PROPOSED
ORDER OF THE DEPARTMENT OF REVENUE
REPEALING,
AMENDING,
REPEALING AND RECREATING,
AND
CREATING RULES
The Wisconsin Department of Revenue
proposes
an order to:
repeal
Tax
2.05
,
2.66 (2) (b) (Note) and (4) (c) (Note), and
2.67
(2)
(c) 2.
and
3.
;
amend
Tax
1.15 (title), (1), and (5) (intro.) and (Note),
2.61 (9) (c) 3. (Example)
,
2.67 (2) (c) 1.
and
4.
and
(d)
1.
and
3.
,
2.82 (1) (a)
, (4) (c) (Example),
and (5) (a) (Example),
2.88 (3) (a)
,
4.10 (3) (b) 2.
,
4.65 (3) (c),
14.01 (4) (a), (b), and (c)
, and
14.03 (3) (a) and
(a)
(Example), (4) (b) 23.
h., and (5) (a) 7.
;
repeal and recreate
Tax 1.15
(2), (3), and (4)
;
and
create
Tax
2.88 (3) (c)
and
14.01 (4) (a) (Note)
;
relating to
income
,
franchise
, and excise
tax
provisions
.
The scope
statement for this rule,
SS
070
-14
, was approved by th
e Governor on
July 24
, 2014
, published in
Register No.
704
on
August 14
, 201
4
, and approved by the Se
cretary of Revenue on
August 27
, 201
4
.
Analysis by the Department of Revenue
Explanation of agency authority:
Under s.
71.80 (1) (c)
, Stats., the department may make such regulations as it shall deem necessary in order to carry out chapter 71 of the Wisconsin Statutes, relating to income and franchise taxes. This provision applies to the revision of ss.
Tax
2.05
,
2.61
,
2.67
,
2.82
,
2.88
,
14.01
, and
14.03
.
Section
78.79
,
Stats.,
provides "[t]he department may promulgate reasonable rules relating to the administration and enforcement of this chapter…" This prov
ision applies to the revision of
s
s
.
Tax 4.10
and
4.65
.
Section
227.04 (2m)
, Stats., requires each agency to
promulgate a rule that requires the agency to disclose in advance the discretion that the agency will follow in the enforcement of rules against a small business that has committed a minor violation. This provision applies to the repeal and recreation of s.
Tax 1.15
.
Related statute or rule:
There are no other applicable statutes or rules.
Plain language analysis:
The proposed rule makes the following changes:
•
Clarifies
an example of the carryforward of net business losses in s.
Tax 2.61
(9) (c) 3
.
•
Revises
ss.
Tax
2.66
,
2.67
,
and
2.82
to change references to certain corporate franchise and income tax forms that are being
consolidated and
renamed as a result of forms redesign.
•
Revises
s.
Tax 2.88 (3)
to reflect that
refund interest may not be paid on an overpayment that results from the carryback of a net operating loss
.
This provision is under s.
71.05 (8) (c)
,
Stats.,
as created by
2013 Wis. Act 145
.
•
Amends
s.
Tax
4.10 (3) (b) 2.
to
reflect the removal by
2013 Wis. Act 54
of limits on the
capacity of a vehicle transporting fuel and the distance between the destination of the import or export of fuel from a bulk plant and the Wisconsin border
.
•
Revise s.
Tax 4.65 (3) (c)
to reflect that
s.
78.01 (2t)
, Stats.,
as created by
2013 Wis. Act 204
,
provides that exemption certificates used to claim exemption from the motor vehicle fuel tax on gasoline or diesel fuel are valid for 3 years.
•
Revises
s
.
Tax 14.01
to
include
Schedule H-EZ
as a form
for claiming homestead credit
.
•
Revises s.
Tax 14.03
to reflect the current amount of the dependent deduction under s.
71.52 (5)
, Stats.; include net operating loss carrybacks as an item includable in income under s.
71.52 (6)
, Stats., as amended by
2013 Wis. Act 184
; and clarify that only nontaxable pension rollovers are excluded from income.
