Wisconsin — Corporate Income / Franchise Tax

Wisconsin imposes both a franchise tax and a corporate income tax on corporations. The franchise tax applies to every domestic or foreign corporation doing business in Wisconsin in a corporate capacity or exercising its franchise within the state, except for corporations specifically exempted under Wis. Stat. § 71.26(1). The tax is measured by the corporation's entire Wisconsin net income of the preceding taxable year and is computed at a rate of 7.9 percent.

Every corporation organized under Wisconsin law is deemed to be residing within Wisconsin for purposes of the franchise tax. The corporate income tax applies only to corporations not subject to the franchise tax that own property in Wisconsin, derive income from sources within the state, or conduct business consisting exclusively of foreign or interstate commerce.

Source: Wis. Stat. § 71.23(2); Wis. Stat. § 71.27(2)

Wisconsin corporate franchise and income tax returns are due on the date the corporation is required to file for federal income tax purposes, not including any federal extension. For calendar-year C corporations, this is generally the 15th day of the 4th month following year end. Wisconsin grants an automatic extension of 7 months or until the original federal due date, whichever is later. If the IRS grants a federal extension, Wisconsin filing time extends to 30 days after the federal due date if the corporation reports the extension as specified by the Department of Revenue.

Source: Wis. Stat. § 71.24(1)

Wisconsin applies a flat 7.9 percent rate to both the corporate income tax and the franchise tax. The corporate income tax is computed at 7.9 percent of Wisconsin net income. The franchise tax, which is imposed under Wis. Stat. § 71.23(2) and measured by Wisconsin net income, is also computed at 7.9 percent.

Source: Wis. Stat. § 71.27(1) and (2)

For tax years beginning after December 31, 2007, Wisconsin apportions the net income of multistate corporations using a single-sales-factor formula. The apportionment fraction is composed solely of the sales factor under Wis. Stat. § 71.25(9). Certain industries—air carriers, financial organizations, telecommunications companies, pipeline companies, public utilities, railroads, and car line companies—apportion income under Department of Revenue rules rather than the standard formula.

Source: Wis. Stat. § 71.25(6)(d)(b))

Wisconsin imposes franchise or income tax filing obligations on foreign corporations (those not organized under Wisconsin law) that are "doing business in this state." The statutory definition of "doing business" includes a broad range of activities, subject to federal constitutional limitations under Public Law 86-272.

Statutory nexus-creating activities

Under Wis. Stat. § 71.22(1r), "doing business in this state" includes, except where prohibited by P.L. 86-272:

• Issuing credit, debit, or travel and entertainment cards to Wisconsin customers
• Regularly selling products or services to customers in Wisconsin that receive the product or service in the state
• Regularly soliciting business from potential customers in Wisconsin
• Regularly performing services outside Wisconsin for which the benefits are received in Wisconsin
• Regularly engaging in transactions with Wisconsin customers that involve intangible property and result in receipts flowing from Wisconsin
• Holding loans secured by real or tangible personal property located in Wisconsin
• Owning, directly or indirectly, a partnership interest (general or limited) in a partnership doing business in Wisconsin, regardless of percentage of ownership
• Owning, directly or indirectly, an interest in an LLC doing business in Wisconsin, regardless of percentage of ownership, if the LLC is treated as a partnership for federal tax purposes

The 15-day rule

Wisconsin applies a specific numerical threshold to determine when activity is "regular" for nexus purposes. Under Wis. Admin. Code Tax 2.82(2)(bm), "regular" and "regularly" mean 15 or more days of activity. Fifteen days of activity means one person for 15 days, or 15 persons for one day, or any combination of persons and days that results in at least 15 person-days of activity. Days of activity include any day, or portion thereof, upon which business activity took place; travel days, holidays, and weekends do not count unless business activities were conducted on those days.

For example, if a foreign corporation sends five employees to Wisconsin for three days each to conduct a training seminar, the corporation has nexus because its employees conducted activity in Wisconsin for 15 person-days (5 × 3 = 15).

Additional regulatory nexus triggers

Wis. Admin. Code Tax 2.82(4)(a) enumerates specific activities that create nexus for unlicensed foreign corporations, including:

• Maintaining a business location in Wisconsin, such as an office, warehouse, repair shop, parts department, purchasing office, employment office, sales office, permanent sample or display room, or research facility
• Ownership of tangible personal property in Wisconsin, including inventory held by a distributor, consignee, or other non-employee representative (excluding personal property for use in an employee's or representative's home, residential office, or automobile that is solely limited to conducting activities protected by P.L. 86-272)
• Regular activity by employees or representatives soliciting orders with authority to approve them
• Operation of mobile stores in Wisconsin, such as trucks with driver-salespersons, regardless of frequency
• Regular delivery of goods into Wisconsin by vehicles owned or leased by the foreign corporation
• Licensing of intangible rights for use in Wisconsin
• Engaging in substantial activities that help to establish and maintain a market in Wisconsin

Domestic corporations and licensed foreign corporations

Every domestic corporation (one organized under Wisconsin law) and every licensed foreign corporation must file a Wisconsin corporate franchise or income tax return, regardless of whether business was transacted, unless exempt under Wis. Stat. § 71.26(1) or § 71.45(1).

Combined-group attribution nexus

For a combined group that has made the controlled group election under Wis. Stat. § 71.255(2m), the entire commonly controlled group's business is deemed to be a single unitary business. If at least one member of the combined group has nexus in Wisconsin, all members of the combined group have nexus in Wisconsin under Wis. Admin. Code Tax 2.82(5).

