Tax 2.61 Note Example: 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) (f) Special rules for zeroes and negative numbers in factors. This paragraph applies the special rules in ss. 71.25 (6m) and 71.45 (3e), Stats., to combined group members as follows:

Tax 2.61(7)(f)1. 1. If both the numerator and denominator of a member’s modified sales factor are zero, none of the combined unitary income shall be apportioned to the member. The member’s separate company denominator has no effect on this determination.

Tax 2.61(7)(f)2. 2. If the numerator of a member’s modified sales factor is a negative number, none of the combined unitary income shall be apportioned to the member. The member’s separate company denominator has no effect on this determination.

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 Note Example: 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:

- See PDF for table

Tax 2.61 Note The 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) (g) Multiple factor formulas. If a combined group member is required under s. 71.25 (10), Stats., to use an apportionment formula prescribed in ss. Tax 2.46, 2.465, 2.47, 2.475, 2.48, 2.50, or 2.502, the member’s modified sales factor is computed as follows:

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)(g)3. 3. Neither the numerator nor denominator shall include amounts that are not included in or directly related to income included in the combined unitary income as computed under sub. (6).

Tax 2.61(7)(g)4. 4. Intercompany transactions shall be excluded or recognized in the numerator and denominator, as applicable, in the manner described in par. (d).

Tax 2.61(7)(g)5. 5. To the extent the computation in this paragraph involves the sales factor as provided in s. 71.25 (9), Stats., the provisions of pars. (c) and (e) apply.

Tax 2.61(7)(h) (h) Alternative apportionment. A qualifying combined group may petition the department to use an alternative apportionment method, as provided in s. Tax 2.64.

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.

Tax 2.61(8)(b) (b) Capital gains and losses.

Tax 2.61(8)(b)1. 1. The net capital gain or loss, after applying any sharable net capital loss carryover, is first determined for the combined group as a whole in the manner described in sub. (6) (c) 1. to 3. If the result is a net capital gain for the group, the net capital gain is assigned to the members that would have a net capital gain from the unitary business if they were not members of the combined group, in proportion to the amount of that net capital gain. If the result is a net capital loss for the group, the net capital loss is assigned to the members that would have a net capital loss from the unitary business if they were not members of the combined group, in proportion to the amount of that net capital loss.

Tax 2.61 Note Note: See Example 2 under sub. (6) (c) 4. for an example of this assignment method.

Tax 2.61(8)(b)2. 2. After applying subd. 1., each member computes its net capital gain or loss from separate entity items and applies the provisions of sub. (6) (c) 5. to 7., except that in applying the provisions of sub. (6) (c) 6., the applicable apportionment percentage is one hundred percent.

Tax 2.61(8)(c) (c) Basis adjustments. A combined group member’s basis in stock of a subsidiary that is a member of the same combined group shall be adjusted in the manner prescribed in sub. (6) (f). Intercompany interest and other expenses shall be included in these adjustments, even if those transactions were disregarded in the computation of the member’s income for the taxable year as provided in par. (a).

Tax 2.61(8)(d) (d) Earnings and profits. A combined group member’s earnings and profits shall be adjusted to reflect the undistributed earnings and profits of a subsidiary that is a member of the same combined group in the manner prescribed in sub. (6) (g). Intercompany interest and other expenses shall be included in these adjustments, even if those transactions were disregarded in the computation of the member’s income for the taxable year as provided in par. (a).

Tax 2.61(9) (9) Net business losses. A combined group member may carry forward its net business loss as provided in ss. 71.26 (4) and 71.45 (4), Stats. A net business loss carryforward is an attribute of the separate corporation rather than of the combined group. However, s. 71.255 (6) (b) and (bm), Stats., provides that a combined group member may share all or a portion of its net business loss carryforward with the other members of its combined group if certain conditions are met. This subsection explains which net business loss carryforwards are sharable, how to compute the sharable amount, and how to apply the shared losses. The following rules apply:

Tax 2.61(9)(a) (a) Sharable loss carryforwards. A combined group member may share its net business loss carryforward incurred in a taxable year beginning on or after January 1, 2009 with other combined group members to the extent that all of the following conditions are met:

Tax 2.61(9)(a)1. 1. The net business loss is attributable to combined unitary income included in a combined report.

Tax 2.61(9)(a)2. 2. The member originally computed the net business loss in the combined report for the same combined group as the combined group that will use the shared loss carryforward, regardless of whether corporations have joined or left the combined group in the intervening years.