Summary of, and comparison with, existing or pr
oposed federal regulation:
There is no existing or proposed federal regulation that is intended to address the activities to be regulated by the rule.
Comparison with rules in adjacent states:
The department is not aware of a similar rule in an adjacent state.
Summary of factual data and analytical methodologies:
The 2013-2014 Legislative session has
made various changes to Wisconsin's income
,
franchise
, and
excise
tax provisions. The department has created this proposed rule order to reflect these statutory changes
, as
well as
provide needed clarification
and reference changes
as described above
. No other data was used in the preparation of this proposed rule order or this analysis.
Analysis and supporting documents used to determine effect on small business:
This rule order
makes changes to reflect current law and current
department policy.
It makes no policy or other changes having a
n
effect on small business.
Anticipated c
osts incurred by private sector:
This rule or
der does not have a
fiscal effect on the private sector.
Effect on small business:
This rule or
der does not a
ffect small business.
Agency contact person:
Please contact
Jennifer Chadwick
at (608) 266-8253 or
jennifer.chadwick@wisconsin.gov
,
if you have any questions regarding this rule order.
Place where comments are to be submitted and deadline for submission:
Comments may be submitted to the contact person shown below no later than the date on which the public hearing on this
proposed rule is conducted. Information as to the place, date, and time of the public hearing will be published in the Wisconsin Administrative Register.
Jennifer Chadwick
Department of Revenue
Mail Stop 6-40
2135
Rimrock
Road
P.O. Box 8933
Madison, WI 53708-8933
SECTION 1.
Tax 1.15
(title) and (1)
are amended
to read:
Tax 1.15
(title
)
Enforcement
of rules
and guidelines
as they apply to
against
a small business
that has
commited
a minor violation
.
(1)
Purpose.
This section discloses the discretion the
department will follow in the enforcement of rules
and guidelines as they apply to
against a small business
that has committed a minor violation
after the initial applicability of this section
…. [LRB inserts date]
.
SECTION 2.
Tax 1.15 (2), (3), and (4) are repealed and recreated to read:
Tax 1.15 (2
)
(
2)
Definitions.
In this section: (a) "Minor violation" has the meaning given in s.
227.04 (1) (a)
, Stats.
(b) "Small business" has the meaning given in s.
227.114 (1)
, Stats.
(3)
Discretion the department will follow.
The enforcement of rules against a small business that has committed a minor violation, including the assessment of a penalty, forfeiture, fine, or interest, shall be done on a case-by-case basis
. Each case shall be determined on its merits as evaluated by the department, taking into consideration all relevant factors. Factors shall include:
(a) The difficulty and cost of compliance with the rule by the small business.
(b) The financial capacity of the small business, including the ability of the small business
to pay the amount of any penalty that may be imposed.
(c) The compliance options available, including options for achieving voluntary compliance with the rule.
(d) The level of public interest and concern.
(e) The opportunities available to the small business to understand and comply with the rule.
(f) Fairness to the small business and to other persons, including competitors and the public.
(4)
Scope of discretion allowed.
The department shall allow the discretion described in sub. (3)
to
be considered in all situations in which a small business
has committed a minor violation, except
in a situation where any of
the following
apply
:
(a) The violation results in a substantial economic advantage for the small business.
(b) The small business has violated the same rule or guideline more than 3 times in the past 5 years.
(c) The
violation may result in an imminent endangerment to the environment, or to public health or safety.
SECTION 3.
Tax 1.15 (5) (intro.) and (Note) are amended to read:
Tax 1.15 (5) (intro.)
Voluntary disclosure
. The department encourages a small business that
is not in compliance with Wisconsin tax law
has committed a minor violation
to voluntarily come forward. On a case-by-case basis, considering all relevant factors, the department may exercise discretion to:
SECTION 4
.
Tax 2.05
is
repealed.
SECTI
ON 5
.
Tax 2.61 (9) (c
)
3.
