P.O. Box 8933\

Madison, WI 53708-8933

SECTION 1. Tax 2.50 is repealed and recreated to read:

Tax 2.50 Apportionment of apportionable income of interstate public utilities. (1) SCOPE. A public utility that is engaged in business both in and outside this state shall apportion its apportionable income as provided in this section. Nonapportionable income shall be allocated as provided in s. 71.25 (5) (b) 1., Stats.

(2) DEFINITIONS. In this section:

(a) “Payroll factor" means the payroll fraction computed under s. 71.04 (6) or 71.25 (8), Stats., and s. Tax 2.39.

(b) “Property factor" means the property fraction computed under s. 71.04 (5) or 71.25 (7), Stats., and s. Tax 2.39.

(c) “Public utility" means any business entity that owns or operates any plant, equipment, property, franchise, or license for the production, transmission, sale, delivery, or furnishing of electricity, water, or steam the rates of charges for goods or services of which have been established or approved by a federal, state, or local government or governmental agency.

(d) “Sales factor" means the sales fraction computed under ss. 71.04 (4m) and (7) or 71.25 (6m) and (9), Stats., and s. Tax 2.39.

(3) APPORTIONMENT FORMULA COMPUTATION. For taxable years beginning after December 31, 2004, a public utility that does business in and outside this state shall determine its net income for state franchise or income tax purposes as provided in this section. The public utility shall first deduct from its total net income its nonapportionable income, less related expenses. Nonapportionable income shall be allocated as provided in s. 71.25 (5) (b) 1., Stats. The public utility shall apportion its remaining net income to this state as follows:

(a) For taxable years beginning before January 1, 2006, apportionable income shall be apportioned using an apportionment fraction obtained by taking the arithmetical average of the sales factor, property factor, and payroll factor.

(b) For taxable years beginning after December 31, 2005, and before January 1, 2007, apportionable income shall be apportioned using an apportionment fraction composed of the sales factor, representing 60% of the fraction, the property factor representing 20% of the fraction, and the payroll factor representing 20% of the fraction.

(c) For taxable years beginning after December 31, 2006, and before January 1, 2008, apportionable income shall be apportioned using an apportionment fraction composed of the sales factor representing 80% of the fraction, the property factor representing 10% of the fraction, and the payroll factor representing 10% of the fraction.

(d) For taxable years beginning after December 31, 2007, apportionable income shall be apportioned using an apportionment fraction composed of the sales factor.

Note: The provisions of s. Tax 2.50 first apply for taxable years beginning on January 1, 2005.

Note: Section Tax 2.50 interprets ss. 71.04 (8) (b) and (c) and 71.25 (10) (b) and (c), Stats.

SECTION 2. Tax 2.502 is created to read:

Tax 2.502 Apportionment of apportionable income of interstate telecommunications companies. (1) SCOPE. A telecommunications company that is engaged in business both in and outside this state shall apportion its apportionable income as provided in this section. Nonapportionable income shall be allocated as provided in s. 71.25 (5) (b) 1., Stats.

(2) DEFINITIONS. In this section:

(a) “Payroll factor" means the payroll fraction computed under s. 71.04 (6) or 71.25 (8), 2001 Stats., and s. Tax 2.39.

(b) “Property factor" means the property fraction computed under s. 71.04 (5) or 71.25 (7), 2001 Stats., and s. Tax 2.39.

(c) “Sales factor" means the sales fraction computed under s. 71.04 (7) or 71.25 (9), 2001 Stats., and s. Tax 2.39.

(d) “Telecommunications company" means any business entity that owns or operates any plant, equipment, property, franchise, or license for the transmission of communications the rates of charges for goods or services of which have been established or approved by a federal, state, or local government or governmental agency.

(3) APPORTIONMENT FORMULA COMPUTATION. For taxable years beginning after December 31, 2004, a telecommunications company that does business in and outside this state shall determine its net income for state franchise or income tax purposes as provided in this section. The telecommunications company shall first deduct from its total net income its nonapportionable income, less related expenses. Nonapportionable income shall be allocated as provided in s. 71.25 (5) (b) 1., Stats. The telecommunications company shall apportion its remaining net income to this state using an apportionment fraction obtained by taking the arithmetical average of the property factor, payroll factor, and sales factor.

Note: The provisions of s. Tax 2.502 first apply for taxable years beginning on January 1, 2005.

Note: Section Tax 2.502 interprets ss. 71.04 (8) (b) and (c) and 71.25 (10) (b) and (c), Stats.

This proposed rule order does not have a significant economic impact on a substantial number of small businesses.