Iowa:
•
Services, including telecommunications services, are sourced to where the benefit of the service is received.
•
Holding loans secured by real or tangible personal property in the state creates nexus.
•
Loan-backed securities are generally not "loans" that would create nexus.
•
Nexus for part of the taxable year is nexus for the entire taxable year.
Summary of factual data and analytical methodologies
The Department reviewed the statutory provisions enacted by
2009 Acts 2
and
28
and identified existing provisions of chapter Tax 2, Wisconsin Administrative Code, that no longer reflect current law or do not provide useful interpretation of the statutes as amended. The Department studied the laws and regulations of our neighboring states in addition to the model apportionment regulations developed by the Multistate Tax Commission (MTC) to determine how those states have been interpreting statutes that are similar to Wisconsin's. Also, since Michigan and Illinois just updated their apportionment rules for telecommunications companies (in 2008 and 2009, respectively), the Department contacted those states for insight on the industry reaction to those changes.
Analysis and supporting documents used to determine effect on small business
Nexus and apportionment issues apply only to businesses that are engaged in business in more than one state. Thus, this rule does not have a significant effect on small business.
Anticipated costs incurred by private sector
This rule does not result in a significant cost to the private sector.
Small Business Impact
This rule order does not have a significant economic impact on a substantial number of small businesses.
Fiscal Estimate
This rule order makes various changes to Tax 2.39 through Tax 2.82 to:
1)
Update rules for apportionment and nexus to reflect statutory changes in
2009 Act 2
and
2009 Act 28
relating to the implementation of combined reporting for affiliated groups of corporations;
2)
Update rules on the sourcing of sales as well as definitions of certain terms to implement the streamlined sales tax statutory changes contained in
2009 Act 2
; and
3)
Certain other changes to administrative rules under the authority of s.
71.04(8)
and
71.25(10)
, Stats, related to railroads, financial organizations and public utilities.
The fiscal effects of the rule changes for items 1 and 2 above were included in the fiscal effects for
2009 Act 2
and
2009 Act 28
. As such, these rule changes have no fiscal effect.
The fiscal effect of the rule changes promulgated under authority of s.
71.04 (8)
and
71.25 (10)
, Stats., are expected to be minimal.
Agency Contact Person
Dale Kleven, Dept. of Revenue
Mail Stop 6-40
2135 Rimrock Road, PO Box 8933
Madison WI 53708-8933
Telephone: (608) 266-8253
Notice of Hearing
Revenue
NOTICE IS HEREBY GIVEN That pursuant to ss.
71.255 (6) (b) 2.
and
(c) 2.
,
(7) (a)
, and
(11)
and
227.24
, Stats., the Department of Revenue will hold a public hearing to consider emergency rules to create sections
Tax 2.60
through
2.67
, relating to combined reporting for corporation franchise and income tax purposes.
The emergency rule order:
•
reflects the changes in Wisconsin's franchise and income tax laws affected by
2009 Act 2
, and
•
provides guidance to taxpayers and Department employees so they can properly apply the Wisconsin franchise and income tax laws.
Hearing Information
The hearing will be held:
Date and Time
Location
February 25, 2010
Events Room
at 1:00 p.m.
State Revenue Building
2135 Rimrock Road
Madison, Wisconsin
Handicap access is available at the hearing location.
Copies of Emergency Rule
A copy of the full text of the emergency rule order and the full fiscal estimate may be obtained at no cost by contacting the department. See
Agency Contact Person
listed below.
Submission of Written Comments
Interested persons are invited to appear at the hearing and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearing. Written comments may also be submitted to the contact person shown under
Agency Contact Person
listed below no later than March 4, 2010, and will be given the same consideration as testimony presented at the hearings.
Analysis Prepared by the Department of Revenue:
Statute interpreted
Statutory authority
General rulemaking authority in s.
227.24
, Stats.; specific rulemaking authority granted in s.
