Chapter Tax 2

Tax 2.39(6)(c)2.d. d. If the taxpayer is unable to determine the use of moving property under subd. 2. a., b., or c. while the property is leased, rented, licensed, or subleased in the taxable year, the moving property is conclusively deemed to be used in the state in which the property is located at the time that the lessee, licensee, or sublessee takes possession of the property.

Tax 2.39(6)(d) (d) Sales, leases, rentals, or licensing of real property attributable to Wisconsin. The numerator of the sales factor includes gross receipts from the sale, lease, rental, licensing, or other use of real property owned by the taxpayer if the real property is located in this state and gross receipts from the sublease of real property if the real property is located in this state.

Tax 2.39(6)(e) (e) Receipts attributable to Wisconsin from the use of computer software. Receipts attributable to Wisconsin from providing the use of computer software are determined as provided in ss. 71.04 (7) (df) and 71.25 (9) (df), Stats.

Tax 2.39 Note Note: For taxable years beginning after December 31, 2004 and before January 1, 2009, subd. 3. of ss. 71.04 (7) (df) and 71.25 (9) (df), Stats., provided that if the taxpayer is not subject to income tax in the state in which the gross receipts are considered received but the taxpayer’s commercial domicile is in Wisconsin, 50 percent of the taxpayer’s receipts from the transaction are included in the numerator of the sales factor. This provision was repealed by 2009 Wis. Act 28.

Tax 2.39(6)(f) (f) Sales of services attributable to Wisconsin. Sales of services are attributable to Wisconsin as provided in ss. 71.04 (7) (dh) and 71.25 (9) (dh), Stats.

Tax 2.39 Note Note: For taxable years beginning after December 31, 2004 and before January 1, 2009, subd. 4. of ss. 71.04 (7) (dh) and 71.25 (9) (dh), Stats., provided that if the taxpayer is not subject to income tax in the state in which the benefit of the service is received, 50 percent of the taxpayer’s receipts from the transaction are included in the numerator of the sales factor to the extent the taxpayer’s employees or representatives performed the service from a location in Wisconsin. This provision was repealed by 2009 Wis. Act 28.

Tax 2.39(6)(g) (g) Receipts from intangible property for taxable years beginning before January 1, 2009. For taxable years beginning before January 1, 2009, the numerator of the sales factor includes gross receipts from the sale, licensing the use of, or other use of intangible property, if the income producing activity occurs in this state during the taxable year. If the income producing activity occurs in and outside this state, the gross receipts shall be allocated between those states having jurisdiction to tax the taxpayer based on the direct costs of performance. For purposes of this paragraph, “income producing activity” means the act or acts engaged in by the taxpayer, or persons acting on behalf of the taxpayer, for the ultimate purpose of obtaining gains or profit, and “costs of performance” means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.

Tax 2.39 Note Note: Refer to ss. 71.04 (7) (d), (df), and (dh) and 71.25 (9) (d), (df), and (dh), 2007-08 Stats., as affected by 2005 Wis. Act 25.

Tax 2.39(6)(h) (h) Receipts from intangible property for taxable years beginning on or after January 1, 2009. For taxable years beginning on or after January 1, 2009, the amount includable in the numerator of the sales factor for gross receipts from the sale of, license of, or allowing use of intangible property in this state is determined as provided in ss. 71.04 (7) (dj) and (dk) and 71.25 (9) (dj) and (dk), Stats. For purposes of applying these paragraphs, excluding ss. 71.04 (7) (dj) 2. and 71.25 (9) (dj) 2m., the following rules apply:

Tax 2.39(6)(h)1. 1. To determine the purchaser’s or licensee’s use of intangible property in this state, factors that may be considered include the number of licensed sites in each state, the volume of property manufactured, produced, or sold pursuant to the arrangement at locations in this state, or other data that reflects the relative usage of the intangible property in this state.

Tax 2.39(6)(h)2. 2. If the purchaser’s or licensee’s billing address or commercial domicile is in this state, that billing address or commercial domicile may not conclusively determine that the transaction is in this state except in cases where the location of use of the intangible property cannot be determined. If the location of use of the intangible property cannot be determined, subds. 3. and 4. apply.

Tax 2.39(6)(h)3. 3. If the location of use of the intangible property cannot be determined, the gross receipts from the sale of, license of, or other receipts from allowing use of intangible property are in this state if the purchaser’s or licensee’s commercial domicile is in this state.

