2.62 Unitary business. (1) SCOPE. Section 71.255

(2) (a), Stats., provides that a corporation engaged in a unitary business with one or more other corporations in the same com- monly controlled group is generally required to determine its share of income from that unitary business using a combined re- port. Section 71.255 (1) (n), Stats., defines Xunitary business.Y The purpose of this section is to provide further interpretation of the meaning of Xunitary business.Y (2) GENERAL. A unitary business is a single, commonly con- trolled economic enterprise for which the components of the en- terprise are sufficiently interdependent, integrated, and interre- lated through their activities to such a degree that if the enterprise is doing business both within and outside a state, the state is per- mitted under the U. S. Constitution to tax a fairly apportioned share of the total net income of the enterprise. (a) Commonly controlled. A unitary business may consist of a single entity or a group of two or more related entities, includ- ing corporations, tax-option corporations, partnerships, limited liability companies, sole proprietorships, estates, and trusts. A group of related entities may satisfy the commonly controlled re- quirement of a unitary business if they are related in any of the following ways: 1. The entities are related under the provisions of section 267 of the Internal Revenue Code which disallow losses on sales be- tween related persons. By reference, this includes the rules in section 707(b) of the Internal Revenue Code, relating to partnerships. 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 2. The entities are related under section 1563 of the Internal Revenue Code, which defines a Xcontrolled group of corpora- tionsY for federal income tax purposes. 3. The entities are corporations in the same Xcommonly con- trolled groupY for Wisconsin purposes. XCommonly controlled groupY has the meaning given in s. 71.255 (1) (c), Stats., as fur- ther interpreted by s. Tax 2.61 (3). (b) Components of enterprise. The components of a com- monly controlled economic enterprise may consist either of divi- sions of a single entity or of multiple entities, or both. For pur- poses of this section, the term XparticipantsY is used to describe these components of an economic enterprise. (c) Sufficiently interdependent, integrated, and interrelated. 1. In general, the participants in a commonly controlled eco- nomic enterprise are considered a unitary business if their activi- ties generate a synergy and mutual benefit that produces a shar- ing or exchange of value among them and a significant flow of value to the separate parts. Subsection (3) presents indicators that sharing or exchange and flow of value are present. 2. The participants in a commonly controlled economic en- terprise may also be considered a unitary business if there is unity of operation and use, as further explained in sub. (4). 3. Under s. 71.255 (1) (n), Stats., the definition of Xunitary businessY shall be construed to the broadest extent permitted by the U.S. Constitution. Thus, case law provides additional guid- ance to determine whether a unitary business exists. Subsection (5) presents factors that have been considered by the U.S. Supreme Court to be determinative of a unitary business. (d) Fairly apportioned. If a unitary business has nexus in Wisconsin and is doing business both within and outside Wiscon- sin, an apportioned share of the unitary business[s net income is taxable by Wisconsin under the rules of this paragraph. If a uni- tary business is doing business only in Wisconsin, no apportion- ment applies and all of the unitary business[s income is taxable by Wisconsin unless specifically exempt. The following rules ap- ply to the apportionment of income of a unitary business: 1. For any participant in the unitary business that is not a member of a commonly controlled group of corporations as pro- vided in s. Tax 2.61 (3), the participant[s income from the unitary business is generally apportioned in the manner provided by ss. Tax 2.39, 2.45, 2.46, 2.465, 2.47, 2.475, 2.48, 2.49, 2.495, 2.50, or 2.502, as applicable. However, the participant may be required to apportion its income under the combined reporting rules pro- vided in s. Tax 2.61 if certain conditions apply, as further ex- plained in s. Tax 2.61 (2) (f). 2. For any participant in the unitary business that is a mem- ber of a commonly controlled group of corporations as provided in s. Tax 2.61 (3), the participant[s income from the unitary busi- ness shall be apportioned under the combined reporting rules provided in s. Tax 2.61. 3. A corporation that is engaged in the unitary business may have both apportionable income and nonapportionable income, as provided in s. 71.25 (5), Stats. (e) Members of unitary business that are not in combined group. It is possible that one or more members of a unitary busi- ness may not be members of a combined group. Members of a unitary business that may not be members of a combined group include the following: 1. Individuals or entities that are considered Xpass-through entitiesY for purposes of combined reporting under s. 71.255 (1) (m), Stats. This includes partnerships, limited liability compa- nies treated as partnerships, tax-option corporations, estates, trusts, real estate investment trusts, regulated investment compa- nies, real estate mortgage investment conduits, and financial asset securitization investment trusts. 2. Corporations whose net income and apportionment fac- tors are not subject to combination under the water[s edge rules of s. Tax 2.61 (4). 