Wis. Stat. § 71.25 — Situs of income; allocation and apportionment

For purposes of determining the situs of income under this section and s. 71.255 (5) (a) 1. and 2. :

71.25(1) (1) Beneficiaries. The situs of income derived by any taxpayer as the beneficiary of the estate of a decedent or of a trust estate shall be determined as if such income had been received without the intervention of a fiduciary.

71.25(2) (2) Grantor trusts. The situs of income received by a trustee, which income, under the internal revenue code, is taxable to the grantor of the trust or to any person other than the trust, shall be determined as if such income had been actually received directly by such grantor or such other person, without the intervention of the trust.

71.25(4) (4) Corporations engaged in business wholly within this state. For corporations engaged in business wholly within this state, all income is subject to, or included in the measure of, the Wisconsin income or franchise tax.

71.25(5) (5) Corporations engaged in business both within and without the state.

71.25(5)(a) (a) Apportionable income. Except as provided in sub. (6) , corporations engaged in business both within and without this state are subject to apportionment. Income gain or loss from the sources listed in this paragraph is presumed apportionable as unitary or operational income or other income that has a taxable presence in this state. Apportionable income includes all income or loss of corporations, other than nonapportionable income as specified in par. (b) , including, but not limited to, income, gain or loss from the following sources:

71.25(5)(a)1. 1. Sale of inventory.

71.25(5)(a)2. 2. Farms, mines and quarries.

71.25(5)(a)3. 3. Sale of scrap and by-products.

71.25(5)(a)4. 4. Commissions.

71.25(5)(a)5. 5. Sale of real property or tangible personal property used in the production of business income.

71.25(5)(a)6. 6. Royalties from intangible assets.

71.25(5)(a)7. 7. Redemption of securities.

71.25(5)(a)8. 8. Interest on trade accounts and trade notes receivable.

71.25(5)(a)9. 9. Interest and dividends if the operations of the payer are unitary with those of the payee, or if those operations are not unitary but the investment activity from which that income is derived is an integral part of a unitary business and the payer and payee are neither affiliates nor related as parent company and subsidiary. In this subdivision, “investment activity” includes decision making relating to the purchase and sale of stocks and other securities, investing surplus funds and the management and record keeping associated with corporate investments, not including activities of a broker or other agent in maintaining an investment portfolio.

71.25(5)(a)10. 10. Sale of intangible assets if the operations of the company in which the investment was made were unitary with those of the investing company, or if those operations were not unitary but the investment activity from which that gain or loss was derived is an integral part of a unitary business and the companies were neither affiliates nor related as parent company and subsidiary. In this subdivision, “investment activity” has the meaning given under subd. 9.

71.25(5)(a)11. 11. Management fees.

71.25(5)(a)12. 12. Franchise fees.

71.25(5)(a)13. 13. Treble damages.

71.25(5)(a)14. 14. A partner’s share of income or loss from a partnership or a member’s share of income or loss from a limited liability company.

71.25(5)(a)16. 16. Foreign exchange gain or loss.

71.25(5)(a)17. 17. Sale of receivables.

71.25(5)(a)18. 18. Rentals of, or royalties from, real property or tangible personal property if that real property or tangible personal property is used in the business.

71.25(5)(a)19. 19. Sale or exchange of petroleum at the wellhead.

71.25(5)(a)20. 20. Personal services performed by employees of the corporation.

71.25(5)(a)21. 21. Patents, copyrights, trademarks, trade names, plans, specifications, blueprints, processes, techniques, formulas, designs, layouts, patterns, drawings, manuals and technical know-how.

71.25(5)(a)22. 22. Redemption of the corporation’s bonds.

71.25(5)(a)23. 23. Interest on state and federal tax refunds on business income or business property.

71.25(5)(a)24. 24. Pari-mutuel wager winnings or purses under ch. 562 .

71.25(5)(b) (b) Nonapportionable income. Income, gain or loss from the sale of nonbusiness real property or nonbusiness tangible personal property, rental of nonbusiness real property or nonbusiness tangible personal property and royalties from nonbusiness real property or nonbusiness tangible personal property are nonapportionable and shall be allocated to the situs of the property, except that all income that is realized from the sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state shall be allocated to this state.

71.25(6) (6) Allocation and separate accounting and apportionment formula. Corporations engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state. The amount of such income attributable to Wisconsin may be determined by an allocation and separate accounting thereof, when the business of such corporation within the state is not an integral part of a unitary business, but the department of revenue may permit an allocation and separate accounting in any case in which it is satisfied that the use of such method will properly reflect the income taxable by this state. In all cases in which allocation and separate accounting is not permissible, the determination shall be made in the following manner: for all businesses except air carriers, financial organizations, telecommunications companies, pipeline companies, public utilities, railroads, car line companies and corporations or associations that are subject to a tax on unrelated business income under s. 71.26 (1) (a) there shall first be deducted from the total net income of the taxpayer the part thereof (less related expenses, if any) that follows the situs of the property or the residence of the recipient. The remaining net income shall be apportioned to this state by use of the following:

71.25(6)(a) (a) For taxable years beginning before January 1, 2006, an apportionment fraction composed of a sales factor under sub. (9) representing 50 percent of the fraction, a property factor under sub. (7) representing 25 percent of the fraction, and a payroll factor under sub. (8) representing 25 percent of the fraction.

