Chapter 71

71.255(2m)(d) (d) The department may not disregard the tax effect of an election under this subsection, or disallow the election, with respect to any controlled group member or members for any year of the election period.

71.255(3) (3) Components of income subject to tax. Each member is responsible for tax based on its taxable income or loss apportioned or allocated to this state, including:

71.255(3)(a) (a) Its share of any business income apportionable to this state of each of the combined groups of which it is a member, as determined under subs. (4) and (5). For financial organizations, as defined in ss. 71.04 (8) (a) and 71.25 (10) (a), business income includes interest, dividends, and receipts from investments of any kind. For purposes of this section, a financial organization shall treat the expenses associated with an investment as business expenses.

71.255(3)(b) (b) Its share of any business income apportionable to this state of a distinct business activity conducted within and outside the state wholly by the member, as determined under s. 71.25 or 71.45.

71.255(3)(c) (c) Its income from a business conducted wholly by the member entirely within the state. If a combined group consists only of corporations that are conducting business entirely within this state, sub. (4) (f) to (j) applies to those corporations.

71.255(3)(d) (d) Its income sourced to this state from the sale or exchange of capital assets, and from involuntary conversions, as determined under sub. (4) (i).

71.255(3)(e) (e) Its nonbusiness income or loss allocable to this state.

71.255(3)(f) (f) Its income that is realized from the purchase and subsequent sale or redemption of lottery prizes, if the winning tickets were originally bought in this state.

71.255(3)(g) (g) Its income or loss allocated or apportioned in an earlier year, required to be taken into account as state source income or loss during the taxable year, other than a net business loss carry-forward.

71.255(3)(h) (h) Its net business loss carry-forward, as determined under sub. (6).

71.255(4) (4) Business income of the combined group.

71.255(4)(a) (a) The business income of a combined group is the sum of the income of each member of the combined group as determined under the Internal Revenue Code, as modified under s. 71.26 or 71.45, and except as provided under pars. (b) to (j). If a unitary business includes income from a pass-through entity, the pass-through entity income to be included in the total income of the combined group shall be the member of the combined group’s direct and indirect distributive share of the pass-through entity’s unitary business income.

71.255(4)(b) (b)

71.255(4)(b)1. 1. Subtract any apportionable income of a distinct business activity conducted within and outside the state wholly by the member, income from a business conducted wholly by the member entirely within this state, the member’s nonbusiness income, the member’s income realized from the purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state, and its income allocated or apportioned in an earlier year required to be taken into account as state source income during the taxable year.

71.255(4)(b)2. 2. Add any apportionable expense or loss of a distinct business activity conducted within and outside the state wholly by the member, expense or loss from a business conducted wholly by the member entirely within this state, the member’s nonbusiness expense or loss, its loss allocated or apportioned in an earlier year required to be taken into account as state source loss during the taxable year, and its net business loss carry-forward.

71.255(4)(c) (c) For combined group members that are consolidated foreign operating corporations, include only the income described in sub. (2) (d) 2. to 4. A combined group may deduct expenses properly attributable to a consolidated foreign operating corporation’s income described in sub. (2) (d) 2. to 4., subject to ss. 71.30 (2) and (2m) and 71.80 (1) (b) and (1m).

71.255(4)(d) (d) The modifications provided under ss. 71.26 (2) (a) 7., 8., and 9. and 71.45 (2) (a) 16., 17., and 18. shall not apply with respect to interest expenses or intangible expenses paid, accrued, or incurred by a combined group member to or for the benefit of a consolidated foreign operating corporation.

71.255(4)(f) (f) Except as provided in sub. (2) (d) 3. and except if the modification under s. 71.26 (3) (j) applies, dividends paid by one combined group member to another shall be, to the extent that the dividends are paid out of the earnings and profits of the unitary business included in the combined report, whether in the current taxable year or in a prior taxable year, subtracted from the income of the recipient. This paragraph does not apply to dividends received from members of the unitary business that were not part of the combined group at the time that the dividends were paid.

