Tax 3.01 HistoryHistory: CR 10-095: cr. Register November 2010 No. 659, eff. 12-1-10; correction in (2) (m) and renumbering of (2) (h) and (i) made under s. 13.92 (4) (b) 1. and 7., Stats., Register November 2010 No. 659; CR 12-011: am. (4) (e) 4. b. Register July 2012 No. 679, eff. 8-1-12; CR 14-005: am. (4) (e) 4. b. Register August 2014 No. 704, eff. 9-1-14; CR 17-019: am. (7) (b) 1., Register June 2018 No. 750 eff. 7-1-18.

Tax 3.02(2)(2) Credit for nonresident entertainer, lottery, and pari-mutuel withholding. A pass-through entity may elect to allocate nonresident entertainer, lottery, and pari-mutuel withholding to its nonresident partners, members, shareholders, or beneficiaries, but only to the extent the income subject to withholding is allocated to those partners, members, shareholders, or beneficiaries. A pass-through entity may credit amounts withheld under ss. 71.64 (5) and 71.67 (4) and (5), Stats., or amounts paid or deposited under s. 71.80 (15) (b) or (c), Stats., against the withholding amounts required under s. 71.775 (2), Stats., to such extent, in the manner and form prescribed by the department.

Tax 3.02 NoteExample: Basement Rockers is a four-member rock band. Basement Rockers is a tax-option (S) corporation and its four rock stars are the corporation’s shareholders. They are nonresidents of Wisconsin. The band plays in three different venues in Wisconsin during the taxable year and each venue pays the band $10,000. For Venue 1, neither a surety bond is filed nor cash deposited. The venue withholds 6% and immediately pays the amount withheld to the department. For Venue 2, a bond is not filed, cash is not deposited, and no amounts are withheld. For Venue 3, Basement Rockers files a surety bond for 6% of the total contract price. Basement Rockers may only elect to allocate to its shareholders the amounts for Venue 1 and Venue 3.

Tax 3.03(1)(1) Purpose. This section clarifies the deduction from gross income allowed to corporations for dividends received. Dividends may be deductible due to the recipient’s ownership of the payer corporation, as provided in sub. (3).

Tax 3.03(2)(2) Definition. “Dividends received” means gross dividends minus taxes on those dividends paid to a foreign nation and claimed as a deduction under ch. 71, Stats.

Tax 3.03(3)(3) Dividends deductible due to ownership. A corporation may deduct from gross income 100 percent of the dividends received from a payer corporation during a taxable year if both of the following occur:

Tax 3.03(3)(b)(b) The corporation receiving the dividends owns directly or indirectly during the entire taxable year in which the dividends are received at least 70 percent of the total combined voting stock of the payer corporation.

Tax 3.03 Note2) Only cash dividends were deductible by the recipient in taxable years 1980 through 1986. This limitation was eliminated by 1987 Wis. Act 27.

Tax 3.03 Note3) For taxable years 1980 through 1983 the deduction was limited to 50% of the dividends received.

Tax 3.03 Note4) For the taxable year 1984 the deduction was limited to 75% of the dividends received.

Tax 3.03 Note5) For taxable years 1985 and thereafter the deduction equals 100% of the dividends received.

Tax 3.03 Note6) For taxable years beginning before January 1, 1993, the corporation receiving the dividends was required to own directly or indirectly during the entire taxable year in which the dividends were received at least 80% of the total combined voting stock of the payer corporation. The percentage of ownership requirement was changed from 80% to 70% by 1993 Wis. Act 16.

Tax 3.03(4)(4) Limitation on deduction. The deduction under sub. (3) may not exceed the dividend received and included in gross income for a taxable year.

Tax 3.03(5)(5) Dividends includable in gross income. All dividend income shall be included in full in gross income on the franchise or income tax return of the recipient, whether or not certain dividends are deductible.

Tax 3.03(6)(6) Combined Groups. The dividends elimination provisions of s. Tax 2.61 (6) (e) only apply to the extent that the dividends received deduction under this section and s. 71.26 (3) (j) or 71.45 (2) (a) 8., Stats., do not apply.

Tax 3.04(1)(1) Purpose. This section limits the application of the phrase “called ... into special state service authorized by the federal department of defense under 32 USC 502 (f), that is paid to the person for a period of time during which the person is on active duty” as used in s. 71.05 (6) (b) 34., Stats., as created by 2003 Wis. Act 183.

Tax 3.04(2)(2) Limitation on subtraction. A person who is a member of a reserve component of the U.S. armed forces, who is serving on active duty or full-time duty in the active guard reserve program under 32 USC 502 (f), does not qualify for the subtraction.