71.25(6)(b) (b) For taxable years beginning after December 31, 2005, and before January 1, 2007, an apportionment fraction composed of a sales factor under sub. (9) representing 60 percent of the fraction, a property factor under sub. (7) representing 20 percent of the fraction, and a payroll factor under sub. (8) representing 20 percent of the fraction.

71.25(6)(c) (c) For taxable years beginning after December 31, 2006, and before January 1, 2008, an apportionment fraction composed of a sales factor under sub. (9) representing 80 percent of the fraction, a property factor under sub. (7) representing 10 percent of the fraction, and a payroll factor under sub. (8) representing 10 percent of the fraction.

71.25(6)(d) (d) For taxable years beginning after December 31, 2007, an apportionment fraction composed of the sales factor under sub. (9) .

71.25(6)(e) (e) For taxable years beginning after December 31, 2005, and before January 1, 2008, the apportionment fraction for the remaining net income of a financial organization shall include a sales factor that represents more than 50 percent of the apportionment fraction, as determined by rule by the department. For taxable years beginning after December 31, 2007, the apportionment fraction for the remaining net income of a financial organization is composed of a sales factor, as determined by rule by the department.

71.25(6m) (6m) Apportionment formula computation.

71.25(6m)(a) (a)

71.25(6m)(a)1. 1. For taxable years beginning before January 1, 2008, if both the numerator and the denominator of the sales factor under sub. (9) related to a taxpayer’s remaining net income are zero, the sales factor under sub. (9) is eliminated from the apportionment formula to determine the taxpayer’s remaining net income under sub. (6) .

71.25(6m)(a)2. 2. For taxable years beginning after December 31, 2007, if both the numerator and the denominator of the sales factor under sub. (9) related to a taxpayer’s remaining net income are zero, none of the taxpayer’s remaining net income is apportioned to this state.

71.25(6m)(b) (b)

71.25(6m)(b)1. 1. For taxable years beginning before January 1, 2008, if the numerator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is a negative number and the denominator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is a positive number, a negative number, or zero, the sales factor under sub. (9) is zero.

71.25(6m)(b)2. 2. For taxable years beginning after December 31, 2007, if the numerator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is a negative number and the denominator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is a positive number, a negative number, or zero, none of the taxpayer’s remaining net income is apportioned to this state.

71.25(6m)(c) (c)

71.25(6m)(c)1. 1. For taxable years beginning before January 1, 2008, if the numerator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is a positive number and the denominator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is zero or a negative number, the sales factor under sub. (9) is one.

71.25(6m)(c)2. 2. For taxable years beginning after December 31, 2007, if the numerator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is a positive number and the denominator of the sales factor under sub. (9) related to a taxpayer’s remaining net income is zero or a negative number, all of the taxpayer’s remaining net income is apportioned to this state.

71.25(7) (7) Property factor. For purposes of sub. (6) and for taxable years beginning before January 1, 2008:

71.25(7)(a) (a) The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used during the tax period. Cash on hand or in the bank, shares of stock, notes, bonds, accounts receivable, or other evidence of indebtedness, special privileges, franchises, goodwill, or property the income of which is not taxable or is separately allocated, shall not be considered tangible property nor included in the apportionment.

71.25(7)(b) (b) Property used in the production of nonapportionable income or losses shall be excluded from the numerator and denominator of the property factor. Property used in the production of both apportionable and nonapportionable income or losses shall be partially excluded from the numerator and denominator of the property factor so as to exclude, as near as possible, the portion of such property producing the nonapportionable income or loss.

71.25(7)(c) (c) Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at 8 times the net annual rental. Net annual rental is the annual rental paid by the taxpayer less any annual rental received by the taxpayer from sub-rentals.

71.25(7)(d) (d) The average value of property shall be determined by averaging the values at the beginning and ending of the tax period but the secretary of revenue may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer’s property.

71.25(8) (8) Payroll factor. For purposes of sub. (6) and for taxable years beginning before January 1, 2008:

71.25(8)(a) (a) The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period.

71.25(8)(b) (b) Compensation is paid in this state if:

71.25(8)(b)1. 1. The individual’s service is performed entirely within this state;

71.25(8)(b)2. 2. The individual’s service is performed within and without this state, but the service performed without this state is incidental to the individual’s service within this state;

71.25(8)(b)3. 3. A portion of the service is performed within this state and the base of operations of the individual is in this state;

71.25(8)(b)4. 4. A portion of the service is performed within this state and, if there is no base of operations, the place from which the individual’s service is directed or controlled is in this state;

71.25(8)(b)5. 5. A portion of the service is performed within this state and neither the base of operations of the individual nor the place from which the service is directed or controlled is in any state in which some part of the service is performed, but the individual’s residence is in this state; or