71.255(4)(g) (g) Except as otherwise provided by rule, business income or loss from an intercompany transaction between members of the same combined group shall be deferred as provided under U.S. Treasury Regulation 1.1502-13. Upon the occurrence of any of the following events, deferred business income or loss resulting from an intercompany transaction between members of a combined group shall be included in the income of the seller and shall be apportioned as business income or loss recognized immediately before the event:

71.255(4)(g)1. 1. The object of the deferred intercompany transaction is resold by the buyer to an entity that is not a member of the combined group.

71.255(4)(g)2. 2. The object of the deferred intercompany transaction is resold by the buyer to an entity that is a member of the combined group for use outside the unitary business in which the buyer and seller are engaged.

71.255(4)(g)3. 3. The object of the deferred intercompany transaction is converted by the buyer or is otherwise transferred to a use outside the unitary business in which the buyer and seller are engaged.

71.255(4)(g)4. 4. The buyer and seller are no longer members of the same combined group, regardless of whether the members are in the same unitary business.

71.255(4)(h) (h) Limitations that apply to charitable contribution deductions shall be applied as provided under section 170 of the Internal Revenue Code in the manner prescribed by the department by rule, as provided under sub. (11).

71.255(4)(i) (i) Gain or loss from the sale or exchange of capital assets, property described by section 1231 (a) (3) of the Internal Revenue Code, and property subject to an involuntary conversion shall be determined as provided under sections 1211, 1222, and 1231 of the Internal Revenue Code in the manner prescribed by the department by rule, as provided under sub. (11).

71.255(4)(j) (j) Any expense of one member of the combined group that is directly or indirectly attributable to the nonbusiness or exempt income of another member of the unitary business shall be allocated to that other member of the unitary business as corresponding nonbusiness or exempt expense, as appropriate.

71.255(5) (5) Member’s share of business income of the combined group.

71.255(5)(a) (a) For purposes of this subsection, each member of a combined group is doing business in this state if any member of the combined group is doing business in this state and that business relates to the combined group’s unitary business. Except as provided in par. (b), a taxpayer’s share of the business income apportionable to this state of each combined group of which it is a member shall be the product of the business income of the combined group as determined under sub. (4) and the taxpayer’s modified sales factor from the combined group, determined as follows:

71.255(5)(a)1. 1. For a member that is subject to apportionment under s. 71.25 (9), the numerator of the modified sales factor includes the member’s sales associated with the combined group’s unitary business in this state. Sales under s. 71.25 (9) (b) 2m. and 3. and (c) shall be included in the numerator of the modified sales factor if no member of the combined group is within the jurisdiction of the destination state for income or franchise tax purposes.

71.255(5)(a)2. 2. For a member that is subject to apportionment using a receipts factor under the department’s rules pursuant to s. 71.25 (10), the numerator of the modified sales factor includes the member’s Wisconsin receipts associated with the combined group’s unitary business in this state, as provided by such rules.

71.255(5)(a)3. 3. For a member that is subject to apportionment under s. 71.45 (3), the numerator of the modified sales factor includes the member’s premiums that are associated with the combined group’s unitary business in this state.

71.255(5)(a)4. 4. The denominator of the modified sales factor shall include the denominator of the sales factor for each combined group member described in subd. 1., the denominator of the receipts factor for each combined group member described in subd. 2., and the denominator of the premiums factor for each combined group member described in subd. 3.

71.255(5)(a)5. 5. For a member that is required under the department’s rules to use an apportionment factor or factors other than the sales factor, receipts factor, or premiums factor, the numerator of the modified sales factor for such member is its Wisconsin apportionment percentage on a separate entity basis based on the rules prescribed by the department, multiplied by the member’s total sales, as defined in s. 71.25 (9) (e) and (f). The denominator of the modified sales factor for such member is the member’s total sales as defined in s. 71.25 (9) (e) and (f).

