Current through February 26, 2024
(1) SCOPE. A
brokerage house, investment adviser, investment company, or underwriter that is
engaged in business both in and outside this state shall apportion its
apportionable income as provided in this section, except if the brokerage
house, investment adviser, investment company, or underwriter is in a combined
group, its Wisconsin share of the combined group's apportionable income is
computed as provided in s.
71.255(5),
Stats., and further detailed in s. Tax 2.61 (7). Nonapportionable income shall
be allocated as provided in s.
71.25(5) (b),
Stats.
Note: A brokerage house, investment adviser,
investment company, or underwriter that is a corporation may be in a combined
group for taxable years beginning on or after January 1, 2009. See s. Tax 2.61
(2) for a description of corporations required to use combined
reporting.
(2) DEFINITIONS.
In this section:
(a) "Billing address" means
the address indicated in the taxpayer's books and records on the first day of
the taxable year, or on a later date in the taxable year when the customer
relationship began, to which a taxpayer regularly sends any notice, statement
or bill to the taxpayer's customer. The billing address of a customer who is a
natural person means the address of that person's domicile.
(b) "Brokerage commission" includes, but is
not limited to, all sales fees on agency or principal transactions whether
charged explicitly or implicitly.
(c) "Brokerage house" means a firm or place
where a broker-dealer conducts business.
(d) "Broker-dealer" means a person engaged in
the business of effecting transactions in securities, commodities, and related
financial instruments for the account of another or for the person's own
account. "Broker-dealer" does not include a sales agent; an issuer with respect
to purchasing and selling the issuer's own securities; a bank, savings
institution, or trust company, when effecting transactions for its own account
or as an agent; a person in that person's capacity as a personal
representative, executor, administrator, holder of power of attorney, guardian,
trustee of a testamentary or inter vivos trust, conservator, or pledgee; or any
other person excluded from the definition of "broker-dealer" in s.
551.102(4),
Stats.
(e) "Commercial domicile"
means the location from which a trade or business is principally managed and
directed. If the taxpayer is organized under the laws of a foreign country, the
commonwealth of Puerto Rico, or any territory or possession of the United
States, "commercial domicile" shall be deemed for the purposes of this section
to be the state of the United States or the District of Columbia from which the
taxpayer's trade or business in the United States is principally managed and
directed. It shall be rebuttably presumed that the location from which a trade
or business is principally managed and directed is the state of the United
States or the District of Columbia at which the greatest number of the
taxpayer's employees work, have their office or base of operations, or are
directed or controlled, as of the last day of the taxable year.
(em) "Engaged in business in and outside this
state" has the same meaning as in s. Tax 2.39 (2) (b).
(f) "Investment adviser" has the meaning
given in 15 USC
80b-2(a) (11).
(g) "Investment company" has the meaning
given in 15 USC
80a-3.
(h) "Person" means a natural person, estate,
trust, partnership, limited liability company, corporation, or any other
business entity.
(i) "Regular place
of business" means an office at which the taxpayer carries on its business in a
regular and systematic manner and which is regularly maintained, occupied, or
used by employees of the taxpayer.
(j) "Sales agent" means any individual other
than a broker-dealer who represents a broker-dealer or issuer in effecting or
attempting to effect transactions in securities. A sales agent includes a
partner, officer, or director of a broker-dealer or issuer, or a person
occupying a similar status or performing similar functions.
(k) "State" means a state of the United
States, the District of Columbia, the commonwealth of Puerto Rico, or any
territory or possession of the United States.
(L) "Taxpayer" means a broker-dealer,
investment adviser, investment company, or underwriter who is subject to
apportionment under this section.
(m) "Trading assets" include securities,
commodities, and related financial instruments that a taxpayer acquires and
holds for sale in its inventory account.
(n) "Underwriter" includes all persons
described under 15 USC
77b(a) (11).
(3) APPORTIONMENT FORMULA
COMPUTATION. For taxable years beginning after December 31, 2005, a
broker-dealer, investment adviser, investment company, or underwriter that is
engaged in business in and outside this state shall determine its net income
for state franchise or income tax purposes as provided in this section. The
broker-dealer, investment adviser, investment company, or underwriter shall
first deduct from its total net income its nonapportionable income, less
related expenses. Nonapportionable income shall be allocated as provided in s.
71.25(5) (b),
Stats. The broker-dealer, investment adviser, investment company, or
underwriter shall apportion its remaining net income to this state as follows:
(a) For taxable years beginning after
December 31, 2005, and before January 1, 2007, apportionable income shall be
apportioned using an apportionment fraction composed of a receipts factor under
sub. (4) representing 60% of the fraction, a payroll factor under sub. (5)
representing 20% of the fraction, and a property factor under sub. (6)
representing 20% of the fraction.
(b) For taxable years beginning after
December 31, 2006, and before January 1, 2008, apportionable income shall be
apportioned using an apportionment fraction composed of a receipts factor under
sub. (4) representing 80% of the fraction, a payroll factor under sub. (5)
representing 10% of the fraction, and a property factor under sub. (6)
representing 10% of the fraction.
(c) In any case in which the taxpayer has no
employees nor pays management or service fees to a related entity, or in which
the department determines that employees are not a substantial income producing
factor, the department may order or permit the elimination of the payroll
factor. In any case in which the taxpayer has no property, or in which the
department determines that property is not a substantial income producing
factor, the department may order or permit the elimination of the property
factor. This subsection does not apply to taxable years beginning after
December 31, 2007.
(d) For taxable
years beginning after December 31, 2007, apportionable income shall be
apportioned using an apportionment fraction composed of the receipts factor
under sub. (4).
Note: Brokers-dealers, investment advisers,
investment companies, and underwriters that are in combined groups use the
receipts factor numerator and denominator to compute the modified sales factor,
which then determines the company's Wisconsin share of the combined group's
apportionable income. See s.