3. Corporations that are related under the rules of sections 267 or 1563 of the Internal Revenue Code but are not in a Xcom- monly controlled groupY as provided under s. Tax 2.61 (3). (f) Members of combined group that are not in unitary busi- ness. A combined group may include corporations that are not engaged in a unitary business if the combined group[s designated agent has properly made the controlled group election as pro- vided in s. Tax 2.63. (3) SHARING, EXCHANGE, AND FLOW OF VALUE. (a) General. Participants in a commonly controlled economic enterprise have sharing or exchange of value among them and a significant flow of value to the separate parts, and thus are a unitary business, if any of the following are true: 1. The participants in the enterprise contribute or are ex- pected to contribute in a nontrivial way to each other[s profitability. 2. Each participant in the enterprise is either dependent on, or is depended upon by, one or more other participants in the en- terprise for achieving one or more nontrivial business objectives. 3. The economic enterprise offers one or more participants some economies of scale or economies of scope that benefit the enterprise. 4. The prices charged on transactions between participants in the enterprise are inconsistent with the arms-length principle. However, if these prices are consistent with the arms-length prin- ciple, that fact does not negate in any way the existence of a uni- tary business (Exxon Corp. v. Dept. of Revenue of Wisconsin, 447 U.S. 207, 100 S. Ct. 2109 (1980)). (b) Examples of flow of value. Activities between participants that constitute a flow of value between them include any of the following: 1. Assisting in acquisition of assets. 2. Assisting with filling personnel needs. 3. Lending funds, guaranteeing loans, or pledging assets. 4. Interplay in the area of corporate expansion, including but not limited to common future planning or development of the enterprise. 5. Providing technical assistance, general operational guid- ance, or overall operational strategic advice. 6. Supervising. 7. Sharing use of trade names, patents, or other intellectual property. (4) UNITY OF OPERATION AND USE. This subsection explains when participants in a commonly controlled economic enterprise are considered a unitary business because they have unity of op- eration and use. (a) General. If the participants in a commonly controlled economic enterprise have both unity of operation and unity of use, they shall be considered engaged in a unitary business. (b) Unity of operation. Unity of operation means there is functional integration among the participants, and is evidenced generally by shared support functions. Activities that indicate unity of operation include: 1. Centralized purchasing, marketing, advertising, account- ing, or research and development. 2. Intercorporate sales or leases, including equipment and real estate. 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. 3. Intercorporate services, including administrative, data management, computer support, employee benefits, human re- sources, insurance, tax compliance, legal, financial, and cash management services. 4. Intercorporate debts. 5. Intercorporate use of proprietary materials, including trade names, trademarks, service marks, patents, copyrights, and trade secrets. (c) Unity of use. Unity of use is evidenced generally by cen- tralized management or use of centralized policies. Factors that indicate unity of use include: 1. Centralized executive force. 2. Interlocking directorates or corporate officers. 3. Intercompany employee transfers. 4. Common employee and executive training programs. 5. Common hiring and personnel policies. 6. Common recruiting programs. 7. Common employee handbooks. 8. Common employee benefit programs. (5) FACTORS CONSIDERED BY U.S. SUPREME COURT. Since, as provided in s. 71.255 (1) (n), Stats., the definition of Xunitary businessY shall be construed to the broadest extent permitted by the U.S. Constitution, case law provides further guidance to de- termine whether a unitary business exists. Subsections (3) and (4) are reflective of that case law. Factors that have been consid- ered by the U.S. Supreme Court to be determinative of a unitary business include: (a) Unity of use and management (Butler Bros. v. McColgan, 315 U.S. 501, 508, 62 S. Ct. 701, 704 (1942)). (b) A concrete relationship between the out-of-state and the in-state activities that is established by the existence of the uni- tary business (Container Corp. of America v. Franchise Tax Bd. of California, 463 U.S. 159, 167, 103 S. Ct. 2983, 2941 (1983)). (c) Functional integration, centralization of management, and economies of scale (Mobil Oil Corp. v. Comm[r of Taxes of Ver- mont, 445 U.S. 425, 438, 100 S. Ct. 1223, 1232 (1980)). (d) Substantial mutual interdependence (F.W. Woolworth Co. v. Taxation and Revenue Dept. of New Mexico, 458 U.S. 354, 371, 102 S. Ct. 3128, 3139 (1982)). (e) Some sharing or exchange of value not capable of precise identification or measurement — beyond the mere flow of funds arising out of a passive investment or a distinct business operation (Container, 463 U.S. at 166, 103 S. Ct. at 2940). (6) PRESUMPTIONS. The presumptions in pars. (a) to (g) ap- ply when determining whether participants in a commonly con- trolled economic enterprise are considered a unitary business. Any of these presumptions may be rebutted by the taxpayer or by the department. However, the noncontrolling factors in par. (h) may not be used to rebut these presumptions. (a) Horizontal integration. An entity or commonly controlled group of entities is presumed to be engaged in a unitary business when