71.255(5)(a)6. 6. The numerator and denominator, described in subds. 1. to 5., shall include the sales, receipts, or premiums of pass-through entities that are owned directly or indirectly by a corporation in proportion to a ratio the numerator of which is the amount of the corporation’s distributive share of the pass-through entity’s unitary business income included in the income of the combined group under sub. (4) and the denominator of which is the amount of the pass-through entity’s total unitary business income.

71.255(5)(a)7. 7. The modified sales factor shall exclude transactions between members of the same combined group.

71.255(5)(a)8. 8. For purposes of determining the numerator of the modified sales factor or any apportionment factor or factors determined under par. (b), a taxpayer is considered to be within the jurisdiction for income or franchise tax purposes of any state in which any member of its combined group is within the jurisdiction for income or franchise tax purposes.

71.255(5)(b) (b) If 2 or more members of a combined group would in the absence of this section be required to use differing apportionment formulas from one another, and if the business income of the combined group derived from business transacted in this state of that combined group cannot be ascertained with reasonable certainty by use of the modified sales factor as provided in par. (a), the combined group may petition the department to use a different apportionment computation for the combined report. This paragraph does not apply if less than 30 percent of the business income of the combined group would in the absence of this section be required to be apportioned using a factor or factors other than a single sales factor, a single receipts factor, or a single premiums factor. The department shall deny the petition if the taxpayer cannot show, by clear and convincing evidence, that the apportionment methods described in this subsection do not clearly reflect the income of the unitary business attributable to this state.

71.255(6) (6) Credits, net business losses, and post-apportionment deductions.

71.255(6)(a) (a) Except as provided in pars. (b), (bm), and (c) no tax credit, Wisconsin net business loss carry-forward, or other post-apportionment deduction earned by one member of the combined group, but not fully used by or allowed to that member, may be used in whole or in part by another member of the combined group or applied in whole or in part against the total income of the combined group. A member of a combined group may use a carry-forward of a credit, Wisconsin net business loss carry-forward, or other post-apportionment deduction otherwise allowable under s. 71.26 or 71.45, that was incurred by that same member in a taxable year beginning before January 1, 2009.

71.255(6)(b) (b)

71.255(6)(b)1. 1. Subject to the limitations provided under s. 71.26 (3) (n), for each taxable year that a corporation has a net business loss carry-forward, as provided under s. 71.26 (4) or 71.45 (4), that was computed on a combined report for a combined group’s unitary business for a taxable year beginning on or after January 1, 2009, the corporation may, after using such net business loss carry-forward to offset its own income for the taxable year, use any remaining net business loss carry-forward to offset the income of all other members of the combined group on a proportionate basis, to the extent such income is attributable to that same unitary business.

71.255(6)(b)2. 2. Unless otherwise provided by the department by rule, if the corporation may no longer be included in the combined group, as determined under this section, the corporation’s net business loss carry-forward shall be available only to that corporation.

71.255(6)(bm) (bm)

71.255(6)(bm)1. 1. In this paragraph, “pre-2009 net business loss carry-forward” means a corporation’s total net Wisconsin business loss carry-forward computed under s. 71.26 (4) or 71.45 (4) as of the beginning of its first taxable year that begins after December 31, 2008, but not used by the corporation in any taxable year beginning before January 1, 2012.

71.255(6)(bm)2. 2. Starting with the first taxable year beginning after December 31, 2011, and for each of the 19 subsequent taxable years, and subject to the limitations provided under s. 71.26 (3) (n), for each taxable year that a corporation that is a member of a combined group has pre-2009 net business loss carry-forward, the corporation may, after using the pre-2009 net business loss carry-forward to offset its own income for the taxable year, and after using shareable losses to offset its own income for the taxable year, as provided under par. (b) 1., use up to 5 percent of the pre-2009 net business loss carry-forward, until used or expired, to offset the Wisconsin income of all other members of the combined group on a proportionate basis, to the extent such income is attributable to the unitary business. If the full 5 percent of such pre-2009 net business loss carry-forward cannot be fully used to offset the Wisconsin income of all other members of the combined group, the remainder may be added to the portion that may offset the Wisconsin income of all other members of the combined group in a subsequent year, until it is completely used or expired, except that unused pre-2009 net business loss carry-forwards may not be used in any taxable year that begins after December 31, 2031.