71.255
, Stats., as follows:
•
Section
71.255(6)(b)2.
and
(c)2.
, Stats., relating to net business loss carryforwards, credits, and credit carryforwards.
•
Section
71.255(7)(a)
, Stats., relating to identifying the designated agent.
•
Section
71.255(11)
, relating to the adoption of federal treasury regulations so that transactions among combined group members are treated consistently with transactions among federal consolidated group members.
Explanation of agency authority
An agency may promulgate a rule as an emergency rule without complying with the notice, hearing, and publication requirements of the statutes if preservation of the public peace, health, safety, or welfare necessitates putting the rule into effect prior to the time it would take effect if the agency complied with the procedures.
Related statute or rule
Sections
71.24 (1)
,
(1m)
, and
(7)
,
71.29
,
71.44 (1)
,
(1m)
, and
(3)
,
71.77
,
71.82
,
71.83
, and
71.84
, Stats.
Plain language analysis
This rule creates eight new rule sections. The purpose of each rule section is provided below:
Section
Tax 2.60
Definitions Relating to Combined Reporting.
Provides
definitions relating to the other rule sections created by this rule order. Those other sections are ss.
Tax 2.61
,
2.62
,
2.63
,
2.64
,
2.65
,
2.66
, and
2.67
.
•
Explains who must use combined reporting.
•
Provides rules for determining whether a corporation is a member of a "commonly controlled group."
•
Explains when a corporation's income is not subject to combination because of the degree of the corporation's activity outside the U.S. ("water's edge" rules).
•
Explains how to compute the combined group's combined unitary income, including the applicability of federal regulations that relate to consolidated groups. The following components of the computation are covered:
□
Intercompany transactions
□
Capital gains and losses
□
Charitable contributions
□
Dividends
□
Stock basis adjustments
□
Earnings and profits
□
Allocation of expenses and deductions
•
Explains how to apportion the combined unitary income and rules that apply to various aspects of the apportionment computation.
•
Provides rules for determining the taxable income of combined groups that are not subject to apportionment.
•
Describes how to apply net business loss carryforwards, including rules relating to the sharing of net business losses.
•
Describes how to apply credits, including rules relating to the sharing of research credits.
•
Explains the concept of a "unitary business" and its relationship to the concept of a "combined group."
•
Enumerates several characteristics that are indicators of a "unitary business."
•
Lists some key U.S. Supreme Court cases which provide further guidance on the extent to which a business enterprise is considered a "unitary business" under the U.S. Constitution. This is significant because the statute provides that "unitary business" shall be construed to the broadest extent permitted by the U.S. Constitution.
•
Provides several presumptions to aid taxpayers in determining whether a unitary business exists.
•
Provides specific rules relating to the inclusion of passive holding companies and pass-through entities in the unitary business.
Section
Tax 2.63
Controlled Group Election.
•
Explains how to make the election and how to renew it after its 10-year duration.
•
Provides rules relating to the department's authority to disregard the election in cases where it has the primary effect of tax avoidance rather than its intended purpose of simplifying the determination of who must be included in the combined report.
Section
Tax 2.64
Alternative Apportionment for Combined Groups Including Specialized Industries.
•
Specifies how and when a qualifying group may file a petition for alternative apportionment and what information must be submitted to the department.
•
Provides that once the department approves the alternative method, that same method must be used for a 7-year period, subject to a limitation that the tax computation under the alternative method cannot be lower than what it would have been if each corporation apportioned its income separately.
Section
Tax 2.65
Designated Agent of Combined Group.
•
Explains how to identify which corporation is responsible to act on behalf of the combined group for matters relating to the combined return.
•
Defines the scope and limitations of the agency relationship.
Section
Tax 2.66
Combined Estimated Tax Payments.
•
Explains when a combined group member may make its own estimated payments, rather than having the designated agent make the payments on its behalf.
•
Provides rules for determining the combined group's required estimated tax payments.