all of its activities are in the same general line of business. (b) Vertical integration. An entity or commonly controlled group of entities is presumed to be engaged in a unitary business when its various divisions, segments, branches, or affiliates are engaged in different steps in a vertically structured enterprise. (c) Centralized management. An entity or commonly con- trolled group of entities that might otherwise be considered as en- gaged in more than one unitary business is presumed to be en- gaged in one unitary business when there is strong central man- agement coupled with the existence of centralized departments or affiliates for such functions as financing, advertising, research and development, or purchasing. (d) Different business segments. An entity operating different business segments within the organizational structure of the sin- gle business entity is presumed to be engaged in a single unitary business with respect to the business segments. (e) Newly acquired corporations. 1. Except as provided in subd. 2., when a corporation acquires another corporation so that the acquired corporation is a member of a commonly controlled group for the first time, it shall be presumed that the acquiring and acquired corporations are not engaged in a unitary business for the purchaser[s taxable year that includes the acquisition. If the purchaser is already a combined group member, the taxable year that includes the acquisition is the taxable year of the com- bined group. 2. The presumption against unity in subd. 1. shall not apply if, immediately preceding the acquisition, the acquiring and ac- quired corporations were engaged in a unitary business apart from being in the same commonly controlled group, or if the des- ignated agent of the combined group has properly made the con- trolled group election as provided in s. Tax 2.63. 3. If either the taxpayer or the department rebuts the pre- sumption in subd. 1., the provisions of s. 71.255 (9), Stats., relat- ing to part-year members of a combined group, shall apply. (f) Newly formed corporations. Where a corporation or more than one corporation forms, or has formed, a new corporation, it shall be presumed that the formed corporation is engaged in a unitary business with the forming corporation or corporations from the date of its formation. (g) Refusal to provide information. The department[s deter- mination of whether an entity is engaged in a unitary business is presumed to be correct if the taxpayer unreasonably refuses to provide information pertinent to the determination of a unitary business. (h) Noncontrolling factors. The following factors may not negate the presumptions in pars. (a) to (g): 1. The use of arms-length pricing for sales, exchanges, or transfers between entities (Exxon Corp. v. Dept. of Revenue of Wisconsin, 447 U.S. 207, 100 S. Ct. 2109 (1980)). 2. The fact that a business uses a separate accounting system, including separate accounting by division, by entity, by geograph- ical area, by business function, or by business segment. (7) PASSIVE HOLDING COMPANIES. (a) A passive holding company that is in a commonly controlled economic enterprise and holds intangible assets that are used by the enterprise in a unitary business shall be deemed to be engaged in the unitary business, even if the holding company[s activities are primarily passive. (b) A passive parent holding company that directly or indi- rectly controls one or more operating company subsidiaries en- gaged in a unitary business shall be deemed to be engaged in a unitary business with the subsidiary or subsidiaries, even if the holding company[s activities are primarily passive. (8) PASS-THROUGH ENTITIES. For purposes of pars. (a) and (b), Xpass-through entityY includes a partnership, limited liability company treated as a partnership, tax-option corporation, estate, or trust, but does not include corporations treated as real estate in- vestment trusts, regulated investment companies, real estate mortgage investment conduits, or financial asset securitization investment trusts. (a) For purposes of determining the scope of the unitary busi- ness, any business conducted by a pass-through entity that is con- trolled directly or indirectly by a corporation shall be treated as 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 conducted by the corporation to the extent of the corporation[s distributive share of the pass-through entity[s income, regardless of the percentage of the corporation[s ownership interest. (b) Any business conducted directly or indirectly by one cor- poration is unitary with that portion of a business conducted by another corporation through its direct or indirect interest in a pass-through entity if the requirements of s. 71.255 (1) (n), Stats., are otherwise met with respect to the corporations[ interests in the pass-through entity and the corporations are members of the same commonly controlled group. Note: Section Tax 2.62 interprets s. 71.255 (1) (n), Stats. History: EmR1001: emerg. cr. eff. 1-15-10; CR 09-064: cr. Register April 2010 No. 652, eff. 5-1-10; correction in (8) (intro.) and renumbering of (7) (a), (b), (8) (a) and (b) made under s. 13.92 (4) (b) 1. and 7., Stats., Register April 2010 No. 652; CR 13-078: am. (2) (d) 1. Register April 2014 No. 700, eff. 5-1-14; CR 19-141: am. (2) (d) 1. Register September 2020 No. 777, eff. 10-1-20. Cross References: See s. Tax 2.60 for definitions that relate to this section. See s. Tax 2.61 (2) for more information on determining whether corporations are re- quired to use combined reporting. See s. Tax 2.63 for more information on the con- trolled group election.