71.255(5),
Stats., and s. Tax 2.61 (7) for details.
(4) RECEIPTS FACTOR. The receipts factor is
the ratio of the taxpayer's receipts in this state to the taxpayer's total
receipts everywhere during the taxable year. Interest, dividends, gross
receipts or net gains from sales of securities, and other income from
investment assets held by a taxpayer in the taxpayer's investment account may
not be included in the receipts factor. The receipts factor shall include the
items described in pars. (a) to (h).
Note: A broker-dealer, investment adviser,
investment company, or underwriter that is a combined group member must adjust
its receipts factor numerator and denominator as described in s. Tax 2.61
(7).
(a)
Gross brokerage
commissions. The numerator of the receipts factor includes gross
brokerage commissions earned if the billing address of the customer is in this
state.
(b)
Gross margin
interest. The numerator of the receipts factor includes total margin
interest earned on behalf of brokerage accounts owned by customers if the
billing address of the customer is in this state.
(c)
Gross account maintenance
fees. The numerator of the receipts factor includes account
maintenance fees received on behalf of brokerage accounts owned by customers if
the billing address of the customer is in this state.
(d)
Gross receipts from trading
assets.
1. Except as provided in
subds. 1m., 2., and 3., the numerator of the receipts factor includes gross
receipts, net of commissions, from sales of trading assets, if the day-to-day
decisions regarding the trading assets occur at a location in this state. If
the day-to-day decisions regarding the trading assets occur at locations both
in and outside this state, the assets shall be considered to be located at the
location where the trading policies and guidelines are established. It shall be
rebuttably presumed that the location where the trading policies and guidelines
are established is at the taxpayer's commercial domicile.
1m. Except as provided in subd. 2., at the
election of the taxpayer, for taxable years beginning after December 31, 2014,
the numerator of the receipts factor includes gross receipts, net of
commissions, from sales of trading assets if the customer's billing address is
in this state. Once made, an election under this subdivision cannot be revoked
without prior consent from the department. If a request to change an election
has been approved by the department, the change becomes effective with the
first taxable year ending on or after approval by the department.
2. If the inclusion of gross receipts results
in substantial distortion of the receipts factor, the department may order or
permit the substitution of net gain, net of commissions, from sales of trading
assets.
3. Subdivision 2. does not
apply to any taxpayer who, before January 1, 2023, elected to use the customer
billing address method defined in subd. 1m. if the taxpayer has not revoked
that election, and who, for any taxable year beginning after December 31, 2021,
determines its receipts factor under this section by using the average of the
receipts factors determined by using (a) gross receipts, net of commissions,
and (b) net gain, net of commissions, from sales of trading assets for the
taxable year, with all other components of the receipts factor remaining the
same. Any such taxpayer may compute its receipts factor under this subsection
using that averaging method. The department cannot require any taxpayer who
elected before January 1, 2023, to use the customer billing address method, if
the taxpayer has not revoked that election, to use any other method of
determining its receipts factor under this section.
(e)
Investment company
receipts. The numerator of the receipts factor includes gross payments
received on investment contracts issued by the taxpayer and held by customers
if the billing address of the customer is in this state. "Investment contract"
includes any bonds, shares, coupons, certificates of membership, or other
obligations or agreements issued by the taxpayer to return to the holders or
owners money or anything of value at some future date.
(f)
Gross receipts from underwriting
services. The numerator of the receipts factor includes gross
receipts, including gross commissions, gross management fees, or gross
underwriting fees, earned in performing underwriting activities on behalf of
the issuer of the securities if either of the following applies:
1. The issuer of the securities is not
engaged in a trade or business, and the issuer's billing address is in this
state.
2. The issuer of the
securities is engaged in a trade or business, the issuer of the securities
maintains a regular place of business in this state, and the securities relate
to that person's business in this state. If the securities relate to that
person's regular place of business in more than one state, the receipts from
the performance of the service are included in the numerator of the receipts
factor according to the portion of the service received in this state. If the
regular place of business to which the securities relate cannot be determined,
the service is received in this state if the issuer of the securities, in the
regular course of the issuer's business, ordered the service from an office in
this state. If the ordering office cannot be determined, the service is
received in this state if the issuer's billing address is in this
state.
(g)
Other
gross receipts or net gains. The numerator of the receipts factor
includes any other gross receipts or net gains as provided in s. Tax 2.49
(4).
(h)
Receipts not
taxed. For taxable years beginning before January 1, 2009, fifty
percent of the taxpayer's receipts that are apportioned under this section to a
state which does not have jurisdiction to impose an income tax or franchise tax
measured by net income on the taxpayer shall be included in the numerator of
the apportionment fraction if the taxpayer's commercial domicile is in this
state. With regard to receipts described in pars. (a) to (f), this paragraph
does not apply to taxable years beginning on or after January 1, 2009.
(5) PAYROLL FACTOR. The
payroll factor is the ratio of the total compensation paid to employees located
in this state to the total compensation paid to employees located everywhere,
determined in accordance with the provisions of ss.
71.04(6) and
71.25(8),
Stats., and s. Tax 2.39 (5). "Compensation paid to employees" includes
deductible management or service fees paid to a related entity directly or
indirectly for the performance of personal services, and the situs of the fees
is in this state if the services are performed in this state. The recipient of
the fees may not include the compensation paid to its employees with respect to
the personal services in either the numerator or denominator of its payroll
factor.
(6) PROPERTY FACTOR. The
property factor is determined in accordance with the provisions of ss.
71.04(5) and
71.25(7),
Stats., and s. Tax 2.39 (4).
The provisions of s. Tax 2.495 first apply for taxable years
beginning on January 1, 2006.