Source: Wis. Stat. § 71.22(1r); Wis. Admin. Code Tax 2.82(2)(bm); Wis. Admin. Code Tax 2.82(4)(a); Wis. Admin. Code Tax 2.82(5)

Wisconsin applies distinct sourcing rules depending on whether the corporation is selling tangible personal property, services, computer software, or intangible property. Because Wisconsin uses single-sales-factor apportionment for tax years beginning after December 31, 2007, correctly sourcing sales to the Wisconsin numerator is the sole determinant of the apportionment percentage for most corporations.

Tangible personal property — destination sourcing with throwback

Sales of tangible personal property are sourced to Wisconsin under Wis. Stat. § 71.25(9)(b) if any of the following occur:

1. Destination sourcing (non-federal purchasers): The property is delivered or shipped to a purchaser, other than the federal government, within Wisconsin regardless of the f.o.b. point or other conditions of the sale.

1. Federal government sales (in-state delivery): The property is shipped from an office, store, warehouse, factory, or other place of storage in Wisconsin and delivered to the federal government within Wisconsin regardless of the f.o.b. point or other conditions of sale.

1. Federal government sales (throwback rule): The property is shipped from a Wisconsin office, store, warehouse, factory, or other place of storage and delivered to the federal government outside Wisconsin, and the taxpayer is not within the jurisdiction, for income or franchise tax purposes, of the destination state.

1. Non-federal sales (throwback rule): The property is shipped from a Wisconsin office, store, warehouse, factory, or other place of storage to a purchaser other than the federal government, and the taxpayer is not within the jurisdiction, for income or franchise tax purposes, of the destination state.

Under Wis. Stat. § 71.25(9)(c), a "nowhere income" rule applies: sales of tangible personal property sold by a Wisconsin office to a purchaser in another state, where the property is not shipped or delivered from Wisconsin, are sourced to Wisconsin if the taxpayer is not taxable in either the state from which the property is shipped or the destination state. This rule captures sales managed by a Wisconsin office even when fulfillment occurs from an out-of-state location where the taxpayer has no tax presence.

Services — market-based sourcing (effective for tax years beginning after December 31, 2005)

Gross receipts from services are sourced to Wisconsin under Wis. Stat. § 71.25(9)(dh) if the purchaser of the service received the benefit of the service in Wisconsin. This market-based sourcing rule replaced the prior cost-of-performance method. The benefit of a service is received in Wisconsin if any of the following applies:

• The service relates to real property located in Wisconsin.
• The service relates to tangible personal property located in Wisconsin at the time the service is received or tangible personal property delivered to customers in Wisconsin.
• The service is provided to an individual who is physically present in Wisconsin at the time the service is received.
• The service is provided to a person engaged in a trade or business in Wisconsin and relates to that person's business in Wisconsin.

If the purchaser receives the benefit of a service in more than one state, the gross receipts are assigned to Wisconsin based on the portion of the service received in Wisconsin.

Computer software

Gross receipts from the use of computer software are sourced to Wisconsin under Wis. Stat. § 71.25(9)(df) if the purchaser or licensee uses the computer software at a location in Wisconsin. Computer software is used at a location in Wisconsin if the purchaser or licensee uses the computer software in the regular course of business operations in Wisconsin, for personal use in Wisconsin, or if the purchaser or licensee is an individual whose domicile is in Wisconsin.

If the purchaser or licensee uses the computer software in more than one state, the gross receipts must be divided among those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the computer software in those states. To determine computer software use in Wisconsin, the Department of Revenue may consider the number of users in each state where the computer software is used, the number of site licenses or workstations in Wisconsin, and any other factors that reflect the use of computer software in Wisconsin.

Intangible property royalties and licenses

Gross royalties and other gross receipts received for the use or license of intangible property—including patents, copyrights, trademarks, trade names, service names, franchises, licenses, plans, specifications, blueprints, processes, techniques, formulas, designs, layouts, patterns, drawings, manuals, technical know-how, contracts, and customer lists—are sourced to Wisconsin under Wis. Stat. § 71.25(9)(dj) if the purchaser or licensee uses the intangible property in the operation of a trade or business at a location in Wisconsin.

If the purchaser or licensee uses the intangible property in the operation of a trade or business in more than one state, the gross royalties and other gross receipts from the use of the intangible property must be divided between those states having jurisdiction to impose an income tax on the taxpayer in proportion to the use of the intangible property in those states.

Broadcaster special rule (effective for tax years beginning after December 31, 2018): A broadcaster's gross royalties and other gross receipts received for the use or license of intangible property are sourced to Wisconsin only if (1) the commercial domicile of the purchaser or licensee is in Wisconsin and (2) the purchaser or licensee has a direct connection or relationship with the broadcaster pursuant to a contract under which the royalties or receipts are derived. This narrower rule applies only to broadcasters; it does not apply to other members of a combined group that are not themselves broadcasters.

Residual rule for other sales (cost-of-performance)

For sales not covered by the specific rules above, Wis. Stat. § 71.25(9)(d) provides that sales other than sales of tangible personal property are in Wisconsin if the income-producing activity is performed in Wisconsin. If the income-producing activity is performed both in and outside Wisconsin, the sales are divided between those states having jurisdiction to tax such business in proportion to the direct costs of performance incurred in each state in rendering the service. This cost-of-performance rule applies only when the market-based sourcing provisions in § 71.25(9)(df), (dh), and (dj) do not apply.

Source: Wis. Stat. § 71.25(9)(b); Wis. Stat. § 71.25(9)(c); Wis. Stat. § 71.25(9)(d); Wis. Stat. § 71.25(9)(df); Wis. Stat. § 71.25(9)(dh); Wis. Stat. § 71.25(9)(dj)