(
Example
)
is amended to read:
Tax 2.61 (9) (c) 3. (Example)
Combined Group EFG consists of Member E, Member F, and Member
G.
E
has the following loss carryforwards:
|
Year Incurred
|
Sharable Carryforward
|
Non-sharable Carry-
forward
|
2008
2009
|
−−
($6,000)
|
($10,000)
($2,000)
|
In 2010, E’s share of combined unitary income plus its separate entity items equal
$14,000. After using its carryforwards to offset this income, E has $4,000 of remaining
net business loss carryforward (= ($10,000) + ($6,000) + ($2,000) + $14,000).
Of this amount, a portion is a sharable carryforward that may be applied against F and
G’s shares of combined unitary income in the manner described in par. (d).
Since
loss
carryforwards are applied in the order incurred, the $10,000 carryforward from 2008
is used in its entirety, and $4,000 of the 2009 carryforward is used. The portion of
E’s remaining carryforward from 2009 that is sharable is $3,000 (= $4,000 x [$6,000
/ $8,000]) and the portion that is non−sharable is $1,000 (= 4,000 x [$2,000 /
$8,000]).
In 2012, E has the following loss carryforwards:
|
Year Incurred
|
Sharable Carryforward
|
Non-sharable Carry-
forward
|
2009
20
10
2011
|
($3,000)
−−
($4,000)
|
($1
,000)
−−
($6,000)
|
In addition,
in 2012
E
has
received
a pre−2009 net business loss carryforward of $3,000
($60,000 x 5%)
from Member F
. E’s share
of combined unitary income plus its separate entity items for 2012 equal $16,000.
After using its carryforwards to offset this income, E has $1,000 of remaining net
business loss carryforward (=
($3,000) +
($3,000) + ($1,000) + ($4,000) + ($6,000)
+
($3,000) +
$16,000). Since the loss carryforwards are first applied to the net business loss
carryforwards incurred in 2009 and after, the $4,000 carryforward from 2009 and the
$10,000 carryforward from 2011 are used in their entirety. The remaining $2,000 of
loss carryforwards are applied to the pre−2009 net business loss carryforward. The
remaining pre−2009 net business loss carryforward is $1,000.
SECTION
6
.
Tax 2.66
(2) (b) (Note) and (4) (c) (Note) are repealed.
SECTION
7
.
Tax 2.67 (2) (c) 1.
is
amended to read:
Tax 2.67 (2) (c) 1. One Wisconsin Form
4
6
, Income or Franchise Tax Return, for the combined group as a whole.
SECTION
8
.
Tax 2.67 (2) (c) 2.
and
3.
are
repealed.
SECTION
9
.
Tax 2.67 (2) (c) 4.
and
(d)
1.
and
3.
are
amended to read:
Tax 2.67 (2) (c) 4.
If the combined group is using apportionment, one
Wisconsin Form 4A, Apportionment Data for Combined Groups, and the apportionment factor computation for each member of the combined group as performed on
Form
4A-1
A-1
, Apportionment Data for Single Factor Formulas, or Form
4A-2
A-2
, Apportionment Data for Multiple Factor Formulas, as applicable.
(d) 1.
Subject to the provisions of s.
Tax 2.65 (3) (b)
, if any combined group member has separate entity items, the designated agent shall include those separate entity items in the combined return. If a corporation that would otherwise be a combined group member has no items that are subject to combination under the water's edge rules of s.
Tax 2.61 (4)
, the designated agent may include that corporation's separate entity items in the combined return, in which case the combined return shall include the items specified in sub.
(2)
(c)
3.
,
5.
,
and 6.
and
subd
. 3.
for
that corporation as if it is a combined group member. Alternatively, the corporation may file a separate Wisconsin return to report those items.
3.
The separate entity net income or loss and apportionment factors included in the combined return shall be reported on Wisconsin Form
4N
N
,
Nonapportionable
and Separately Apportioned Income. The designated agent shall complete and submit Form
4N
N
with the combined return for each applicable corporation and carry forward the total Form
4N
N
amounts to the appropriate line on Form
4
6
. For purposes of the requirement of s.
