2.955 Credit for taxes paid to other states. (1)

DEFINITION. In this section, XstateY means the 50 states of the United States and the District of Columbia, but does not include the commonwealth of Puerto Rico or the several territories orga- nized by Congress. (2) CREDITS ALLOWABLE. (a) Except as provided in subs. (2m) and (3), an income tax credit may be claimed by a Wiscon- sin resident individual, estate, or trust for any net minimum tax or income tax paid to another state by the resident upon income of the individual, estate or trust taxable by that state. (b) Except as provided in subs. (2m) and (3), an income tax credit may be claimed by a Wisconsin resident shareholder, part- ner, or member in a tax-option (S) corporation, partnership, or limited liability company for any net minimum tax, income tax, or franchise tax paid by that shareholder, partner, or member to another state on or measured by income of the tax-option (S) cor- poration, partnership, or limited liability company. (c) Except as provided in subs. (2m) and (3), an income or franchise tax credit may be claimed by a tax-option (S) corpora- tion, partnership, or limited liability company which makes an election to be taxed at the entity level under s. 71.21 (6) (a) or 71.365 (4m) (a), Stats., for any net minimum tax, income tax, or franchise tax paid by that entity to another state upon income of the entity and net minimum tax, income tax, or franchise tax paid by that entity to another state upon income of the entity on behalf of its Wisconsin resident shareholders, partners, and members on a combined or composite return filed with the other state. (2m) LIMITATION. (a) The credit may only be allowed if the income taxed by the other state is also considered income for Wisconsin tax purposes. (b) The credit may not exceed the net tax paid to Wisconsin on income that is taxable to both Wisconsin and the other state. (c) The limitation in par. (b) does not apply to income that is taxable to both Wisconsin and to Minnesota, Iowa, Illinois, or Michigan. (3) CREDITS NOT ALLOWED. An income tax credit may not be allowed for: (a) Income tax paid to Illinois, Indiana, Kentucky, or Michi- gan on personal service income earned in these states included under a reciprocity agreement. Note: Refer to s. Tax 2.02 for information concerning reciprocity. 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 (b) Minimum tax, income tax, or franchise tax paid to another state on income not considered taxable income for Wisconsin tax purposes. (c) Minimum tax paid to a state which does not classify the minimum tax as an income tax. (d) Income tax paid to a county, city, village, town or foreign country. (e) Minimum tax, income tax, or franchise tax paid to another state by a Wisconsin resident individual on income derived from a tax-option (S) corporation, partnership, or limited liability company that elects to be taxed on the income at the entity level under s. 71.21 (6) (a) or 71.365 (4m) (a), Stats. Example: A Wisconsin resident shareholder in a tax-option (S) corporation pays income tax to Iowa on her proportionate share of income from the corporation that is reportable and taxable on both her Wisconsin and Iowa income tax returns for the same taxable year. The tax-option (S) corporation elects to be taxed at the entity level under s. 71.365 (4m) (a), Stats., and files and pays Wisconsin franchise tax. The Wisconsin resident shareholder may not claim a credit for net income tax paid to Iowa since the income from the tax-option (S) corporation is not taxable on her Wisconsin income tax return. (f) A tax-option (S) corporation, partnership, or limited liabil- ity company electing to be taxed on income at the entity level un- der s. 71.21 (6) (a) or 71.365 (4m) (a), Stats., if the shareholder, partner, or member pays the tax to the other state on their propor- tionate share of income from the entity. Example: A partnership elects to be taxed on income at the entity level under s. 71.21 (6) (a), Stats., and pays Wisconsin income tax on income that is also taxable to Iowa for the same taxable year. A Wisconsin resident partner files and pays Iowa income tax on his proportionate share of income from the partnership. The partner- ship may not claim a credit for tax paid to Iowa since the partnership did not pay the Iowa income tax. (4) HOW TO CLAIM A CREDIT. The amount of income tax credit claimed shall be entered on the line provided for net in- come tax paid to other states on Wisconsin income tax return Form 1, Form 1NPR, Form 2, or for tax-option (S) corporations and partnerships, Schedule 5S-ET or 3-ET. The credit may not exceed the Wisconsin net tax. To support the credit claimed, the following information shall be submitted with Wisconsin Form 1, Form 1NPR, Form 2, Form 3, or Form 5S: (a) For a Wisconsin resident individual, estate, or trust, attach copies of the other state[s income tax return and the wage state- ments, if any, to the Wisconsin income tax return. (b) For a Wisconsin resident shareholder in a tax-option (S) corporation, the federal subchapter S status of which is recog- nized by the other state, partner in a partnership, or member in a limited liability company: 1. If a Wisconsin resident shareholder, partner, or member files an individual income tax return with that state, submit a copy of the other state[s income tax return with the Wisconsin in- come tax return. 