•
Provides rules for applying estimated payments and overpayments of prior year estimated payments.
•
Enumerates the required components of a combined return and explains how to report separate entity items.
•
Explains how to determine the taxable year of a combined return.
•
Provides rules relating to interest, penalties, and statutes of limitations as they relate to combined returns.
Comparison with federal regulations
The rules are very similar to the federal regulations relating to consolidated groups. The federal regulations listed below are specifically referenced or adopted in this rule order, but modified to apply to combined groups instead of federal consolidated groups.
•
Treas. Reg. §
1.1502
-13, relating to intercompany transactions. This federal regulation was actually adopted by statute (s.
71.255(4)(g)
, Stats.), but is interpreted in this rule order (s.
Tax 2.61(6)(b)
).
•
Treas. Regs. §
1.1502
-22 and
1.1502
-23, relating to capital gains and losses and section 1231 gains and losses (s.
Tax 2.61(6)(c)
).
The general purpose of the above federal regulations is to treat the members of a federal consolidated group as if they were divisions of a single corporation. Likewise, the purpose of adopting these rules for Wisconsin purposes is to treat the members of a combined group as if they were divisions of a single corporation.
Comparison with rules in adjacent states
Illinois:
Illinois has comprehensive regulations relating to its combined reporting statute. (including IL Regs. 100.2340, 100.2570, 100.5200, 100.5201, 100.5210, 100.5220, 100.5230, 100.5240, 100.5250, 100.5260, 100.5265, 100.5280, and 100.9700). The following aspects of the rules in this rule order were modeled after the Illinois regulations, with some modifications:
•
Adoption of federal consolidated return regulations
•
Combined estimated tax payments
•
Rules relating to the duties of the designated agent
Iowa:
Iowa does not have a statute which permits or allows combined reporting. Thus, it has no rules or regulations relating to combined reporting.
Michigan:
Michigan adopted combined reporting in 2008, when it enacted its Michigan Business Tax. At the time this rule order was authored, Michigan has not yet promulgated rules or regulations relating to its combined reporting statute. However, Michigan has published an extensive amount of guidance in the form of Frequently Asked Questions.
Minnesota:
Like Illinois, Minnesota has rules relating to its combined reporting statute (including Rules 8019.0100, 8019.0300, 8019.0405, and 8019.0500, Minn. Rules). The section of this rule order that provides guidance in determining a "unitary business" (s.
Tax 2.62
) is modeled after Minnesota's rule 8019.0100, with some modifications.
Summary of factual data and analytical methodologies
The department developed these rules based upon research of the combined reporting laws, rules, regulations, published guidance, and tax form instructions of other states. The Illinois and Minnesota regulations referenced above were frequently used as a resource, in addition to various law journal articles and tax publications.
The combined reporting regulations recently promulgated by Massachusetts (830 CMR 63.32B.2) were heavily relied upon. The Massachusetts combined reporting law (M.G.L. c. 63 §32B), like Wisconsin's, is first effective for taxable years beginning on or after January 1, 2009, and Wisconsin's law has many similarities with the Massachusetts law.
The department also studied the regulations under section
1502
of the Internal Revenue Code, relating to consolidated returns.
Analysis and supporting documents used to determine effect on small business
Combined reporting primarily affects larger corporations, rather than small businesses. Combined reporting is required for regular "C" corporations, but is not required for the types of entities that are more characteristic of small businesses, such as:
•
Sole proprietorships,
•
Partnerships,
•
Limited liability companies taxed as partnerships, and
•
S corporations
Anticipated costs incurred by private sector
This emergency rule does not have a significant fiscal effect on the private sector independently from the statute it interprets.
Small Business Impact
This emergency rule does not have a significant effect on small business.
Fiscal Estimate
The proposed rules create Tax 2.60 through 2.67 to incorporate tax law changes included in
2009 Act 2
and
2009 Act 28
related to combined reporting for commonly controlled groups of corporations.
