.475(4) (4) Car line companies. With respect to the imposition of Wisconsin franchise or income tax measured by or on net income for taxable years beginning on or after January 1, 1991, the income of a car line company engaged in business in and outside this state shall be allocated or apportioned to Wisconsin as provided in s. 71.04 (4) or 71.25 (6), Stats., and s. Tax 2.39.

Tax 2.475 Note Note: Section 71.26 (1) (a), Stats., was amended by 1991 Wis. Act 39, effective for taxable years beginning on or after January 1, 1991. For taxable years beginning before January 1, 1991, railroads and car line companies were exempt from Wisconsin franchise and income taxation.

Tax 2.475 Note Note: Section Tax 2.475 interprets ss. 71.04 (8) (c) and 71.25 (10) (c), Stats.

Tax 2.475 History History: Emerg. cr. eff. 2-17-92; cr. Register, August, 1992, No. 440, eff. 9-1-92; EmR0943: emerg. am. (title), (2) (intro.) and (4), cr. (intro.) and (1) (a), renum. (1) (a) and (b) to be (1) (b) and (c), eff. 12-31-09; CR 10-001: am. (title), (2) (intro.) and (4), r. and recr. (1), cr. (1m) Register June 2010 No. 654, eff. 7-1-10; corrections to (1) (title) and (1m) (title) made under s. 13.92 (4) (b) 2., Stats., Register June 2010 No. 654; CR 17-019: am. (1) (title), (2) (intro.) Register June 2018 No. 750 eff. 7-1-18.

Tax 2.48 Tax 2.48 Apportionment of apportionable income of interstate pipeline companies.

Tax 2.48(1) (1) General. With respect to the imposition of Wisconsin franchise or income tax measured by or on net income, the apportionable income of a pipeline company engaged in business in and outside this state shall be apportioned to Wisconsin on the basis of the arithmetical average of the 3 factors in subs. (3), (4) and (5), except if the pipeline company is in a combined group, its Wisconsin share of the combined group’s apportionable income is computed as provided in s. 71.255 (5), Stats., and further detailed in s. Tax 2.61 (7).

Tax 2.48 Note Note: A pipeline company that is a corporation may be in a combined group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61 (2) for a description of corporations required to use combined reporting.

Tax 2.48(2) (2) Definitions. In this section:

Tax 2.48(2)(a) (a) “Compensation” includes:

Tax 2.48(2)(a)1. 1. Wages, salaries, commissions and any other form of remuneration paid to employees for personal services.

Tax 2.48(2)(a)2. 2. The value of board, rent, housing, lodging and other benefits or services furnished to employees by the taxpayer in return for personal services, provided that these amounts constitute income to the recipient under the federal Internal Revenue Code for the year for which the payroll factor is computed. In the case of employees not subject to the federal Internal Revenue Code, such as citizens of foreign countries employed in foreign countries, the determination of whether the benefits or services constitute income to the employees shall be made as though the employees are subject to the federal Internal Revenue Code.

Tax 2.48(2)(a)3. 3. Deductible management or service fees paid, or management or service fees allocated by the department under s. 71.10 (1), 71.30 (2) or 71.80 (1) (b), Stats., to a related corporation, as defined in section 267 (f) (1) of the Internal Revenue Code, as consideration for the performance of personal services. The recipient of these fees may not include the compensation paid to its employees with respect to the personal services in either the numerator or denominator of its payroll factor.

Tax 2.48(2)(am) (am) “Engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b).

Tax 2.48(2)(b) (b) “Traffic unit” means the transportation for a distance of one mile of one barrel of oil, one gallon of gasoline or one thousand cubic feet of natural or casinghead gas, or other appropriate measure of product.

Tax 2.48(3) (3) Property factor.

Tax 2.48(3)(a) (a) Numerator; denominator. The numerator of the property factor shall include the average value of the real and tangible personal property owned and used by the taxpayer in Wisconsin in the production of apportionable income during the tax period. The denominator shall include average value of all of the real and tangible personal property located everywhere owned and used by the taxpayer in the production of apportionable income during the tax period. Property in transit on the date or dates for determining its average value, as described in par. (e), shall be considered to be at its destination, for purposes of computing the property factor. The value of mobile or movable property such as construction equipment, trucks or airplanes which is located within and without Wisconsin during the tax period shall be determined for purposes of the numerator of the factor on the basis of a ratio of time used, serviced or stored within Wisconsin to total time used, serviced or stored during the tax period. However, an automobile assigned to a traveling employee shall be included in the numerator of the factor if the employee’s compensation is assigned to Wisconsin under the payroll factor.

Tax 2.48(3)(b) (b) Valuation. Property owned by the taxpayer is generally valued at its cost net of depreciation and write-offs as determined for Wisconsin franchise or income tax purposes. Any adjustments to net income which affect property, such as capitalizations of repairs, depreciation or amortization adjustments and adjustments to inventory, shall also be included in the property factor. The value of depletable property, such as mines, oil and gas wells and timber, shall be original cost reduced by any extraction to the extent that depletion has been allowed. Inventories shall be included in the factor in accordance with the valuation method used for Wisconsin franchise or income tax purposes. In any case in which the property factor is distorted by reason of the taxpayer depreciating property in Wisconsin by a method different from that used to depreciate property outside Wisconsin, or in any case in which the Wisconsin net cost cannot be ascertained, the department shall authorize or direct some other method of determining the property fraction that will produce an equitable result.

Tax 2.48(3)(c) (c) Leasehold improvements. Leasehold improvements shall, for purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. The original cost of leasehold improvements net of amortization shall be included in the factor.

Tax 2.48(3)(d) (d) Construction in progress. Property or equipment under construction during the tax period, except inventoriable goods in process, shall be excluded from the factor until the property is actually used by the taxpayer in the regular course of its trade or business. If the property is partially used by the taxpayer in the regular course of its trade or business while under construction, the value of the property to the extent used shall be included in the property factor.

Tax 2.48(3)(e) (e) Averaging property values. As a general rule the “average value” of property shall be determined by averaging the value at the beginning and ending of the tax period, but the department may require or the taxpayer may utilize the averaging of monthly values during the tax period if monthly averaging is reasonably required to properly reflect the average value of the taxpayer’s property. Averaging by monthly values will generally be applied if substantial fluctuations in the values of the property exist during the tax period, or where property is acquired after the beginning of the tax period or disposed of before the end of the tax period.

Tax 2.48(4) (4) Payroll factor.

Tax 2.48(4)(a) (a) Numerator; denominator. The numerator of the payroll factor shall include the total amount paid in Wisconsin during the tax period by the taxpayer for compensation in the production of apportionable income. The denominator shall include the total compensation paid everywhere during the tax period by the taxpayer in the production of apportionable income.