Wis. Admin. Code § Tax 2.495 — Apportionment of apportionable income of interstate brokers-dealers, investment advisers, investment companies, and underwriters

Tax 2.495(1) (1) Scope. A brokerage house, investment adviser, investment company, or underwriter that is engaged in business both in and outside this state shall apportion its apportionable income as provided in this section, except if the brokerage house, investment adviser, investment company, or underwriter 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) . Nonapportionable income shall be allocated as provided in s. 71.25 (5) (b) , Stats.

Tax 2.495(2) (2) Definitions. In this section:

Tax 2.495(2)(a) (a) “Billing address” means the address indicated in the taxpayer’s books and records on the first day of the taxable year, or on a later date in the taxable year when the customer relationship began, to which a taxpayer regularly sends any notice, statement or bill to the taxpayer’s customer. The billing address of a customer who is a natural person means the address of that person’s domicile.

Tax 2.495(2)(b) (b) “Brokerage commission” includes, but is not limited to, all sales fees on agency or principal transactions whether charged explicitly or implicitly.

Tax 2.495(2)(c) (c) “Brokerage house” means a firm or place where a broker-dealer conducts business.

Tax 2.495(2)(d) (d) “Broker-dealer” means a person engaged in the business of effecting transactions in securities, commodities, and related financial instruments for the account of another or for the person’s own account. “Broker-dealer” does not include a sales agent; an issuer with respect to purchasing and selling the issuer’s own securities; a bank, savings institution, or trust company, when effecting transactions for its own account or as an agent; a person in that person’s capacity as a personal representative, executor, administrator, holder of power of attorney, guardian, trustee of a testamentary or inter vivos trust, conservator, or pledgee; or any other person excluded from the definition of “broker-dealer” in s. 551.102 (4) , Stats.

Tax 2.495(2)(e) (e) “Commercial domicile” means the location from which a trade or business is principally managed and directed. If the taxpayer is organized under the laws of a foreign country, the commonwealth of Puerto Rico, or any territory or possession of the United States, “commercial domicile” shall be deemed for the purposes of this section to be the state of the United States or the District of Columbia from which the taxpayer’s trade or business in the United States is principally managed and directed. It shall be rebuttably presumed that the location from which a trade or business is principally managed and directed is the state of the United States or the District of Columbia at which the greatest number of the taxpayer’s employees work, have their office or base of operations, or are directed or controlled, as of the last day of the taxable year.

Tax 2.495(2)(em) (em) “Engaged in business in and outside this state” has the same meaning as in s. Tax 2.39 (2) (b) .

Tax 2.495(2)(f) (f) “Investment adviser” has the meaning given in 15 USC 80b-2 (a) (11).

Tax 2.495(2)(g) (g) “Investment company” has the meaning given in 15 USC 80a-3 .

Tax 2.495(2)(h) (h) “Person” means a natural person, estate, trust, partnership, limited liability company, corporation, or any other business entity.

Tax 2.495(2)(i) (i) “Regular place of business” means an office at which the taxpayer carries on its business in a regular and systematic manner and which is regularly maintained, occupied, or used by employees of the taxpayer.

Tax 2.495(2)(j) (j) “Sales agent” means any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect transactions in securities. A sales agent includes a partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions.

Tax 2.495(2)(k) (k) “State” means a state of the United States, the District of Columbia, the commonwealth of Puerto Rico, or any territory or possession of the United States.

Tax 2.495(2)(L) (L) “Taxpayer” means a broker-dealer, investment adviser, investment company, or underwriter who is subject to apportionment under this section.

Tax 2.495(2)(m) (m) “Trading assets” include securities, commodities, and related financial instruments that a taxpayer acquires and holds for sale in its inventory account.

Tax 2.495(2)(n) (n) “Underwriter” includes all persons described under 15 USC 77b (a) (11).

Tax 2.495(3) (3) Apportionment formula computation. For taxable years beginning after December 31, 2005, a broker-dealer, investment adviser, investment company, or underwriter that is engaged in business in and outside this state shall determine its net income for state franchise or income tax purposes as provided in this section. The broker-dealer, investment adviser, investment company, or underwriter shall first deduct from its total net income its nonapportionable income, less related expenses. Nonapportionable income shall be allocated as provided in s. 71.25 (5) (b) , Stats. The broker-dealer, investment adviser, investment company, or underwriter shall apportion its remaining net income to this state as follows:

Tax 2.495(3)(a) (a) For taxable years beginning after December 31, 2005, and before January 1, 2007, apportionable income shall be apportioned using an apportionment fraction composed of a receipts factor under sub. (4) representing 60% of the fraction, a payroll factor under sub. (5) representing 20% of the fraction, and a property factor under sub. (6) representing 20% of the fraction.

Tax 2.495(3)(b) (b) For taxable years beginning after December 31, 2006, and before January 1, 2008, apportionable income shall be apportioned using an apportionment fraction composed of a receipts factor under sub. (4) representing 80% of the fraction, a payroll factor under sub. (5) representing 10% of the fraction, and a property factor under sub. (6) representing 10% of the fraction.

Tax 2.495(3)(c) (c) In any case in which the taxpayer has no employees nor pays management or service fees to a related entity, or in which the department determines that employees are not a substantial income producing factor, the department may order or permit the elimination of the payroll factor. In any case in which the taxpayer has no property, or in which the department determines that property is not a substantial income producing factor, the department may order or permit the elimination of the property factor. This subsection does not apply to taxable years beginning after December 31, 2007.

Tax 2.495(3)(d) (d) For taxable years beginning after December 31, 2007, apportionable income shall be apportioned using an apportionment fraction composed of the receipts factor under sub. (4) .