The fiscal effect from implementation of combined reporting was included in the fiscal effect for Act 2, and the fiscal effect of certain changes to combined reporting that were a part of Act 28 were included in the fiscal effect for the Act. The administrative rules for these provisions have no fiscal effect independent of Acts 2 and 28.
In addition to the rule changes made necessary by the statutory changes under Acts 2 and 28, the rule also specifies that basis for depreciable assets for corporations that are subject to tax for the first time shall be the federal basis of the assets, except that the basis shall be computed without regard to any bonus depreciation claimed for federal purposes as required by statute. The fiscal effect of this provision is unknown.
Agency Contact Person
Dale Kleven, Dept. of Revenue
Mail Stop 6-40
2135 Rimrock Road, PO Box 8933
Madison WI 53708-8933
Telephone: (608) 266-8253
Notice of Hearing
Revenue
NOTICE IS HEREBY GIVEN That pursuant to ss.
146.98 (3)
,
(4)
, and
(5)
and
227.24
Stats., the Department of Revenue will hold a public hearing to consider emergency rules and the creation of permanent rules revising Chapter
Tax 1
, relating to the ambulatory surgical center assessment.
Hearing Information
The hearing will be held:
Date and Time
Location
February 11, 2010
Events Room
at 1:00 p.m.
State Revenue Building
2135 Rimrock Road
Madison, Wisconsin
Handicap access is available at the hearing location.
Submission of Written Comments
Interested persons are invited to appear at the hearing and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearing. Written comments may also be submitted to the contact person shown under
Agency Contact Person
listed below no later than February 18, 2010, and will be given the same consideration as testimony presented at the hearing.
Analysis Prepared by the Department of Revenue
Statutes interpreted
Statutory authority
Related statute or rule
Section
50.38
, Stats., imposes a hospital assessment, and s.
50.14
, Stats., imposes an assessment on licensed nursing home beds and intermediate care facilities for the mentally retarded (ICF-MR).
Plain language analysis
This proposed rule does the following:
•
Establishes the requirements for administration of the ambulatory surgical center assessment.
•
Describes how the amount of the assessment for each ambulatory surgical center is determined.
•
Details how the department will collect assessments.
•
Provides guidance regarding data required to be submitted to the department to determine assessment amounts.
•
Specifies the filing, reporting, and payment deadlines for the assessment, and penalties imposed for failure to meet the requirements.
Comparison with federal regulations
Federal law
42 CFR §433.68
describes permissible health care-related taxes that states may impose without a reduction in Medicaid Federal Financial Participation (FFP) in the medical assistance program jointly funded by the federal government and the state. The taxes must be broad based, uniformly imposed throughout a jurisdiction, and cannot exceed 5.5% of revenues. Ambulatory surgical center or ASC is defined in
42 CFR §416.2
as "any distinct entity that operates for the purposes of providing surgical services to patients not requiring hospitalization, has an agreement with the Center for Medicare and Medicaid Services (CMS) to participate in Medicare as an ASC, and meets the conditions set forth in subparts B and C of this part."
Comparison with rules in adjacent states
Illinois
imposes health care provider taxes on hospitals, intermediate care facilities for the mentally retarded or developmentally disabled, and nursing homes. There is no assessment of ambulatory surgical centers.
Iowa
imposes a health care provider tax on intermediate care facilities for the mentally retarded or developmentally disabled. There is no assessment on ambulatory surgical centers.
Michigan
imposes a health care provider tax on hospitals, managed care organizations, nursing homes and community mental health programs. There is no assessment on ambulatory surgical centers.
Minnesota
imposes a health care provider tax on hospitals, intermediate care facilities for the mentally retarded or developmentally disabled, managed care organizations, and nursing homes. In addition, a tax of 2% of total gross receipts is imposed on surgical centers.
Summary of factual data and analytical methodologies
2009 Wisconsin Act 28
created s.
