SB 503

This bill makes various changes to Wisconsin tax law related to individual and

corporate income and franchise taxes, sales and use taxes, and the administration

of tax laws.

Under current law, the Department of Revenue (DOR) may impose certain

penalties if a taxpayer fails to produce records and documents requested by DOR to

substantiate amounts or other information required to be shown on a tax return.

This bill provides that those penalties may not be imposed until after DOR has issued

a summons seeking the records and documents, and the taxpayer has failed to

comply with the summons.

Under current law, if a taxpayer engages in a transaction without economic

substance to create a loss, to reduce taxable income, or to increase credits allowed in

determining Wisconsin tax, DOR may disregard the transaction for purposes of

calculating the taxpayer's tax liability. This bill eliminates the factors under current

law that determine whether a transaction has economic substance and replaces

those factors with the factors set forth in federal law.

Under current law, a person may claim an income or franchise tax credit based

on the person's qualified production activities income derived from manufacturing

or agriculture in this state. Qualified production activities income includes certain

direct costs and indirect costs, which are defined to include ordinary and necessary

expenses paid or incurred in carrying on a trade or business that are deductible

under the Internal Revenue Code. This bill changes the definitions of direct costs

and indirect costs to also include a reasonable allowance for the exhaustion and wear

and tear (including a reasonable allowance for obsolescence) of property that is

deductible as depreciation under the Internal Revenue Code.

For income tax purposes, current law provides that any income of a nonresident

individual, estate, or trust may be taxed by the state in which the business, property,

or service from which the income is derived is located. This bill requires DOR to

promulgate rules establishing the criteria to be used in determining whether a

business, property, or service is located in this state for income and franchise tax

purposes. The bill also prohibits DOR from relying on any factors not set forth in the

rules when making the determination.

Under current law, DOR may tax the income of a taxpayer if the taxpayer is

subject to the jurisdiction of this state, and DOR only taxes so much of the taxpayer's

income that is allocated or apportioned to this state under a set of rules set forth in

current law. Current law also provides that, if certain income of a taxpayer is not

taxable by another state because the taxpayer is not subject to the jurisdiction of that

state, DOR may tax that income under the state's throwback law. This bill requires

DOR to promulgate rules establishing the criteria to be used in determining whether

a taxpayer is subject to the jurisdiction of this state or any other state for income and

franchise tax purposes. The bill also prohibits DOR from relying on any factors not