2.48 Apportionment of apportionable income

of interstate pipeline companies. (1) GENERAL. With re- spect to the imposition of Wisconsin franchise or income tax measured by or on net income, the apportionable income of a pipeline company engaged in business in and outside this state shall be apportioned to Wisconsin on the basis of the arithmetical average of the 3 factors in subs. (3), (4) and (5), except if the pipe- line company 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). Note: A pipeline company 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 de- scription of corporations required to use combined reporting. (2) DEFINITIONS. In this section: (a) XCompensationY includes: 1. Wages, salaries, commissions and any other form of remu- neration paid to employees for personal services. 2. The value of board, rent, housing, lodging and other bene- fits or services furnished to employees by the taxpayer in return for personal services, provided that these amounts constitute in- come to the recipient under the federal Internal Revenue Code for the year for which the payroll factor is computed. In the case of employees not subject to the federal Internal Revenue Code, such as citizens of foreign countries employed in foreign countries, the determination of whether the benefits or services constitute in- come to the employees shall be made as though the employees are subject to the federal Internal Revenue Code. 3. Deductible management or service fees paid, or manage- ment or service fees allocated by the department under s. 71.10 (1), 71.30 (2) or 71.80 (1) (b), Stats., to a related corporation, as defined in section 267 (f) (1) of the Internal Revenue Code, as consideration for the performance of personal services. The re- cipient of these fees may not include the compensation paid to its employees with respect to the personal services in either the nu- merator or denominator of its payroll factor. (am) XEngaged in business in and outside this stateY has the same meaning as in s. Tax 2.39 (2) (b). (b) XTraffic unitY means the transportation for a distance of one mile of one barrel of oil, one gallon of gasoline or one thou- sand cubic feet of natural or casinghead gas, or other appropriate measure of product. (3) PROPERTY FACTOR. (a) Numerator; denominator. The numerator of the property factor shall include the average value of the real and tangible personal property owned and used by the taxpayer in Wisconsin in the production of apportionable income during the tax period. The denominator shall include average value of all of the real and tangible personal property located ev- erywhere owned and used by the taxpayer in the production of apportionable income during the tax period. Property in transit on the date or dates for determining its average value, as de- scribed in par. (e), shall be considered to be at its destination, for purposes of computing the property factor. The value of mobile or movable property such as construction equipment, trucks or airplanes which is located within and without Wisconsin during the tax period shall be determined for purposes of the numerator of the factor on the basis of a ratio of time used, serviced or stored within Wisconsin to total time used, serviced or stored during the tax period. However, an automobile assigned to a traveling em- ployee shall be included in the numerator of the factor if the em- ployee[s compensation is assigned to Wisconsin under the payroll factor. (b) Valuation. Property owned by the taxpayer is generally valued at its cost net of depreciation and write-offs as determined for Wisconsin franchise or income tax purposes. Any adjust- ments to net income which affect property, such as capitaliza- tions of repairs, depreciation or amortization adjustments and ad- justments to inventory, shall also be included in the property fac- tor. The value of depletable property, such as mines, oil and gas wells and timber, shall be original cost reduced by any extraction to the extent that depletion has been allowed. Inventories shall be included in the factor in accordance with the valuation method used for Wisconsin franchise or income tax purposes. In any case in which the property factor is distorted by reason of the tax- payer depreciating property in Wisconsin by a method different from that used to depreciate property outside Wisconsin, or in any case in which the Wisconsin net cost cannot be ascertained, the department shall authorize or direct some other method of de- termining the property fraction that will produce an equitable result. (c) Leasehold improvements. Leasehold improvements shall, for purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. The original cost of leasehold improvements net of amortization shall be included in the factor. (d) Construction in progress. Property or equipment under construction during the tax period, except inventoriable goods in process, shall be excluded from the factor until the property is ac- tually used by the taxpayer in the regular course of its trade or Published under s. 35.93, Stats. Updated on the first day of each month. Entire code is always current. The Register date on each page is the date the chapter was last published. business. If the property is partially used by the taxpayer in the regular course of its trade or business while under construction, the value of the property to the extent used shall be included in the property factor. (e) Averaging property values. As a general rule the Xaverage valueY of property shall be determined by averaging the value at the beginning and ending of the tax period, but the department may require or the taxpayer may utilize the averaging of monthly values during the tax period if monthly averaging is reasonably required to properly reflect the average value of the taxpayer[s property. Averaging by monthly values will generally be applied if substantial fluctuations in the values of the property exist dur- ing the tax period, or where property is acquired after the begin- ning of the tax period or disposed of before the end of the tax period. (4) PAYROLL FACTOR. (a) Numerator; denominator. The nu- merator of the payroll factor shall include the total amount paid in Wisconsin during the tax period by the taxpayer for compensa- tion in the production of apportionable income. The denomina- tor shall include the total compensation paid everywhere during the tax period by the taxpayer in the production of apportionable income. (b) Compensation paid in Wisconsin. Except as provided in par. (c), compensation is paid in Wisconsin if one of the follow- ing applies: 1. The individual[s service is performed entirely within Wisconsin. Example: Corporation A has a terminal located in Wisconsin. The compensa- tion of an Illinois resident who works at the Wisconsin terminal is included in the numerator of the payroll factor since the employee[s service is performed entirely in Wisconsin. 