Navigating the landscape of Wisconsin’s business taxes requires a comprehensive understanding of the state’s intricate tax framework. Wisconsin imposes both a franchise tax and an income tax on corporations, each with its nuances and implications. Corporations engaging in business activities within the state must grapple with the interplay of these taxes, with certain federal obligations subject to the franchise tax but exempt from income tax. The provisions governing these taxes closely mirror each other, yet their distinct features warrant a careful examination. 

This blog post serves as a gateway to unravel the complexities of Wisconsin’s business tax landscape, exploring key elements such as nexus triggers, income tax credits, sales tax intricacies, and the ever-evolving regulatory environment. As businesses traverse the Badger State’s tax terrain, understanding the rules, obligations, and potential avenues for relief is paramount for maintaining compliance and optimizing financial strategies.

What is the Wisconsin Corporate Income Tax Rate?

Wisconsin levies both a franchise tax and an income tax, but a corporation is only subject to one of these taxes in a given taxable year, corresponding to the privilege of utilizing its Wisconsin franchise or conducting business in the state. The provisions governing franchise and income taxes are nearly identical, with a key distinction being that federal obligations are subject to the franchise tax but exempt from income tax.

The franchise tax is applicable to all domestic corporations organized under Wisconsin law with nonexempt income and foreign corporations not organized under Wisconsin law but engaged in business within the state, unless exempted by statute or federal law. The tax rate for the franchise tax is set at 7.9%.

On the other hand, the income tax is exclusively imposed on foreign corporations not liable for the franchise tax, possessing property in Wisconsin, or conducting business within the state solely in foreign or interstate commerce. The income tax rate aligns with the franchise tax at 7.9%. Notably, income derived from obligations of the United States government and its instrumentalities is excluded from the scope of income under the income tax law.

Is There a Corporate Minimum Tax?

There is no minimum tax for small corporations, but for larger corporations with gross receipts exceeding $4 Million Wisconsin enforces an economic development surcharge that is essentially an Alternative Minimum Tax. For C-corporations and insurance companies, the surcharge is calculated at 3% of the gross tax liability. In the case of S-corporations, the surcharge amounts to 0.2% of the net Wisconsin income. The surcharge is capped at a maximum of $9,800 and set at a minimum of $25. Entities exempt from filing an income tax return are not subject to this surcharge.

When is the Wisconsin Corporate Income Tax Return Due?

Wisconsin tax returns align with federal returns regarding their deadlines, meaning they are due by April 15th for calendar year filers. In general, corporations are required to submit their franchise or income tax returns by the 15th day of the 4th month following the conclusion of their taxable year. 

Short taxable year returns, for periods less than 12 months, adhere to the federal due date. In instances where a corporation joins or departs from an affiliated group, necessitating the filing of two short period returns for federal purposes, the same obligation applies for Wisconsin, with each short period treated as a taxable year.

Filing a return after the due date, without an extension, may subject the corporation to penalties and interest. A return is deemed filed by the due date if it is properly addressed, prepaid for postage, and postmarked on or before the due date, with receipt by the department within 5 days of the deadline. Similarly, an electronically transmitted return is considered filed once received and accepted.

How is State Income Tax Nexus Triggered?

All corporations organized under Wisconsin laws or licensed to operate in the state, with certain exemptions (specified in secs. 71.26(1) or 71.45(1), Wis. Stats.), are mandated to file a Wisconsin corporate franchise or income tax return, irrespective of whether business transactions occurred. Additionally, unlicensed corporations are required to file returns for each year they engage in business or conduct specific business activities within Wisconsin.

Entities obligated to file include:

• Corporations organized under Wisconsin law with non-exempt income.
• Foreign corporations licensed to conduct business in Wisconsin with non-exempt income.
• Unlicensed corporations conducting business in Wisconsin.
• Foreign corporations holding an interest in a partnership engaged in Wisconsin business.
• Publicly traded partnerships treated as corporations under section 7704 of the Internal Revenue Code (IRC).
• Limited liability companies (LLCs) treated as corporations for federal income tax purposes.
• Corporations deriving income from the sale, purchase, and subsequent sale or redemption of lottery prizes if the winning tickets were initially purchased in Wisconsin.
• Corporations and associations with exempt income under secs. 71.24, 71.26(1), 71.45(1) having gross income of $1,000 or more from a regularly conducted unrelated trade or business (UBTI).
• Corporations that are completely inactive both within and outside Wisconsin, not filing Form 4H.