146.98
Stats., imposing an assessment on Medicare-certified ambulatory surgical centers in Wisconsin. The statute directs the department of revenue to allocate any assessment imposed among ambulatory surgical centers in proportion to their gross patient revenue. The department may determine the amount of the assessment, collect the assessment, require ambulatory surgical centers to provide any data that is required to determine assessment amounts, establish deadlines by which assessments shall be paid, and impose penalties for failure to comply with the requirements of the statute or any rules promulgated. The department is directed to transfer 99.5 percent of the assessments collected to the medical assistance trust fund and retain 0.5% of the assessment revenues collected to support the administrative costs related to the assessment.
Within the provisions of s.
146.98 (5)
, Stats., is a requirement that the department promulgate rules for the administration of the assessment.
In consultation with ambulatory surgical centers, the departments of administration and health services, the department has created this proposed rule order to satisfy the above requirements.
Analysis and supporting documents used to determine effect on small business
This proposed rule is created in accordance with
2009 Wisconsin Act 28
to administer and enforce statutory requirements relating to the assessment of ambulatory surgical centers. As the rule does not impose any significant financial or other compliance burden, the department has determined that it does not have a significant effect on small business.
Anticipated costs incurred by private sector
This proposed rule does not have a significant fiscal effect on the private sector.
Small Business Impact
This proposed rule does not have a significant effect on small business.
Fiscal Estimate
The fiscal effect of the assessment under s.
146.98
, Stats., was included in the fiscal effect of
2009 Wis. Act 28
. Therefore, this rule has no fiscal effect.
State fiscal effect
None.
Local government fiscal effect
None.
Text of Emergency and Proposed Permanent Rule
SECTION 1. Tax 1.17 is created to read:
Tax 1.17 Ambulatory surgical center assessment.
(1) PURPOSE. The purpose of this section is to establish procedures and other requirements necessary for levying and collecting the ambulatory surgical center assessment imposed under s.
146.98
, Stats.
(2) DEFINITIONS. In this section:
(a) "Ambulatory surgical center" or "ASC" has the meaning given in s.
146.98 (1)
, Stats.
(b) "Cash basis" is the method of accounting where income is reported in the year that it is actually or constructively received in the form of cash or its equivalent or other property.
(c) "Department" means the department of revenue.
(d) "Gross patient revenue" means the gross amount received on a cash basis by the ambulatory surgical center from all patient services.
(e) "Patient services" include any of the following goods and services provided to a patient or consumer:
1. Bed and board.
2. Nursing services and other related services.
3. Use of the ambulatory surgical center.
4. Medical social services.
5. Drugs, biologicals, supplies, appliances and equipment.
6. Other diagnostic or therapeutic items or services.
7. Medical or surgical services.
8. Laboratory services.
9. Items and services furnished to ambulatory patients not requiring emergency care.
10. Emergency services including ambulance services.
(3) REGISTRATION. (a) Ambulatory surgical centers in this state are required to be registered with the department, in the manner prescribed by the department.
(b) On or before January 1, ambulatory surgical centers in this state shall notify the department of a change in ownership, address change, and any other information pertinent to the ambulatory surgical center's assessment under s.
146.98
, Stats., occurring in the previous calendar year.
(c) The department shall update ambulatory surgical center registration using information provided by the department of health services, division of quality assurance.
(4) ANNUAL GROSS PATIENT REVENUE SURVEY. (a) The department shall annually survey ambulatory surgical centers required to be registered under sub. (3) (a) to obtain any data required by the department needed to determine the amount of the assessment imposed in s.
146.98
, Stats. Survey data filed shall be subject to the confidentiality provisions under s.
71.78
, Stats.
(b) Ambulatory surgical centers required to be registered shall electronically file the survey annually on or before March 15.
(c) Ambulatory surgical centers may apply for a 5 day extension of the survey due date. An extension will be granted for good cause only. The application for an extension shall be filed electronically with the department on or before March 15 at
https://tap.revenue.wi.gov
.