2. The individual[s service is performed within and without Wisconsin, but the service performed without Wisconsin is inci- dental to the individual[s service within Wisconsin. Example: Corporation B has its headquarters and a storage and distribution fa- cility in Wisconsin. Corporation B also has a distribution facility located in Indiana. The manager of the Wisconsin storage and distribution facility spends two weeks during the tax year at the storage and distribution facility located in Indiana training the new facility manager. The compensation of the Wisconsin facility manager is included in the numerator of the payroll factor because the service performed in In- diana is incidental to the service performed in Wisconsin 3. A portion of the service is performed within Wisconsin and the base of operations of the individual is in Wisconsin. Example: Corporation C has a sales office located in Wisconsin. A salesperson working out of the Wisconsin office solicits sales in Wisconsin, Minnesota and Iowa. Since a portion of the salesperson[s service is performed in Wisconsin and the salesperson[s base of operations is in Wisconsin, the compensation of the salesper- son is included in the numerator of the payroll factor. 4. A portion of the service is performed within Wisconsin and, if there is no base of operations, the place from which the in- dividual[s service is directed or controlled is in Wisconsin. Example: Corporation D has its regional sales office in Wisconsin. An Iowa resident works out of her home as a salesperson for Corporation D and solicits sales in Iowa, Illinois and Wisconsin. The salesperson is directed from the regional sales office located in Wisconsin. The compensation of the Iowa salesperson is included in the numerator of the payroll factor since a portion of her service is performed in Wisconsin, she has no base of operations and she is directed from Wisconsin. 5. A portion of the service is performed within Wisconsin and neither the base of operations of the individual nor the place from which the service is directed or controlled is in any state in which some part of the service is performed, but the individual[s residence is in Wisconsin. Example: Corporation E is headquartered in and has its sales office in Indiana. It has a terminal located in Wisconsin. A Wisconsin resident salesperson solicits sales in Wisconsin and Minnesota. The compensation of the Wisconsin salesperson is included in the numerator of the payroll factor since a portion of the salesperson[s service is performed in Wisconsin, the salesperson is a resident of Wisconsin, and the salesperson is directed or controlled from Indiana but performs no service in Indiana. 6. The individual is neither a resident of nor performs ser- vices in Wisconsin, but is directed or controlled from an office in Wisconsin and returns to Wisconsin periodically for business purposes and the state in which the individual resides does not have jurisdiction to impose income or franchise taxes on the employer. Example: Corporation F has its sales office in Wisconsin. A salesperson resides in Nebraska and solicits sales in Nebraska and Kansas. Corporation F does not have nexus in Nebraska or Kansas. The salesperson returns to the Wisconsin sales office for two weeks each year for meetings and training. The compensation of the Ne- braska salesperson is included in the numerator of the payroll factor since the sales- person is directed from an office in Wisconsin, returns to Wisconsin periodically for business purposes and Corporation F does not have nexus in Nebraska. (c) Management fee situs. The situs of management or ser- vice fees described in sub. (2) (a) 3. is in Wisconsin to the extent the related corporation[s employees performing the services meet one of the requirements in par. (b). (d) Services. An individual shall be considered to be perform- ing a service in Wisconsin during the year if the individual per- forms services for at least 5 days during the year. The compensa- tion of any one employee may not be split between 2 or more states during the year; however, this does not apply if the em- ployee is transferred or changes positions during the year. (e) Excluded compensation. Compensation related to the op- eration, maintenance, protection or supervision of real or tangible and intangible personal property used in the production of non- apportionable income, and amounts paid to retired employees shall be excluded from both the numerator and the denominator of the payroll factor. Except for management or service fees paid to a related corporation, payments made to an independent con- tractor or any other person not properly classifiable as an em- ployee are also excluded. (f) Elimination of factor. In any case in which the company has no employees nor pays management or service fees to a re- lated corporation, or in which the department determines that employees are not a substantial income producing factor, the de- partment may order or permit the elimination of the payroll factor and the use of the arithmetical average of the other 2 factors to ar- rive at the Wisconsin apportionment percentage. (5) TRAFFIC UNIT FACTOR. The numerator shall be the total number of traffic units in Wisconsin during the tax period. The denominator shall be the total number of traffic units everywhere during the tax period. Note: Pipeline companies that are in combined groups must adjust the numerator and denominator of each of these factors and then convert the arithmetical average of these factors to the modified sales factor. The modified sales factor then deter- mines the company[s Wisconsin share of the combined group[s apportionable in- come. See s. 71.255 (5), Stats., and s. Tax 2.61 (7) for details. Note: Section Tax 2.48 interprets s. 71.25 (10) (c), Stats. History: Cr. Register, November, 1969, No. 167, eff. 12-1-69; am. (intro.), Reg- ister, August, 1973, No. 212, eff. 9-1-73; am. (1) (intro.), r. (1) (a), (b) and (c), r. and recr. (2), cr. (3), (4) and (5), Register, June, 1991, No. 426, eff. 7-1-91; reprinted to restore dropped copy in (3) (e), Register, March, 1999, No. 519; EmR0943: eff. 12- 31-09 and CR 10-001: am. (title) and (1), cr. (2) (am) Register June 2010 No. 654, eff. 7-1-10.