71.255(6)(bm)3. 3. Unless otherwise provided by the department by rule, if the corporation may no longer be included in the combined group, as determined under this section, the corporation’s pre-2009 net business loss carry-forward shall be available only to that corporation.

71.255(6)(bm)4. 4. The department shall promulgate rules to administer this paragraph.

71.255(6)(c) (c)

71.255(6)(c)1. 1. Subject to the limitations provided under s. 71.26 (3) (n), for each taxable year that a corporation that is a member of a combined group has an unused credit or credit carry-forward under s. 71.28 (4) or (5) or 71.47 (4) or (5), the corporation may, after using that credit or credit carry-forward to offset its own tax liability for the taxable year, use that credit or credit carry-forward to offset the tax liability of all other members of the combined group on a proportionate basis, to the extent such tax liability is attributable to the unitary business.

71.255(6)(c)2. 2. Unless otherwise provided by the department by rule, if the corporation may no longer be included in the combined group, as determined by this section, the corporation’s unused credits shall be available only to that corporation.

71.255(7) (7) Designated agent.

71.255(7)(a) (a) Each combined group shall have one designated agent. Except as prescribed by the department by rule, the designated agent is the parent corporation of the combined group. If there is no such parent corporation, the designated agent may be appointed in the manner prescribed by the department.

71.255(7)(b) (b) Except as prescribed by the department, only the designated agent may act on behalf of the members of the combined group for matters relating to the combined report. The designated agent’s responsibilities include:

71.255(7)(b)1. 1. Filing a combined report under sub. (2) (a).

71.255(7)(b)2. 2. Filing any extension under s. 71.24 or 71.44.

71.255(7)(b)3. 3. Filing any amended combined reports or claims for refunds or credits.

71.255(7)(b)4. 4. Sending and receiving all correspondence with the department regarding the combined report.

71.255(7)(b)5. 5. Remitting all taxes, including estimated taxes, to the department. For purposes of computing interest on late payments, all payments remitted are deemed to be made on a pro rata basis by all members of the combined group, unless otherwise specified by the designated agent.

71.255(7)(b)6. 6. Participating on behalf of the combined group members in any investigation or hearing requested by the department regarding a combined report, producing all information requested by the department regarding the combined report, and filing any appeal related to the combined report, investigation, or hearing. Any appeal filed by the designated agent shall be considered to be filed by all members of the combined group.

71.255(7)(b)7. 7. Executing waivers, closing agreements, powers of attorney, and other documents as necessary or required regarding the combined report filed under sub. (2) (a). Any waiver, agreement, power of attorney, or document executed by the designated agent relating to a combined report shall be considered as executed by all members of the combined group, including any corporation not included in the combined report that the department asserts is a member of the combined group.

71.255(7)(b)8. 8. Receiving notices regarding the combined report. Any such notice the designated agent receives is considered received by all members of the combined group.

71.255(7)(b)9. 9. Receiving refunds relating to the combined report. Any such refund shall be paid to and in the name of the designated agent and shall discharge any liability of the state to any member of the combined group regarding the refund.

71.255(7)(b)10. 10. Other responsibilities as determined by rule by the department.

71.255(8) (8) Taxable year of combined group. The combined group’s taxable year is determined as follows:

71.255(8)(a) (a) If 2 or more members of a combined group file a federal consolidated return, the combined group’s taxable year is the taxable year of the federal consolidated group. In all other cases, the taxable year is the taxable year of the designated agent under sub. (7).

71.255(8)(b) (b) If a taxable year of a member of a combined group differs from the taxable year of the combined group, the designated agent shall elect to determine the portion of that member’s income to be included in one of the following ways:

71.255(8)(b)1. 1. A separate income statement prepared from the books and records for the months included in the combined group’s taxable year.

