WDOR provides guidance for certain tax filing situations in Wisconsin

February 6, 2019

On Jan. 24, the WICPA Wisconsin Taxation Committee met with representatives from the Wisconsin Department of Revenue for clarifications and how to address certain situations that have risen in practice. Questions and responses include:

Q: When an audit is complete, how long is the record in My Case Manager available to the taxpayer/POA?
A: After an audit is complete, the taxpayer/POA can access the audit's history in My Case Manager on an ongoing basis. The system does not limit the amount of time. The history goes back to July 2018, which is when the application launched. When the audit is complete, the home screen says the audit is closed and the timeline in the history tab includes the final completion date. The department's Retention / Disposition Authorization (RDA) is to keep tax account records for 10 years from the date the audit determination became final, 27 years in the case of a tax year that has a net business loss, or longer if there is a collection case, warrant, or criminal investigation.

Q: Can a POA have access to My Case Manager without having access to anything else in MTA?
A: In order to access My Case Manager, the user must have access to the taxpayer's My Tax Account information at the tax-type (account) level. Currently, that is inherent in the tool's design. Thanks for letting us know why it would be valuable to allow direct access to My Case Manager without allowing access to the taxpayer's other information. We will consider that in our future development and improvement of the tool.

Q: Under Wayfair, in determining the small seller exception, how would we treat situations where the transaction is a gross amount, but shipments go to various different states included in that amount?
A: For purposes of determining if a remote seller qualifies for the small seller exception, only sales that take place in Wisconsin are used in determining the annual gross sales amount and number of separate transactions. Therefore, the seller would need to determine the gross sales amount (from the total invoice amount) for the products that are shipped to Wisconsin. Each invoice is considered a separate sale transaction for purposes of determining the number of sales transactions in Wisconsin.

Q: If a shareholder doesn't have a K-1 yet, but knows the tax will be paid at the entity level anyway, can they just file without the K-1?
A: Yes, a shareholder of an electing tax-option (S) corporation may file their Wisconsin return without the Schedule 5K-1, Tax-Option (S) Corporation Shareholder’s Share of Income, Deductions, Credits, etc, since the income from the tax-option (S) corporation is not included in the shareholder's Wisconsin adjusted gross income pursuant to sec. 71.365(4m)(b), Wis. Stats. However, the return processing may be delayed and if the Schedule 5K-1 passes through any Wisconsin credits or withholding tax, the shareholder will have to wait until the electing tax-option (S) corporation issues the Schedules 5K-1 to claim those pass-through items on their Wisconsin tax return.

Q: Is an entity level withholding tax paid by an entity in another state (e.g., Illinois) considered a "composite return" for purposes of the Wisconsin entity-level credit for taxes paid to another state (TPOS credit)?
A: No. The withholding tax paid by the entity in Illinois is not a "net income tax" paid by the entity on behalf of its shareholders on a composite return. In order to compute the "net income tax" paid for purposes of the Wisconsin TPOS credit, the entity must submit a pro-forma Illinois individual income tax return for each shareholder in which the Illinois withholding tax was paid and upon which the entity is claiming the Wisconsin credit.

Note: If an entity makes the election, the individual shareholders may not claim a credit for tax paid by the entity to another state on their behalf.

Q: Is there a way to transfer nonresident shareholder withholding (PW-ES) payments to the entity-level tax estimated payments (Corp-ES)?
A: Yes, DOR will move pass-through withholding payments to entity-level income tax payments if the payments were made by the same entity. A written request to move the payment may be submitted through email to DORIncomePassThroughComposite@wisconsin.gov.

Q: How would we administer long-term capital gain/net capital loss rules at entity vs. shareholder level?
A: An electing tax-option (S) corporation is subject to the $3,000 federal capital loss limitation, not the $500 Wisconsin capital loss limitation. Capital losses may not be passed through to the shareholders; however, suspended losses may be carried forward by the electing tax-option (S) corporation to be used to offset income in a subsequent year in which the election is made, to the extent allowed under the Internal Revenue Code in effect under Wisconsin law. In addition, an electing tax-option (S) corporation may not claim the Wisconsin 30-percent or 60-percent long-term capital gain deduction. See the Common Questions on this page.

Q: Would sales/use tax apply to tariff charges? If so, in what situations?
A: Tariffs that are imposed directly on the importer and then passed on to the importer's customer in a subsequent sale, are included in the importer's sales price and subject to Wisconsin sales and use tax, as provided in sec. 77.51(15b)(a)2., Wis. Stats. (2017-18). The tariff charge is included in the importer's sales price regardless of whether the importer separately states the tariff amount on the invoice to its customer in the subsequent sale.

If the importer's purchase is subject to Wisconsin sales or use tax (e.g., products are not purchased for resale), the tariffs are not included in the importer's purchase price if the tariffs are legally imposed on the purchaser and are separately stated on the invoice, bill of sale, or similar document that the seller gives to the purchaser (sec. 77.51(12m)(b)3., Wis. Stats.) Tariffs that are paid directly to the customs authority (i.e., U.S. Customs and Border Protection) are not included in the importer's purchase price that is subject to use tax.

Additional information is provided in sec. Tax 11.26, Wis. Adm. Code (August 2014 Register).

Q: If a joint return was filed the previous year and a spouse dies, can we transfer the estimated payments made for the joint return to the surviving spouse?
A: Yes, we would move the payments during the processing of the return. There is no need to notify us in this situation.

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