Summary of Act 28 Changes to Combined Reporting Law

The 2009-11 Budget Bill (2009 Wisconsin Act 28) enacted several changes to the combined reporting legislation enacted by 2009 Act 2. All of these changes are effective for taxable years beginning on or after January 1, 2009. This article summarizes the substantive changes and refers to the Administrative Rules which provide more detail for each topic discussed. The substantive changes made by Act 28 are as follows:

Controlled Group Election. Allows a commonly controlled group of corporations to elect to be treated as a combined group, regardless of whether they are engaged in the same unitary business (s. 71.255(2m), Stats.). Section Tax 2.63 of the Administrative Rules provides more details about this election.

Groups Wholly Within Wisconsin. Provides that combined groups operating wholly in Wisconsin (and thus not eligible to use apportionment) compute their combined unitary income in the same manner as combined groups that use apportionment (s. 71.255(3)(c), Stats.). Section Tax 2.61(8) of the Administrative Rules explains the modifications that are necessary to account for the fact that there is no apportionment in these groups.

Expansion of Intra-Group Dividend Elimination. Provides that a dividend paid from one combined group member to another is eliminated from the combined group's income regardless of how long the dividend payer was part of the combined group, as long as the dividend was paid from earnings and profits included in a combined report (s. 71.255(4)(f), Stats.). Previously, Act 2 provided a limitation that the elimination of dividends would only apply if the dividend payer was a combined group member for at least a calendar year preceding payment of the dividend. Section Tax 2.61(6)(e) of the Administrative Rules provides more details regarding the elimination of dividends, including transitional rules that apply.

Authorization to Conform to Federal Consolidated Return Regulations. Authorizes the Department of Revenue to adopt Administrative Rules that conform the treatment of Wisconsin combined groups to the federal treatment of consolidated groups with respect to capital loss limitations, charitable contribution limitations, and transactions in general (s. 71.255(4)(h) and (i) and (11), Stats.). Section Tax 2.61(6)(b) to (g) of the Administrative Rules explain how the computation of a combined group's income for Wisconsin purposes is similar to the computation of a consolidated group's income for federal purposes.

Methodology for Sharing of Net Business Losses. Amends the language relating to the sharing of net business losses so that, subject to certain limitations, net business losses incurred in taxable years beginning on or after January 1, 2009, may be shared among combined group members after apportionment (s. 71.255(6)(b), Stats.). Previously, Act 2 allowed for such sharing, but the methodology for sharing was to convert the net business loss carryforward to a pre-apportionment deduction. Section Tax 2.61(9) of the Administrative Rules explains how the sharing of net business losses will be administered.

Sharing of Research Credits. Allows combined group members with research credits or carryforwards of research credits to share those credits with other combined group members, subject to certain limitations (s. 71.255(6)(c), Stats.). This does not apply to the new super research and development credit created in Act 28, which becomes effective for taxable years beginning on or after January 1, 2011. Section Tax 2.61(10) of the Administrative Rules explains how the sharing of research credits will be administered.

Selection and Duties of Designated Agent. Allows the Department to permit a combined group member other than the parent company to be the designated agent who acts on behalf of the group (s. 71.255(7)(a), Stats.). Previously, Act 2 provided a limitation that, if the combined group's parent corporation was a combined group member, that parent corporation must be the designated agent. Also permits the Department to prescribe circumstances where members other than the designated agent are authorized to act on their own behalf. Section Tax 2.65 of the Administrative Rules provides more detail regarding the selection and duties of the designated agent.

August 14, 2009