Entities not required to file a Wisconsin corporation franchise or income tax return include:

• Corporations and associations with income exempt under secs. 71.24, 71.26(1), or 71.45(1), Wis. Stats., except those with (a) $1,000 or more of UBTI as defined in sec. 512, IRC or (b) income derived from a health maintenance organization or a limited service health organization. This encompasses insurers exempt from federal income taxation under sec. 501(c)(15), IRC, town mutual insurers under Chapter 612, Wis. Stats., foreign insurers, domestic insurers exclusively engaged in life insurance business, domestic mortgage insurers, certain cooperatives, and religious, scientific, educational, benevolent, or other non-profit corporations or associations.
• Corporations that are completely inactive both within and outside Wisconsin and have submitted Form 4H.
• Credit unions not acting as public depositories for state or local government funds and have submitted Form CU.
• Foreign businesses whose sole Wisconsin income is derived from work performed during a declared state of emergency.

Does Having an Employee or Contractor Trigger Nexus?

Regular activities in Wisconsin involving employees or representatives soliciting orders with the authority to approve them are considered nexus-triggering factors. Additionally, regular activities performed by employees or representatives related to the sale of tangible personal property, such as consulting, design, engineering, construction, installation, and assembly of equipment, also establish nexus. This encompasses services that contribute to the sale of tangible personal property. For instance, if a corporation’s employees engage in purchasing activities, credit investigations, collection of delinquent accounts, or conduct training or seminars for customer personnel in the operation, repair, or maintenance of the corporation’s products, it signifies regular activity in Wisconsin and establishes nexus.

An illustrative example from §2.82(4)(a)(7) involves a Training Company, a corporation headquartered outside Wisconsin with no business location or resident employees in the state. Suppose Training Company sends employees to Wisconsin for three days to conduct a training seminar related to machinery it sold to a taxpayer. In this scenario, Training Company establishes nexus as its employees engaged in activity in Wisconsin for a total of 15 days.

Furthermore, nexus is triggered when employees or representatives perform services in Wisconsin that are unrelated to the sale of tangible personal property. The performance of such unrelated services by employees or representatives in Wisconsin signifies regular activity and establishes nexus for the corporation.

Are There State Income Tax Credits Available?

Wisconsin offers various business income tax credits to eligible businesses. Some of the available business income tax credits in Wisconsin include:

Research Credit: 

Businesses engaged in qualified research activities in Wisconsin may be eligible for a research credit to encourage innovation and technological advancement.

Manufacturing and Agriculture Credit: 

This credit is aimed at promoting growth in the manufacturing and agriculture sectors of the state. Businesses involved in manufacturing or agricultural activities may qualify for this credit.

Workforce Training Credit: 

Businesses investing in workforce training programs for their employees may be eligible for a workforce training credit to support skill development and training initiatives.

Development Opportunity Zone (DOZ) Credit: 

Businesses operating in designated Development Opportunity Zones may qualify for tax credits to encourage economic development in those zones.

Film Production Services Credit: 

Businesses involved in film production services in Wisconsin may be eligible for tax credits to promote the film industry within the state.

Historic Rehabilitation Credit: 

Businesses engaged in the rehabilitation of historic structures may qualify for this credit, encouraging the preservation of historic properties.

Community Development Financial Institutions (CDFI) Credit: 

Businesses investing in Community Development Financial Institutions may be eligible for tax credits to support community development initiatives.

Angel and Early-Stage Seed Investment Credit: 

Investors and businesses participating in angel and early-stage seed investments in qualified businesses may qualify for this credit.

What is the Wisconsin Sales Tax Rate?

In Wisconsin, the state imposes a 5% sales and use tax on the taxable retail sales’ purchase price. Additionally, individual counties have the authority to levy local sales and use taxes, with a maximum permissible rate of up to 0.5% on the purchase price.

How is Sales Tax Nexus Triggered?

Wisconsin mandates that remote sellers collect and remit sales or use tax on taxable products and services sold within the state. Administrative standards for enforcing sales tax laws on remote sellers have been established through a rule, aligning with the Wayfair decision. Wayfair approves a small seller exception, applicable to sellers with annual sales into the state not exceeding (1) $100,000 or (2) 200 separate transactions. On December 16, 2018, Wisconsin amended its sales and use tax statutes to legislate the small seller exception in accordance with the Wayfair decision and the rule.

Effective February 20, 2021, the small seller exception underwent an amendment, removing the 200-transaction threshold. Additionally, remote sellers are now required to use a calendar year to assess economic nexus in the prior or current year. Consequently, a remote seller must collect and remit sales or use tax only if its gross sales into Wisconsin surpass $100,000 in the preceding or current calendar year.

Sales and purchases involving tangible personal property, items, property, and taxable services, such as those related to prewritten computer software or computer hardware services, are subject to Wisconsin sales and use taxes when the transaction occurs in a location within Wisconsin, as outlined in sec. 77.522, Wis. Stats.