71.255 (2) (d)
,
Stats.,
separate entity items reported on Form
4N
N
shall be considered filed on a separate return. However, for purposes of determining a combined group member's net income, tax, interest, underpayment interest, economic development surcharge, and the statute of limitations, the separate entity amounts shall be added to its amounts, if any, computed in the unitary combination.
SECTION
10
.
Tax 2.82 (1) (a)
, (4) (c) (Example),
and (5) (a) (Example) are amended to read:
Tax 2.82 (1) (a) Every domestic corporation, one incorporated under Wisconsin's laws, except those exempt under ss.
71.26 (1)
and
71.45 (1)
, Stats., and every licensed foreign corporation, one not incorporated in Wisconsin, is required to file a complete corporation franchise or income tax return,
form
Form
4
, 5S,
or
5
6
, regardless of whether or not business was transacted.
(4)
(c)
(Example) Corporation W is a calendar year corporation that operates five retail stores, one of which is in Wisconsin. The stores constitute a unitary business. Corporation W is not in a combined group. In the year
2010
2014
, Corporation W operated one store in Wisconsin. On August 31,
2010
2014
, Corporation W sold the Wisconsin store to Corporation Y but continued to operate the other stores outside Wisconsin. Between September 1,
2010
2014
and December 31,
2010
2014
, Corporation W had no activities that would create nexus in Wisconsin. Corporation W is considered to have nexus in Wisconsin for its entire taxable year. Therefore, on its
2010
2014
Wisconsin Form 4, Corporation W must compute its apportioned share of Wisconsin income based on its
apportionable
income from all of its stores for the entire year
2010
2014
. In addition, the numerator of the sales factor in its apportionment computation must include sales shipped to Wisconsin customers for the entire year
2010
2014
.
(5) (
a
) (Example) Assume the same facts as the example in sub. (4)
(c)
. In addition, assume Corporation Y is a member of Combined Group XYZ, which reports on a calendar year. Although Group XYZ operated numerous stores outside Wisconsin for the entire year, none of the members of Group XYZ had any nexus-creating activities in Wisconsin until July 1,
2010
2014
, when Corporation Y set up a temporary office in Wisconsin in anticipation of the purchase of the store from Corporation W. However, Corporation Z had sales shipped to Wisconsin customers during
2010
2014
. Since Corporation Y established nexus in Wisconsin during the year, Group XYZ is considered to have nexus in Wisconsin for its entire taxable year. Therefore, Group XYZ must file a
combined
Wisconsin Form
4
6
for the year
2010
2014
. On the combined return, Group XYZ must include its
apportionable
income for the entire taxable year (from all stores) in the combined unitary income to be apportioned. The Wisconsin share of the combined unitary income for Corporation Y and Corporation Z is then determined as described in s.
71.255 (5)
,
Stats.,
and s.
Tax 2.61 (7)
. Assuming all of Group XYZ's Wisconsin sales are attributable to Corporations Y and Z, Corporations Y and Z would be the only corporations in the group with Wisconsin income.
SECTI
ON
11
.
Tax
2.88 (3
)
(a)
is
amended to read:
Tax 2.88 (3) (a)
Any refund of individual income or corporate franchise or income taxes
shall include interest at the rate of
3%
per year from the due date of the return to the date paid by the department, except as provided in
par.
pars.
(
b
)
and (c)
.
SECTI
ON
12
.
Tax 2.88 (3) (c
) is created to read:
Tax 2.88 (3
) (
c
)
No
interest may be allowed
on a refund of income ta
xes that results from the carry
back of a net operating loss.
SECTI
ON 1
3
.
Tax
4.10
(
3
) (
b
)
2.
is
amended to read:
Tax
4.10
(
3
) (
b
)
2.