(d) Failure to electronically file the survey with the department by the due date, including any extension, shall result in a late filing penalty of $500 per day calculated from the day after the unextended due date up to the date the completed survey is received by the department, or April 1, whichever is earlier. Failure to file the survey during the period for the extension shall make the extension null and void.
Examples: 1) An ambulatory surgical center does not request an extension to file the annual survey and fails to file the survey by April 1, 2010. A daily $500 late filing penalty is assessed for the period of March 16, 2010 through April 1, 2010, for a total late filing penalty of $8,500.
2) An ambulatory surgical center is granted an extension, and files the annual survey on March 19, 2010. No late filing penalty is assessed.
3) An ambulatory surgical center is granted an extension to file the annual survey, but files the survey on March 24, 2010, after the expiration of the 5 day extension. A $4,000 late filing penalty is assessed for the period of March 16, 2010 through March 23, 2010.
(e) The deadline for filing an amended survey is April 1. Information received after April 1 shall not be considered in the determination of the assessment. If any ambulatory surgical center fails, within the time required by this chapter, to file the survey, or files an incomplete or incorrect survey, the department shall make an assessment based upon any other information in the department's possession and according to its best judgment.
(f) The department may impose a penalty of 25% of the amount of the assessment if the ambulatory surgical center fails to file the survey by April 1, pursuant to s.
146.98 (3) (e)
, Stats.
(5) ASSESSMENT. (a) The assessment shall be calculated using a uniform percentage that satisfies the requirements under
42 CFR 433.68
for collecting an assessment without incurring a reduction in federal financial participation under the federal Medicaid program.
(b) The department shall electronically notify an ambulatory surgical center of the amount of the assessment on April 15.
(c) The assessment shall be paid electronically on or before June 1 in a manner prescribed by the department. Failure to pay the assessment by June 1 shall result in a penalty of $500 per day calculated from the day after the due date up to the date the assessment is received by the department, subject to a maximum penalty equal to the amount of the assessment. Payment of the penalty under this subdivision does not relieve the ambulatory surgical center from the responsibility of paying the assessment.
(d) The department may require estimated pre-payment of the assessment, in a manner prescribed by the department. The department shall notify ambulatory surgical centers at least 90 days before the first estimated payment is due.
(6) AUDIT. (a) The department may conduct an office or field audit to determine the assessment under s.
146.98
, Stats., or to ascertain the correctness of the information reported on the annual survey required to be filed under sub. (4) (b).
(b) Ambulatory surgical centers shall retain financial books and records that support the information reported on the annual survey, and provide it to the department pursuant to s.
146.98 (3)
( c), Stats.
(c) The department may impose a penalty equal to the amount of any unreported gross patient revenue multiplied by the percentage established for that period in sub. (5) (a).
(7) APPEALS. Ambulatory surgical centers claiming to be adversely affected by the department's action or inaction, other than a rulemaking action or proposal for legislation, may petition the department for a contested case hearing under s.
227.42
, Stats. The request for hearing shall be in writing and served upon the Secretary of Revenue within 30 days after the department's action or inaction complained of.
Note: Written requests for hearing should be addressed to: Wisconsin Department of Revenue, Office of the Secretary, P.O. Box 8933, Madison, WI 53708.
(8) COLLECTIONS. (a) Assessments under sub. (5) (c) shall become delinquent if not paid when due, unless the department receives a request for hearing under sub. (7).
(b) The department may immediately proceed to collect delinquent assessments, including any penalties, in a manner comparable to that described in s.
77.62
, Stats.
(c) Assessments unpaid for more than 90 days after appeal rights have expired shall be posted on the list on the Internet site maintained by the department under s.
73.03 (62)
, Stats.
Agency Contact Person
Dale Kleven, Dept. of Revenue
Mail Stop 6-40
2135 Rimrock Road, PO Box 8933
Madison WI 53708-8933
Telephone: (608) 266-8253
