As you may know, Wisconsin enacted some corporate tax law changes back in February within the budget legislation signed by Wisconsin Governor Jim Doyle. Here is a high-level summary of the main changes. Please click on the following link to access the entire Bill (S.B. 62) for the details:
http://www.legis.state.wi.us/2009/data/SB-62.pdf
Unitary Combined Reporting
The legislation enacted mandatory combined reporting for corporations engaged in a unitary business with any other corporation (based on 50 % ownership) for tax years beginning on or after January 1, 2009.
Cost-of-Performance to Destination Sourcing
The legislation repeals the cost of performance method for sourcing sales other than sales of tangible personal property. The prior method sourced sales based on the common cost-of-performance method and where the income-producing activity took place. This is just another state that has moved from the "service performed" to the "benefit derived" method. I believe Illinois and Michigan are other states that made this same change recently. This change is applicable to tax years beginning on or after January 1, 2009.
Taxation of "Pre-Written Software"
The legislation further defines "pre-written software." We can only conclude this was due the State's loss in the Menasha Corporation case. Anyway, one definition that is worded in such a way as to even treat modified software as pre-written software is as follows:
“Pre-written computer software” or a pre-written portion of computer software that is modified or enhanced to any degree, with regard to a modification or enhancement that is designed and developed to the specifications of a specific purchaser, remains “pre-written computer software,” except that if there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for the modification or enhancement, the modification or enhancement is not “pre-written computer software.”
However, as you can see, the second part of the paragraph provides a way for the modifications to the pre-written software to be treated as custom software and not be taxable. Please make sure that the purchase of any software (in any state) is reviewed upfront. The contract language and how the transactions are billed are extremely important from a taxation standpoint.
Other Changes:
1. Additional Addbacks for Intangible Expenses and Management Fees
2. Department has authority to adjust taxpayers' income for transactions that lack economic substance or lacks a substantial non-tax purpose.
3. Definition of Financial Organization is modified to include subsidiaries of financial organizations
4. Imposes Sales Tax on "specified" and "additional" digital goods
5. Other changes to Credits and Incentives, etc.
If you have any questions regarding this legislation, please contact me at leveragesalt@earthlink.net.