The product is transported across the state line by a supplier from an out-of-state bulk plant in a transporting vehicle
not capable of carrying more than 4,200 gallons and the delivery location is no more than 25 miles inside the Wisconsin border
. The sales invoice shall clearly indicate Wisconsin as the destination state and that the tax shall be paid by the supplier.
SECTION 1
4
.
Tax 4.65 (3) (c) is amended to read:
Tax 4.65 (3) (c) The customer shall provide the vendor with an
annual
exemption certificate when purchasing undyed diesel fuel and gasoline which will be consumed by that customer for an exempt purpose as defined in s.
78.01 (2)
and
(2m)
, Stats. A purchaser of undyed diesel fuel and gasoline for an exempt use shall provide the seller with a properly completed exemption certificate, form MF-209, prior to the tax-exempt purchase.
The certificate may not cover a period of more than 12
months.
SECTI
ON 1
5
.
Tax 14.01 (4) (a
)
is
amended to read:
Tax 14.01 (4) (a
)
A homestead credit claim shall be filed on schedule H
or H-EZ
, titled "Wisconsin
Homestead Credit Claim," and filed with the department at the location described in the instructions to schedule H
homestead credit
.
"
SECTI
ON 1
6
.
Tax 14.01 (4) (a) (Note) is created to read:
Tax 14.01 (4) (a) (Note
)
Note
:
Schedules H and H-EZ are available from the department's website at
www.revenue.wi.gov
.
SECTION
1
7
.
Tax 14.01 (4) (b) and (c) are amended to read:
Tax 14.01 (4) (b) If a person or the person's spouse files a Wisconsin income tax return and claims a homestead credit on the return, the claimant shall attach schedule H
or H-EZ
to the income tax return. If the claimant has previously filed the income tax return or is filing an income tax return separately from the schedule H
or H-EZ
, the preferred procedure for filing a homestead credit claim is to file a duplicate copy of the income tax return with schedule H
or H-EZ
and to write the words "Duplicate" on the top of the first page of the tax return copy and "Income Tax Return Separately Filed" on the top of schedule H
or H-EZ
.
(c) If neither the claimant nor the claimant's spouse is required to file a Wisconsin income tax return for the year to which the claim relates, the claimant may file schedule H
or H-EZ
without attaching it to a return.
SECTI
ON 1
8
.
Tax 14.03 (3) (a) and
(a)
(Example), (4) (b) 23.
h., and (5)
(a) 7.
are
amended to read:
Tax 14.03 (3) (a
)
Under
s.
71.52 (5)
, Stats., a deduction of
$250
$500
is allowed for each of the claimant's dependents, as defined in s. 152 of the
internal revenue code
Internal Revenue Code
, who have the same principal abode as the claimant for more than 6 months during the calendar year to which a claim for homestead credit relates. A claimant may multiply the number of dependents with the same principal abode for more than 6 months by
$250
$500
and subtract the result from the total of the income items to arrive at household income.
(a)
(Example
) A
claimant and the claimant's spouse claim 3 dependents on their
1997
2014
federal income tax return, and all 3 dependents have the same principal abode as the claimant for the entire year. Household income items include Wisconsin adjusted gross income of $10,500, depreciation of $1,500 and unemployment insurance of $500.
Tax 14.03
Note
Total
household income is
$11,750
$11,000
, consisting of the total of the income items listed, $12,500, minus the dependent deduction of
$750
$1,500
, which is
$250
times
$500
multiplied by
3 dependents.
(4) (
b
) 23.
h. Net
operating loss carryforwards
and carrybacks
.
(5) (
a
) 7.
Pension
The
nontaxable portions of pension
, annuity
,
or other retirement plan payments rolled over from one retirement plan to another.
SECTION 1
9
.
Initial applicability
. The
treatment of s.
Tax 1.15
first applies to minor violations committed after the effective date of this rule.
SE
CTION 20
.
Effective date
. This rule shall take effect on the first day of the month following publication in the Wisconsin Administrative Register as provided in s. 227.22 (2) (intro.), Stats.