Tax 2.39(6)(h)4. 4. If subd. 3. would otherwise apply except that the state of the purchaser’s or licensee’s commercial domicile cannot be determined, the gross receipts from the sale of, license of, or allowing use of intangible property are in this state if the purchaser or licensee is billed for the purchase, license, or use of the intangible property at a location in this state.

Tax 2.39(6)(i) (i) The provisions of pars. (c) to (h) shall also apply to sales to the federal government.

Tax 2.39 Note Note: Section Tax 2.39 interprets ss. 71.04 (4), (4m), (5), (6), (7), (10), and (11), 71.25 (5), (6), (6m), (7), (8), (9), (11), and (15), and 71.255 (5), Stats.

Tax 2.39 Note Note: The provisions of s. Tax 2.39 first apply for taxable years beginning on January 1, 2005. For returns required under combined reporting, the provisions of s. Tax 2.39 first apply for taxable years beginning on January 1, 2009.

Tax 2.39 History History: Cr. Register, August, 1973, No. 212, eff. 9-1-73; cr. (1m); r. and recr. (5) (f) 5., Register, November, 1973, No. 215; eff. 12-1-73; cr. (intro.), Register, January, 1978, No. 265, eff. 2-1-78; r. and recr. Register, June, 1991, No. 426, eff. 7-1-91; am. (2) (f), (4) (c), (cm) 2. a. and (f), r. (6) (b) 2. b., renum. (6) (b) 2. c. to be (6) (b) 2. b., Register, May, 1995, No. 473, eff. 6-1-95; emerg. am. (3) (a) (intro.), eff. 9-19-98; am. (3) (a) (intro.), Register, March, 1999, No. 519, eff. 4-1-99; CR 06-063: am. (1) and (2) (a), (b) and (e), (6) (a) and (b) 4. a., r. and recr. (3) and (6) (c), r. (6) (b) 4. b. and (7), renum. (6) (b) 4. c. to be (6) (b) 4. b. and am., Register November 2006 No. 611, eff. 12-1-06; EmR0943: eff. 12-31-09 and CR 10-001: am. (1), (2) (b), (d), (3) (d), (e), (6) (b) 1. d., 2. (intro.), 3. b., 4. b., and (6) (c) (title), cr. (2) (ag), (ar), (cm), (6) (b) 5., and (d) to (i), r. (6) (c) 1. to 4., 7. and 8., renum. (6) (c) 5. and 6. to be (6) (c) 1. and 2. and am. (6) (c) 1. and 2. d. Register June 2010 No. 654, eff. 7-1-10; correction in (2) (cm) made under s. 13.92 (4) (b) 4., Stats., Register June 2010 No. 654; CR 17-019: am. (3) (a) 1., (b) 1., (c) 1., (d), Register June 2018 No. 750 eff. 7-1-18; CR 19-141: am. (6) (f), (h) (intro.) Register September 2020 No. 777, eff. 10-1-20.

Tax 2.41 Tax 2.41 Separate accounting method.

Tax 2.41(1) (1) When the separate accounting method is used, separate records must be kept of sales, cost of sales and expenses for the Wisconsin business as distinct from the remainder of the business. Overhead items of income and expense must then be allocated to the business within and without Wisconsin upon a basis or combination of bases justified by the facts and conditions. For example: the ratio of Wisconsin sales to total sales usually represents a satisfactory basis for a merchandising business, while the ratio of direct cost of material and labor in Wisconsin to the total gives a more accurate result for a construction business.

Tax 2.41(1)(a) (a) Federal income taxes are based upon income and should, therefore, be allocated to Wisconsin business on the basis of income. Federal income taxes are deductible for income years through 1974 only on the cash basis, and the allocation to Wisconsin business for any year, therefore, must be based upon the ratio of income within Wisconsin to the total income of the year on which the federal income taxes are assessed, even though that ratio differs from the ratio of the year in which the taxes are actually paid. Federal income taxes are not deductible for income years 1975 and thereafter.

Tax 2.41(1)(b) (b) The relationship of the general overhead items to Wisconsin operations will determine whether the home office income and expense should be allocated to the Wisconsin business. Miscellaneous income, such as income from intangibles and income from tangible property used in the business, and such overhead items as officers’ salaries, office salaries, office rent and sundry office expenses should ordinarily be included in the allocation.

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.