Tax 2.495(4) (4) Receipts factor. The receipts factor is the ratio of the taxpayer’s receipts in this state to the taxpayer’s total receipts everywhere during the taxable year. Interest, dividends, gross receipts or net gains from sales of securities, and other income from investment assets held by a taxpayer in the taxpayer’s investment account may not be included in the receipts factor. The receipts factor shall include the items described in pars. (a) to (h) .

Tax 2.495(4)(a) (a) Gross brokerage commissions. The numerator of the receipts factor includes gross brokerage commissions earned if the billing address of the customer is in this state.

Tax 2.495(4)(b) (b) Gross margin interest. The numerator of the receipts factor includes total margin interest earned on behalf of brokerage accounts owned by customers if the billing address of the customer is in this state.

Tax 2.495(4)(c) (c) Gross account maintenance fees. The numerator of the receipts factor includes account maintenance fees received on behalf of brokerage accounts owned by customers if the billing address of the customer is in this state.

Tax 2.495(4)(d) (d) Gross receipts from trading assets.

Tax 2.495(4)(d)1. 1. Except as provided in subds. 1m. , 2. , and 3. , the numerator of the receipts factor includes gross receipts, net of commissions, from sales of trading assets, if the day-to-day decisions regarding the trading assets occur at a location in this state. If the day-to-day decisions regarding the trading assets occur at locations both in and outside this state, the assets shall be considered to be located at the location where the trading policies and guidelines are established. It shall be rebuttably presumed that the location where the trading policies and guidelines are established is at the taxpayer’s commercial domicile.

Tax 2.495(4)(d)1m. 1m. Except as provided in subd. 2. , at the election of the taxpayer, for taxable years beginning after December 31, 2014, the numerator of the receipts factor includes gross receipts, net of commissions, from sales of trading assets if the customer’s billing address is in this state. Once made, an election under this subdivision cannot be revoked without prior consent from the department. If a request to change an election has been approved by the department, the change becomes effective with the first taxable year ending on or after approval by the department.

Tax 2.495(4)(d)2. 2. If the inclusion of gross receipts results in substantial distortion of the receipts factor, the department may order or permit the substitution of net gain, net of commissions, from sales of trading assets.

Tax 2.495(4)(d)3. 3. Subdivision 2. does not apply to any taxpayer who, before January 1, 2023, elected to use the customer billing address method defined in subd. 1m. if the taxpayer has not revoked that election, and who, for any taxable year beginning after December 31, 2021, determines its receipts factor under this section by using the average of the receipts factors determined by using (a) gross receipts, net of commissions, and (b) net gain, net of commissions, from sales of trading assets for the taxable year, with all other components of the receipts factor remaining the same. Any such taxpayer may compute its receipts factor under this subsection using that averaging method. The department cannot require any taxpayer who elected before January 1, 2023, to use the customer billing address method, if the taxpayer has not revoked that election, to use any other method of determining its receipts factor under this section.

Tax 2.495(4)(e) (e) Investment company receipts. The numerator of the receipts factor includes gross payments received on investment contracts issued by the taxpayer and held by customers if the billing address of the customer is in this state. “Investment contract” includes any bonds, shares, coupons, certificates of membership, or other obligations or agreements issued by the taxpayer to return to the holders or owners money or anything of value at some future date.

Tax 2.495(4)(f) (f) Gross receipts from underwriting services. The numerator of the receipts factor includes gross receipts, including gross commissions, gross management fees, or gross underwriting fees, earned in performing underwriting activities on behalf of the issuer of the securities if either of the following applies:

Tax 2.495(4)(f)1. 1. The issuer of the securities is not engaged in a trade or business, and the issuer’s billing address is in this state.

Tax 2.495(4)(f)2. 2. The issuer of the securities is engaged in a trade or business, the issuer of the securities maintains a regular place of business in this state, and the securities relate to that person’s business in this state. If the securities relate to that person’s regular place of business in more than one state, the receipts from the performance of the service are included in the numerator of the receipts factor according to the portion of the service received in this state. If the regular place of business to which the securities relate cannot be determined, the service is received in this state if the issuer of the securities, in the regular course of the issuer’s business, ordered the service from an office in this state. If the ordering office cannot be determined, the service is received in this state if the issuer’s billing address is in this state.

Tax 2.495(4)(g) (g) Other gross receipts or net gains. The numerator of the receipts factor includes any other gross receipts or net gains as provided in s. Tax 2.49 (4) .

Tax 2.495(4)(h) (h) Receipts not taxed. For taxable years beginning before January 1, 2009, fifty percent of the taxpayer’s receipts that are apportioned under this section to a state which does not have jurisdiction to impose an income tax or franchise tax measured by net income on the taxpayer shall be included in the numerator of the apportionment fraction if the taxpayer’s commercial domicile is in this state. With regard to receipts described in pars. (a) to (f) , this paragraph does not apply to taxable years beginning on or after January 1, 2009.

Tax 2.495(5) (5) Payroll factor. The payroll factor is the ratio of the total compensation paid to employees located in this state to the total compensation paid to employees located everywhere, determined in accordance with the provisions of ss. 71.04 (6) and 71.25 (8) , Stats., and s. Tax 2.39 (5) . “Compensation paid to employees” includes deductible management or service fees paid to a related entity directly or indirectly for the performance of personal services, and the situs of the fees is in this state if the services are performed in this state. The recipient of the fees may not include the compensation paid to its employees with respect to the personal services in either the numerator or denominator of its payroll factor.

Tax 2.495(6) (6) Property factor. The property factor is determined in accordance with the provisions of ss. 71.04 (5) and 71.25 (7) , Stats., and s. Tax 2.39 (4) .