The Act also gives the state superintendent the authority to:
Withhold aid if a participating private school is not in compliance with program requirements.
Under certain circumstances, issue an order prohibiting a private school from participating in the program in the current year.
Immediately terminate a private school's participation in the program if conditions at the school present an imminent threat to the health and safety of pupils.
Whenever the state superintendent issues an order terminating a school's participation, he or she must notify the parent or guardian of each pupil.
The proposed rules set forth the process by which the department will implement the provisions under the Act, which is effective starting in the 2004-05 school year. The proposed rules also specify the responsibilities of auditors and the department in determining if the school is meeting the requirements under the Act.
Summary of, and comparison with, existing or proposed federal regulations: None.
Comparison with rules in adjacent states: None.
Summary of factual data and analytical methodologies: The rule was developed based on a review of fiscal practices contained in policy manuals for non-governmental organizations affiliated with MPCP private schools, recommended practices by national organizations, requirements that other state agencies have for private and non-profit organizations, and internal control practices contained in professional accounting and auditing literature. Financial practices and audit requirements included in the rule are similar to those required for school districts, charter schools, other state agency requirements for non-profit and for-profit organizations, and are consistent with generally accepted national standards. An overview of rule items was provided to interested parties, but discussion was limited due to the short implementation timeframe imposed under
2003 Wisconsin Act 155.
Analysis and supporting documents used to determine effect on small business or in preparation of economic impact report: N/A
Anticipated costs incurred by private sector: The proposed rules establish how private schools participating in the MPCP program will meet the new financial reporting requirements established under
2003 Wisconsin Act 155.
In January 2004, there were 106 private schools participating in the MPCP, with a total enrollment of 12,231 students in the program. It is anticipated that the private school financial audit requirements will have a slight fiscal effect since many of the participating schools currently have limited audit procedures in place. Auditing costs for small public school districts range from $2,000 - $5,000 annually. It is assumed that auditing costs to participating private schools will fall within the higher end of the $2,000 - $5,000 range and are not considered significant. The actual costs will vary depending on the number of financial transactions and expertise of the private school's accounting staff. The status of the financial records maintained by the private school staff will directly affect the time involved in auditing those records.
Effect on small business: See “Anticipated costs incurred by private sector."
Agency contact person: (including email and telephone)
Dennis Hanson, School Finance Auditor
(608) 267-1291
Tricia Collins, Consultant
Milwaukee Parental Choice Program
(608) 266-2853
Description of any forms (attach copies if available): Milwaukee Parental Choice Program Budget and Anticipated Cash Flow Form.
Fiscal Estimate
The proposed rules establish how private schools participating in the MPCP program will meet the new financial reporting requirements established under
2003 Wisconsin Act 155.
In January 2004, there were 106 private schools participating in the MPCP, with a total enrollment of 12,231 students in the program. It is anticipated that the private school financial audit requirements will have a fiscal effect since many of the participating schools currently have limited audit procedures in place. Auditing costs for small public school districts range from $2,000 - $5,000 annually. It is assumed that auditing costs to participating private schools will fall within the higher end of the $2,000 - $5,000 range and are not considered significant. The actual costs will vary depending on the number of financial transactions and expertise of the private school's accounting staff. The status of the financial records maintained by the private school staff will directly affect the time involved in auditing those records.
The Act and the rules have additional administration requirements for the program that will have a fiscal effect on the department. It is assumed such costs could be absorbed within the agency's operating budget.
The rules will not have a fiscal effect on the Milwaukee Public Schools.
Initial Regulatory Flexibility Analysis
The proposed rules are not anticipated to have a significant fiscal effect on small businesses as defined under s.
227.114 (1) (a), Stats.
Notice of Hearing
Revenue
Notice is hereby given that, pursuant to s.
71.80 (1) (c), Stats., and interpreting ss.
71.04 (4) (e),
(8) (c), and
(11) and
71.25 (6) (e),
(10) (c), and
(12), Stats., the Department of Revenue will hold a public hearing at the time and place indicated below, to consider the repeal and recreation and creation of rules relating to the apportionment of net business incomes of interstate financial organizations.
Hearing Information
The hearing will be held at 9:00 A.M. on Friday, October 1, 2004, in Conference Room 6S-02 (6th floor) of the State Revenue Building, located at 2135 Rimrock Road, Madison, Wisconsin.
Handicap access is available at the hearing location.
Comments on the Rule
Interested persons are invited to appear at the hearing and may make an oral presentation. It is requested that written comments reflecting the oral presentation be given to the department at the hearing. Written comments may also be submitted to the contact person shown below no later than October 8, 2004, and will be given the same consideration as testimony presented at the hearing.
Contact Person
Dale Kleven
Department of Revenue
Mail Stop 6-40
2135 Rimrock Road
P.O. Box 8933
Madison, WI 53708-8933
Telephone (608) 266-8253
Analysis by the Department of Revenue
Explanation of agency authority: Under s.
71.80 (1) (c), Stats., the department may make such regulations as it shall deem necessary in order to carry out chapter 71 of the Wisconsin Statutes, relating to income and franchise taxes. Additionally, section
33,
2003 Wisconsin Act 37, requires the department to promulgate a rule requiring financial organizations to use an apportionment formula consisting solely of a sales factor.
Plain language analysis: SECTION 1. Tax 2.49 is repealed and recreated to prescribe the method of apportioning the net business income of interstate financial organizations, other than brokerage houses, investment companies, and insurance companies, as required by ss.
71.04 (4) (e) and
(8) (c) and
71.25 (6) (e) and
(10) (c), Stats. This section of the rule order does all of the following:
a. Defines "financial institution" and other terms used in the rule.
b. Extends the application of Tax 2.49 to mortgage bankers, as authorized by ss.