2. If the corporation, partnership, or limited liability com- pany files a combined or composite return with that state on be- half of its shareholders, partners, or members who are nonresi- dents of that state and pays the tax on their proportionate share of the income earned there, submit with the Wisconsin income tax return either a copy of the Wisconsin Schedule 5K-1 or 3K-1 on which is shown the shareholder[s, partner[s, or member[s share of tax paid to that state, or a letter as provided in par. (d). 3. If the corporation, partnership, or limited liability com- pany files a corporate or partnership income or franchise tax re- turn with that state and pays tax on or measured by income earned there that is attributable to its shareholders, partners, or members who are nonresidents of that state, submit with the Wis- consin income tax return either a copy of the Wisconsin Schedule 5K-1 or 3K-1 on which is shown the shareholder[s, partner[s, or member[s share of tax paid to that state, or a letter as provided in par. (d). (c) For a Wisconsin resident shareholder in a tax-option (S) corporation, the federal subchapter S status of which is not recog- nized by the other state, if the corporation pays an income or fran- chise tax on or measured by the income earned there, submit with the Wisconsin income tax return either a copy of the Wisconsin Schedule 5K-1 on which is shown the shareholder[s share of tax paid to that state, or a letter as provided in par. (d). (d) If the tax-option (S) corporation, partnership, or limited li- ability company is not subject to Wisconsin[s income or franchise tax, a Wisconsin resident shareholder, partner, or member shall submit with the Wisconsin income tax return a letter provided by the corporation, partnership, or limited liability company in lieu of Wisconsin Schedule 5K-1 or 3K-1 as required in pars. (b) 2. and 3. and (c). The letter shall include a schedule showing the shareholder[s, partner[s, or member[s proportionate share of the items of income taxable by that state, the adjusted gross income, and the net tax paid. (e) For a tax-option (S) corporation, partnership, or limited li- ability company which makes an election to be taxed on income at the entity level under s. 71.21 (6) (a) or 71.365 (4m) (a), Stats.: 1. If the corporation, partnership, or limited liability com- pany files a corporate or partnership income or franchise tax re- turn with another state, submit a copy of the other state[s income or franchise tax return with Wisconsin Form 3 or 5S. 2. If the corporation, partnership, or limited liability com- pany files a combined or composite return with another state on behalf of its shareholders, partners, or members who are nonresi- dents of that state and pays tax on their proportionate share of the income taxable to the other state, submit a copy of the other state[s combined or composite income or franchise tax return with Wisconsin Form 3 or 5S. (5) YEAR IN WHICH TO CLAIM INCOME TAX CREDIT. The credit for income tax paid to another state shall be claimed on the Wisconsin return for the year in which the out-of-state income is considered taxable Wisconsin income. Example: A Wisconsin resident receives income of $4,000 in 2018 from rental property located in Iowa. The person files a 2018 declaration of estimated tax of $200 with Iowa, with $150 of estimated tax payments being made in 2018 and the fourth quarter payment of $50 being made in January 2019. The Iowa income of $4,000 is reported as income on the 2018 Iowa and Wisconsin returns. The 2018 Iowa income tax return shows the following: 2018 Iowa Return Iowa Rental Income $4,000 Iowa Net Tax $ 185 Estimated Tax Payments Refund $ 15 The taxpayer may claim a credit for net income tax paid to other states of $185 on the 2018 Wisconsin return, even though a part of the tax was paid in 2019. Note: Section Tax 2.955 interprets ss. 71.07 (7), 71.08 (5), 71.21 (6) (a), and 71.365 (4m) (a), Stats. History: Cr. Register, December, 1978, No. 276, eff. 1-1-79; am. (4) (b), Regis- ter, January, 1981, No. 301, eff. 2-1-81; r. (2) (a) and (b), (3) (b), am. (2) (c), (3) (d) and (4), renum. (3) (c) to be (3) (b), r. and recr. (5), Register, September, 1983, No. 333, eff. 10-1-83; am. (1), (2), (3) (a) and (b), (4) (intro.), renum. (3) (cv) to be (3) (d), cr. (2) (b), (3) (c), (4) (c) and (d), r. and recr. (4) (a) and (b), Register, June, 1990, No. 414, eff. 7-1-90; am. (3) (intro.), (a), (4) (b) 2., 3., (c) and (d), Register, April, 1993, No. 448, eff. 5-1-93; CR 17-019: am. (3) (a), cr. (4) (e), (f) Register June 2018 No. 750 eff. 7-1-18; correction in (4) (f) made under s. 35.17, Stats., Register June 2018 No. 750; CR 19-141: am. (2), cr. (2m), am. (4) (intro), (b) 2., 3., (c), (d), (5) (Example) Register September 2020 No. 777, eff. 10-1-20; CR 20-081: am. (2) (b), cr. (2) (c), am. (3) (b), cr. (3) (e), (f), am. (4) (intro.), (b) to (d), r. and recr. (4) (e), r. (4) (f) Register July No. 787, eff. 8-1-21; CR 21-085: am. (5) (Example) Register August 2022 No. 800, eff. 9-1-22.