2.495 Apportionment of apportionable income

of interstate brokers-dealers, investment advisers, in- vestment companies, and underwriters. (1) SCOPE. A brokerage house, investment adviser, investment company, or un- derwriter that is engaged in business both in and outside this state shall apportion its apportionable income as provided in this sec- tion, except if the brokerage house, investment adviser, invest- ment company, or underwriter is in a combined group, its Wis- consin 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 under- writer 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 re- quired to use combined reporting. (2) DEFINITIONS. In this section: (a) XBilling addressY means the address indicated in the tax- payer[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 cus- tomer who is a natural person means the address of that person[s domicile. (b) XBrokerage commissionY includes, but is not limited to, all sales fees on agency or principal transactions whether charged explicitly or implicitly. (c) XBrokerage houseY means a firm or place where a broker- dealer conducts business. (d) XBroker-dealerY 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 per- son[s own account. XBroker-dealerY 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, ex- ecutor, 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 Xbroker-dealerY in s. 551.102 (4), Stats. (e) XCommercial domicileY means the location from which a trade or business is principally managed and directed. If the tax- payer is organized under the laws of a foreign country, the com- monwealth of Puerto Rico, or any territory or possession of the United States, Xcommercial domicileY 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. 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. WISCONSIN ADMINISTRATIVE CODE (em) XEngaged in business in and outside this stateY has the same meaning as in s. Tax 2.39 (2) (b). (f) XInvestment adviserY has the meaning given in 15 USC 80b-2 (a) (11). (g) XInvestment companyY has the meaning given in 15 USC 80a-3. (h) XPersonY means a natural person, estate, trust, partner- ship, limited liability company, corporation, or any other busi- ness entity. (i) XRegular place of businessY means an office at which the taxpayer carries on its business in a regular and systematic man- ner and which is regularly maintained, occupied, or used by em- ployees of the taxpayer. (j) XSales agentY means any individual other than a broker- dealer who represents a broker-dealer or issuer in effecting or at- tempting to effect transactions in securities. A sales agent in- cludes a partner, officer, or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions. (k) XStateY 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) XTaxpayerY means a broker-dealer, investment adviser, in- vestment company, or underwriter who is subject to apportion- ment under this section. (m) XTrading assetsY include securities, commodities, and re- lated financial instruments that a taxpayer acquires and holds for sale in its inventory account. (n) XUnderwriterY 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, invest- ment 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 sec- tion. The broker-dealer, investment adviser, investment company, or underwriter shall first deduct from its total net income its non- apportionable 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 appor- tioned 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 prop- erty 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 appor- tioned 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 prop- erty 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 tax- payer has no property, or in which the department determines that property is not a substantial income producing factor, the depart- ment 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, ap- portionable income shall be apportioned using an apportionment fraction composed of the receipts factor under sub. (4). Note: Brokers-dealers, investment advisers, investment companies, and under- writers that are in combined groups use the receipts factor numerator and denomina- tor to compute the modified sales factor, which then determines the company[s Wis- consin 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 ev- erywhere during the taxable year. Interest, dividends, gross re- ceipts 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 de- nominator as described in s. Tax 2.61 (7). (a) Gross brokerage commissions. The numerator of the re- ceipts 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 fac- tor includes total margin interest earned on behalf of brokerage accounts owned by customers if the billing address of the cus- tomer is in this state. (c) Gross account maintenance fees. The numerator of the re- ceipts factor includes account maintenance fees received on be- half of brokerage accounts owned by customers if the billing ad- dress 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 in- cludes gross receipts, net of commissions, from sales of trading assets, if the day-to-day decisions regarding the trading assets oc- cur at a location in this state. If the day-to-day decisions regard- ing 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 poli- cies and guidelines are established is at the taxpayer[s commer- cial domicile. 1m. Except as provided in subd. 2., at the election of the tax- payer, 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 subdi- vision cannot be revoked without prior consent from the depart- ment. 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 dis- tortion 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 us- ing the average of the receipts factors determined by using (a) gross receipts, net of commissions, and (b) net gain, net of com- missions, 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 subsec- tion using that averaging method. The department cannot require any taxpayer who elected before January 1, 2023, to use the cus- tomer billing address method, if the taxpayer has not revoked that 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. election, to use any other method of determining its receipts fac- tor under this section. (e) Investment company receipts. The numerator of the re- ceipts 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. XInvestment con- tractY includes any bonds, shares, coupons, certificates of mem- bership, 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 is- suer 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 busi- ness, the issuer of the securities maintains a regular place of busi- ness 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 perfor- mance 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 re- late 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 ju- risdiction 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 af- ter January 1, 2009. (5) PAYROLL FACTOR. The payroll factor is the ratio of the to- tal compensation paid to employees located in this state to the to- tal compensation paid to employees located everywhere, deter- mined in accordance with the provisions of ss. 71.04 (6) and 71.25 (8), Stats., and s. Tax 2.39 (5). XCompensation paid to em- ployeesY includes deductible management or service fees paid to a related entity directly or indirectly for the performance of per- sonal services, and the situs of the fees is in this state if the ser- vices 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). Note: The provisions of s. Tax 2.495 first apply for taxable years beginning on January 1, 2006. History: CR 04-031: cr. Register June 2006 No. 606, eff. 7-1-06; corrections in (1), (2) (d) and (3) (intro.) made under s. 13.92 (4) (b) 7., Stats., Register April 2010 No. 652; EmR0943: eff. 12-31-09 and CR 10-001: am. (1), (3) (intro.), (4) (intro.) and (h), cr. (2) (em) and (3) (d), r. (3) (c), renum. (3) (d) to be (3) (c) Register June 2010 No. 654, eff. 7-1-10; CR 14-077: am. (4) (d) 1., cr. (4) (d) 1m. Register May 2015 No. 713, eff. 6-1-15; 2023 Wis. Act 19: am. (4) (d) 1., cr. (4) (d) 3. Register July 2023 No. 811, eff. 7-7-23.