71.255(8)(b)2. 2. Including all of the income for the year that ends during the combined group’s taxable year.

71.255(8)(c) (c) For corporations that are subject to an election under par. (b), the same election shall be made for each member of the combined group subject to the election, the same election shall be made in each succeeding year, and the election is irrevocable except upon written approval by the department.

71.255(9) (9) Part-year members of a combined group. If a corporation becomes a member of a combined group or ceases to be a member of a combined group after the beginning of the taxable year of the combined group, the corporation’s income shall be determined as provided under subs. (3), (4), and (5) for the portion of the year in which the corporation was a member of the combined group and that income shall be included in the combined report. The income for the remaining short period shall be reported on a separate return or separate combined report.

71.255(10) (10) Transition. The department shall deem timely paid the estimated tax payments attributable to income includable in the combined report for installments that become due during the period beginning on January 1, 2009, and ending on March 6, 2009, provided that such estimated tax payments are paid by the next installment due date that follows in sequence following March 6, 2009. However, if the next installment due date that follows in sequence following March 6, 2009, is less than 45 days after March 6, 2009, such estimated tax payments, in addition to the payment due less than 45 days after March 6, 2009, shall be deemed timely paid if paid by the next subsequent installment due date.

71.255(11) (11) Conformity with federal consolidated return regulations. The department may promulgate any rules necessary to create uniformity between the treatment of transactions entered into by members of a federal consolidated group under federal regulations, including any income, expense, gain, or loss limitations applicable to such transactions, and treatment of transactions entered into by members of a combined group under this section, including any income, expense, gain, or loss limitations applicable to such transactions.

71.255 History History: 2009 a. 2, 28, 276; 2011 a. 32; 2017 a. 17.

71.255 Cross-reference Cross-reference: See also ss. Tax 2.60 and 2.67, Wis. adm. code.

71.255 Annotation “Slicing a Shadow”: The Debate over Combined Reporting and Its Effect on Wisconsin’s Business Climate. Flinchbaugh. 92 MLR 829 (2009).

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 health 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)(am) (am) Veterans service organizations. Income of a veterans service organization that is chartered under federal law.

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, long-term 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, of the Fox River Navigational System Authority, of the Wisconsin Economic Development Corporation, and of the Wisconsin Aerospace 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 percent 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 percent dividends on their capital stock and to add 5 percent 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(1)(g) (g) Landowner incentive program. For taxable years beginning after December 31, 2006 and ending before January 1, 2016, the amount of any incentive payment received by an individual under s. 23.33 (5r), 2013 stats., in the taxable year to which the claim relates.

71.26(1)(h) (h) Small business job creation. An amount equal to the increase in the number of full-time equivalent employees employed by the taxpayer in this state during the taxable year, multiplied by $4,000 for a business with gross receipts of no greater than $5,000,000 in the taxable year or $2,000 for a business with gross receipts greater than $5,000,000 in the taxable year. For purposes of this paragraph, the increase in the number of full-time equivalent employees employed by the taxpayer in this state during the taxable year is determined by subtracting from the number of full-time equivalent employees employed by the taxpayer in this state during the taxable year, as determined by computing the average employee count from the taxpayer’s quarterly unemployment insurance reports or other information as required by the department for the taxable year, the number of full-time equivalent employees employed by the taxpayer in this state during the immediately preceding taxable year, as determined by computing the average employee count from the taxpayer’s quarterly unemployment insurance reports or other information as required by the department for the immediately preceding taxable year. No person may claim a deduction under this paragraph if the person may claim a credit under this subchapter based on the person relocating the person’s business from another state to this state and in an amount equal to the person’s tax liability. No person may claim a deduction under this paragraph for taxable years beginning after December 31, 2014. The department shall promulgate rules to administer this paragraph.

71.26 Cross-reference Cross-reference: See also s. Tax 3.05, Wis. adm. code.