71.04 (11) and
71.25 (12), Stats. Sections
71.04 (8) (a) and
71.25 (10) (a), Stats., exclude mortgage bankers from the definition of “financial organization."
c. Phases in the use of an apportionment formula consisting solely of a receipts factor:
•For taxable years beginning after December 31, 2004, and before January 1, 2006, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 50% of the fraction and a payroll factor representing 50% of the fraction.
• For taxable years beginning after December 31, 2005, and before January 1, 2007, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 60% of the fraction and a payroll factor representing 40% of the fraction.
•For taxable years beginning after December 31, 2006, and before January 1, 2008, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 80% of the fraction and a payroll factor representing 20% of the fraction.
•For taxable years beginning after December 31, 2007, net business income is apportioned using an apportionment fraction consisting of the receipts factor.
d. Expands the types of income included in the receipts factor. In the existing rule, "gross receipts" includes all business income associated with the lending of money in the normal course of business, such as interest, discounts, finance charges or fees, and service charges or fees. In the proposed rule, receipts also include the following:
• Net gain from the sale of loans and credit card receivables.
• Gross receipts from credit card receivables, credit card issuer's reimbursement fees, and merchant discount.
•Loan servicing fees.
• Gross receipts from travelers checks, cashiers checks, certified checks, and money orders.
•Gross receipts from automated teller machines, debit card transactions, and electronic funds transfer.
• Gross receipts from maintaining accounts, safety deposit boxes, investment banking services, cash management services, international trade services, data processing and microfilming services, research services, trust services, investment banking services, and security brokerage services.
•Gross receipts from leasing real or tangible personal property.
•Gross royalties for the use of intangible property.
•Gross receipts from other services.
•Gross receipts from sales of tangible personal property.
•Gross receipts passed through from partnerships.
e. Changes the way that receipts are attributed to Wisconsin. The existing rule assigns gross receipts to Wisconsin if the transaction producing the income was principally negotiated in this state. The proposed rule specifies which receipts are assigned to Wisconsin, based on the type of receipt. For example, interest and other fees from loans secured by real property and net gains from the sale of loans secured by real property are assigned to Wisconsin if the real property is located in Wisconsin. Interest and other fees charged to credit card holders and net gains from the sale of credit card receivables are assigned to Wisconsin if the billing address of the credit card holder is in Wisconsin.
SECTION 2. Tax 2.495 is created to prescribe the method of apportioning the net business income of interstate brokerage houses, investment companies, and underwriters, as required by ss.
71.04 (4) (e) and
(8) and
71.25 (6) (e) and
(10), Stats. This section of the rule order does all of the following:
a. Defines "brokerage house" and other terms used in the rule.
b. Prescribes the method of apportioning the net business income of investment advisers, as authorized by ss.
71.04 (11) and
71.25 (12), Stats. Sections
71.04 (8) (a) and
71.25 (10) (a), Stats., exclude investment advisors from the definition of “financial organization."
c. Phases in the use of an apportionment formula consisting solely of a receipts factor:
•For taxable years beginning after December 31, 2004, and before January 1, 2006, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 50% of the fraction, a payroll factor representing 25% of the fraction, and a property factor representing 25% of the fraction.
•For taxable years beginning after December 31, 2005, and before January 1, 2007, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 60% of the fraction, a payroll factor representing 20% of the fraction, and a property factor representing 20% of the fraction.
•For taxable years beginning after December 31, 2006, and before January 1, 2008, net business income is apportioned using an apportionment fraction composed of a receipts factor representing 80% of the fraction, a payroll factor representing 10% of the fraction, and a property factor representing 10% of the fraction.
•For taxable years beginning after December 31, 2007, net business income is apportioned using an apportionment fraction consisting of the receipts factor.
d. Prescribes the types of income included in the receipts factor.
e. Specifies which receipts are assigned to Wisconsin, based on the type of receipt.
Summary of, and comparison with, existing or proposed federal regulation: There is no existing or proposed federal regulation that is intended to address the activities to be regulated by the rule.
Comparison with rules in adjacent states: Iowa and Minnesota generally use a market-based approach for assigning gross receipts from the performance of services; that is, the gross receipts are assigned to the location of the customer. Illinois and Michigan generally assign gross receipts from the performance of services to the location where the services are performed. This rule proposes a market-based approach for assigning gross receipts from the performance of services.
Summary of factual data and analytical methodologies: The department started with the Recommended Formula for Apportionment and Allocation of Net Income of Financial Institutions, which was adopted by the Multistate Tax Commission (MTC) on November 17, 1994. The MTC is an organization of state governments that works with taxpayers to develop and recommend uniform laws and regulations to promote equitable state tax treatment of multistate businesses. The MTC spent more than seven years working with state tax departments and multistate and multinational financial institutions from across the country in developing this apportionment formula. The laws, regulations, rules, and tax returns of the other states that impose a franchise or income tax on financial institutions and brokerage firms were then reviewed. Since state apportionment formulas are not uniform, neighboring states' apportionment formulas were the primary focus of this review. Revisions to these formulas were then made, based on suggestions from Wisconsin's banking associations.
Analysis and supporting documents used to determine effect on small business: The department has prepared a fiscal estimate for this proposed rule order. It was determined that there is not a significant fiscal effect on small business.
Anticipated costs incurred by private sector: This proposed rule order does not have a significant fiscal effect on the private sector.
Effect on small business: This proposed rule order does not have a significant fiscal effect on small business.
Fiscal Estimate
