Tax 2.61(7)(c)(c) Throwback sales. If a combined group member’s sale of tangible personal property is destined for a state in which any member of the combined group has nexus under the standards set forth in s. Tax 2.82, and that nexus relates to the unitary business, the sale may not be included in the numerator of the member’s modified sales factor. If a combined group member is subject to the controlled group election, that member’s numerator shall not include sales destined for a state in which any member of the combined group has nexus under the standards set forth in s. Tax 2.82.

Tax 2.61(7)(d)1.1. Any transaction between members of the same combined group shall be excluded from the numerator and denominator of the modified sales factor. However, if the seller subsequently recognizes income or loss from the intercompany transaction under the provisions of s. 71.255 (4) (g), Stats., and sub. (6) (b), the seller’s modified sales factor shall include any factors corresponding to that income or loss in the year it recognizes the income or loss.

Tax 2.61(7)(d)2.2. If a combined group member sells an item or service to another combined group member and the purchaser subsequently resells it to a third party outside of the combined group, the situs of the sale between the combined group members and the sale from the purchasing member to the third party shall both be determined based on the situs of the sale from the purchasing member to the third party, and the purchasing member shall exclude from the numerator and denominator of the modified sales factor the amount the selling member already included under subd. 1. attributable to the item or service that was resold.

Tax 2.61 NoteExample: Combined Group YZ consists of Member Y and Member Z. Group YZ is on a calendar year. On December 30, 2009, Y sells a widget with a cost of $400 to Z, for $600. Y ships the widget to Z’s warehouse in Wisconsin. On January 30, 2010, Z resells the widget to Q, an unrelated third party, for $700. Z ships the widget to Q’s headquarters in Illinois. Assume both the sale by Y and the sale by Z are subject to combination, and assume that Z has nexus in Illinois. In 2009, Y did not recognize any gain on the sale to Z because the gain was deferred under the provisions of s. 71.255 (4) (g), Stats., and sub. (6) (b). Since the gain on the sale was not recognized, Y cannot include the $600 sale in its apportionment factors for 2009. In 2010, the year the widget was resold by Z, Y must include its $200 of gain on the sale to Z (= $600 - $400) in combined unitary income. Y must also include the sale amount of $600 in the modified sales factor denominator for 2010. Z must include its $100 gain on the sale to Q (= $700 - $600) in combined unitary income for 2010. However, since $600 of Z’s sales price has already been included in the combined group’s modified sales factor, Z may only include $100 of the sale amount in the modified sales factor denominator. Neither Y nor Z include these amounts in their modified sales factor numerators since both sales have a situs in Illinois where Z has nexus. Under the provisions of par. (c), Z’s nexus in Illinois applies to both itself and Y for purposes of applying the throwback rule.

Tax 2.61(7)(d)3.3. If an item or service is sold between more than two combined group members before it is sold to a customer outside of the combined group, the situs of these intercompany sales shall be the situs of the ultimate sale to the customer outside of the combined group, and each purchasing combined group member shall exclude from the numerator and denominator of the modified sales factor the amount its selling member already included under subd. 1.

Tax 2.61(7)(e)(e) Pass-through entities. A combined group member’s numerator and denominator for purposes of the modified sales factor generally includes the apportionment factors of pass-through entities owned directly or indirectly by the member, in proportion to the combined group member’s distributive share of the pass-through entity’s net income or loss included in the combined unitary income. However, a combined group member’s modified sales factor may not include apportionment factors of a real estate investment trust, regulated investment company, real estate mortgage investment conduit, or financial asset securitization investment trust. Additionally, subds. 1. and 2. apply in order to avoid duplication. For purposes of subds. 1. and 2., “sale” includes sales as defined in s. 71.25 (9), Stats., premiums under s. 71.45 (3) (a), Stats., or receipts under ss. Tax 2.49 or 2.495, as applicable, which would otherwise be included in a combined group member’s modified sales factor.

Tax 2.61(7)(e)1.1. If a sale is made by a combined group member to a pass-through entity which is more than 50 percent owned, directly or indirectly, by members of the combined group as provided in subd. 3., the selling member shall subtract from its modified sales factor numerator and denominator, as applicable, an amount equal to the gross receipts of the sale multiplied by the sum of all combined group members’ interests in the pass-through entity as of the date of the sale. This subdivision applies to the extent the gross receipts of the sale are otherwise includable in combined unitary income. For purposes of this subdivision, a combined group member’s interest in the pass-through entity as of the date of the sale means the percentage of the pass-through entity’s income or loss that is allocable to the member in the taxable year of the sale.

Tax 2.61 NoteExamples: 1) Combined Group LM consists of Member L and Member M. L owns a 40% interest in Partnership P. M owns a 60% interest in Partnership P. On March 1, 2010, L sells a widget to Partnership P for $10,000, and this sale is includable in Group LM’s combined unitary income. In its computation of apportionment factors for 2010, L must subtract an amount of $10,000 (= $10,000 x (40% + 60%)) from the modified sales factor denominator and, if applicable, from its numerator.