In general, the location of a sale or purchase is determined based on the following criteria:

1. If the purchaser receives the product at a seller’s business location, the sale is sourced to that business location.
2. If the purchaser does not receive the product at a seller’s business location, the sale is sourced to the location where the purchaser or the purchaser’s designated donee receives the product.
3. If the location cannot be determined under 1. or 2., the sale is sourced to the purchaser’s address as indicated by the seller’s business records, provided it is not in bad faith.
4. If the location cannot be determined under 1., 2., or 3., the sale is sourced to the purchaser’s address as obtained during the sale’s consummation, including the address on the payment instrument, if no other address is available and using it is not in bad faith.
5. If the location cannot be determined under 1. to 4., including cases with insufficient information, the sale’s location is determined based on the nature of the item sold:

• For tangible personal property or items or property under s. 77.52(1)(b) or (c), the sale is sourced to the shipping location.
• For digital goods or electronically delivered computer software, the sale is sourced to the location from which the product was first available for transmission by the seller.
• For services, the sale is sourced to the location where the service was provided.

What Transactions are Included or Excluded from Sales Tax?

In Wisconsin, sales tax applies to a variety of transactions based on the nature of the goods or services involved. Here’s an overview of transactions that are either included or excluded from Wisconsin sales tax:

Included Transactions (Taxable):

• Tangible Personal Property: Sales of tangible personal property are generally subject to sales tax. This includes goods like electronics, clothing, furniture, and other tangible items.
• Digital Goods and Services: Sales of digital goods and services, such as digital downloads, streaming services, and electronically delivered software, are taxable.
• Labor and Services: Certain services are subject to sales tax, including repair and installation services, landscaping, and certain professional services.
• Accommodations: Sales of accommodations, such as hotel rooms or campground sites, are taxable.

Excluded Transactions (Exempt):

• Groceries: Sales of most groceries for home consumption are exempt from sales tax.
• Prescription Drugs: Prescription drugs and certain medical devices are exempt from sales tax.
• Agricultural Products: Sales of agricultural products, including livestock, feed, and seeds, are generally exempt.
• Clothing Exemptions: Some clothing items, particularly those designated as exempt by the state, may be exempt from sales tax.
• Nonprofit Sales: Sales by qualifying nonprofit organizations may be exempt.

Are Services Taxed for Sales Tax?

In Wisconsin, the majority of services are not subject to taxation, including professional services. However, certain services that involve admission and access privileges to amusement, athletic, entertainment, or recreational places or events are considered taxable.

Is SaaS Taxable for Sales Tax?

While SaaS is not directly taxed in Wisconsin, many other forms of digital software sales are. When determining the sourcing of retail sales involving prewritten computer software in Wisconsin, the process hinges on specific scenarios. 

Firstly, if the purchaser acquires the software at the seller’s business location, the sale is attributed to that specific business location. Alternatively, if the purchaser doesn’t receive the software at the seller’s business location, the sale is then attributed to the location or locations where the purchaser receives the software, guided by the provided delivery instructions. 

In cases where neither of these conditions applies, the sale is sourced to the purchaser’s address available from the seller’s business records, ensuring no bad faith is involved. If, however, none of the aforementioned criteria are met, the sale is then sourced to the address obtained during the transaction, including the address associated with the payment instrument, as long as it is done in good faith. 

Finally, if none of the earlier conditions apply, including situations where the seller lacks sufficient information, the sale is sourced to the jurisdiction of the address from which the prewritten computer software was shipped or, if delivered electronically, the location where it was initially available for transmission by the seller, irrespective of subsequent routing or intermediary servers.

Frequently Asked Questions (FAQs) – Wisconsin Business Taxes

Who is required to file a Wisconsin corporate franchise or income tax return?

Corporations organized under Wisconsin law, foreign corporations licensed to do business in Wisconsin, unlicensed corporations conducting business in Wisconsin, and certain other entities like limited liability companies (LLCs) treated as corporations for federal income tax purposes may be required to file a Wisconsin corporate franchise or income tax return.

Are there any exemptions from filing a Wisconsin corporate tax return?

Corporations and associations with exempt income under specific sections of Wisconsin Statutes may be exempt from filing, except if they have gross income of $1,000 or more from a regularly conducted unrelated trade or business.

What is the Wisconsin corporate income tax rate?

Wisconsin imposes a corporate income tax rate of 7.9%. This applies to both domestic corporations organized under Wisconsin law and foreign corporations doing business in the state.

Are there any credits available for Wisconsin corporate income tax?

Wisconsin offers various income tax credits, including the Economic Development Surcharge Credit, Manufacturing and Agriculture Credit, Research Credit, and others, depending on the nature of the business activities.

When are Wisconsin corporate income tax returns due?

Generally, Wisconsin corporate income tax returns are due by the 15th day of the 4th month following the close of the taxable year. Returns for short taxable years or for specific entities, such as nonprofit corporations, may have different deadlines.

Is there sales tax on goods and services in Wisconsin?

Yes, Wisconsin imposes a state sales and use tax of 5% on the purchase price of taxable retail sales. Additionally, local jurisdictions may impose a local sales and use tax of up to 0.5%, bringing the total potential tax rate to 5.5%.