Tax 2.61 Note2) Assume the same facts as Example 1, except that Member L owns a 25% interest and M owns a 50% interest in Partnership P. In its computation of apportionment factors for 2010, L must subtract an amount of $7,500 (= $10,000 x (25% + 50%)) from the modified sales factor denominator and, if applicable, from its numerator.

Tax 2.61(7)(e)2.2. If a sale is made by a pass-through entity to a combined group member and more than 50 percent of the pass-through entity is directly or indirectly owned by members of the combined group as provided in subd. 3., each member with an interest in the pass-through entity shall subtract from its modified sales factor numerator and denominator, as applicable, any amount attributable to the sale. This subdivision applies to the extent the gross receipts of the sale are otherwise includable in combined unitary income.

Tax 2.61 NoteExample: Combined Group ST consists of Member S and Member T. S owns a 20% interest in Partnership R. T owns an 80% interest in Partnership R. On October 1, 2010, Partnership R sells a widget to S for $20,000, and this sale is includable in Group ST’s combined unitary income. In its computation of apportionment factors for 2010, S must subtract an amount of $4,000 (= $20,000 x 20%) from its sales factor denominator and, if applicable, from its numerator. Similarly, T must subtract an amount of $16,000 (= $20,000 x 80%) from its sales factor denominator and, if applicable, from its numerator.

Tax 2.61(7)(e)3.3. For purposes of subds. 1. and 2., a pass-through entity is owned more than 50 percent by combined group members if the aggregate amount of the combined group members’ interests in the pass-through entity, without regard to any agreement to allocate gains or losses on a basis other than their capital interests, is more than 50 percent, or the combined group members taken as a whole have more than 50 percent of the management rights of the pass-through entity, as evidenced by the terms of the agreement under which the pass-through entity was formed, voting rights, provisions of state or federal law, or otherwise.

Tax 2.61(7)(f)3.3. If the numerator of a member’s modified sales factor is a positive number and the denominator is a negative number or zero, all of the combined unitary income shall be apportioned to the member. The member’s separate company denominator has no effect on this determination. If this subdivision would result in apportioning all of the combined unitary income to more than one member, the combined unitary income shall be apportioned to the members having positive modified sales factor numerators in proportion to the amounts of their numerators.

Tax 2.61 NoteExample: Combined Group XY consists of Member X and Member Y. In its taxable year 2009, Group XY has combined unitary income of $50,000. X and Y have the following apportionment factors:

Tax 2.61 NoteThe modified sales factor denominator, or sum of the separate company denominators, is ($5,000). The amount of combined unitary income that would be apportioned to X is $12,500 (= $50,000 x ($5,000 / $20,000)). The combined unitary income that would be apportioned to Y is $37,500 (= $50,000 x ($15,000 / $20,000)).

Tax 2.61(7)(g)1.1. The numerator of the modified sales factor is the product of the member’s apportionment percentage computed under ss. Tax 2.46, 2.465, 2.47, 2.475, 2.48, 2.50, or 2.502, as applicable, as if the member were not a member of a combined group except as provided in subds. 3. to 5., and the member’s separate company denominator determined in subd. 2.

Tax 2.61(7)(g)2.2. Except as provided in subds. 3. to 5., the member’s separate company denominator for purposes of the modified sales factor is the member’s total company sales that would be includable in the sales factor computed under s. 71.25 (9), Stats., as if the member were required to use the sales factor and were not a member of a combined group.

Tax 2.61(7)(i)(i) Apportionment factors for dual-sourced income. If a corporation is eligible to exclude foreign source income from combined unitary income under sub. (4) (d) to (f) and the Internal Revenue Code requires the corporation to source a transaction both within the United States and without the United States, the corporation shall exclude from its modified sales factor any amounts attributable to the portion of the transaction that constitutes foreign source income under sub. (4) (c). The amounts excluded from the modified sales factor under this paragraph shall be the amounts includable in the modified sales factor as if the transaction was sourced entirely within the United States, multiplied by the percentage of the transaction’s gross receipts that constitutes foreign source income under sub. (4) (c).

Tax 2.61(8)(8) Income computation for groups doing business solely in Wisconsin. For combined groups that are engaged in business solely in Wisconsin, and therefore not eligible to use apportionment, each member’s net income subject to combination is determined on a separate entity basis and then adjusted to reflect the member’s status as a combined group member. These incomes are added together to arrive at the combined unitary income. Therefore, if some combined group members have net income from the unitary business and others in the same group have net loss from the unitary business, the combined group’s tax liability is based on the total aggregate net income or loss of the unitary business. When each member computes its share of the combined unitary income, the provisions of sub. (6) apply, except that the modifications in pars. (a) to (d) are required:

Tax 2.61(8)(a)(a) Intercompany transactions. To the extent that sub. (6) (b) does not apply, intercompany transactions that consist of interest or other expenses paid, accrued, or incurred by one member to another are disregarded so that they neither increase nor decrease a member’s net income or loss. This paragraph does not apply to intercompany transactions which occurred in taxable years beginning before January 1, 2009 or to intercompany transactions where the income, expense, gain, or loss would not otherwise be subject to combination.