Section 71.775. Withholding from nonresident members of pass-through entities.

 

(1)   Definitions. In this section:

(a) “Nonresident" includes an individual who is not domiciled in this state; a partnership, limited liability company, or corporation whose commercial domicile is outside the state; and an estate or a trust that is a nonresident under s. 71.14 (1) to (3m) .

(b) “Pass-through entity" means a partnership, a limited liability company, a tax-option corporation, an estate, or a trust that is treated as a pass-through entity for federal income tax purposes.

(2)   Withholding tax imposed.

(a) For the privilege of doing business in this state or deriving income from property located in this state, a pass-through entity that has Wisconsin income for the taxable year that is allocable to a nonresident partner, member, shareholder, or beneficiary shall pay a withholding tax. The amount of the tax imposed under this subsection to be withheld from the income distributable to each nonresident partner, member, shareholder, or beneficiary is equal to the nonresident partner's, member's, shareholder's, or beneficiary's share of income attributable to this state, multiplied by the following:

1. For an individual, an estate, or a trust, the highest tax rate for a single individual for the taxable year under s. 71.06 .

2. For a partnership, a limited liability company, or a corporation, the highest tax rate for the taxable year under s. 71.27 .

(b) A pass-through entity that is also a member of another pass-through entity is subject to withholding under this subsection and shall pay the tax based on the share of income that is distributable to each of the entity's nonresident partners, members, shareholders, or beneficiaries.

(3)   Exemptions.

(a) A nonresident partner's, member's, shareholder's, or beneficiary's share of income from the pass-through entity that is attributable to this state shall not be included in determining the withholding under sub. (2) if any of the following applies:

1. The partner, member, shareholder, or beneficiary is exempt from taxation under this chapter. For purposes of this subdivision, the pass-through entity may rely on a written statement from the partner, member, shareholder, or beneficiary claiming to be exempt from taxation under this chapter, if the pass-through entity attaches a copy of the statement to its return for the taxable year and if the statement specifies the name, address, federal employer identification number, and reason for claiming an exemption for each partner, member, shareholder, or beneficiary claiming to be exempt from taxation under this chapter.

2. The partner's, member's, shareholder's, or beneficiary's share of income from the pass-through entity that is attributable to this state is less than $1,000.

3. The nonresident partner, member, shareholder, or beneficiary files an affidavit with the department, in the form and manner prescribed by the department, whereby the nonresident partner, member, shareholder, or beneficiary agrees to file a Wisconsin income or franchise tax return and be subject to the personal jurisdiction of the department, the tax appeals commission, and the courts of this state for the purpose of determining and collecting Wisconsin income and franchise taxes, including estimated tax payments, together with any related interest and penalties.

(b) A pass-through entity that is a joint venture is not subject to the withholding under sub. (2) , if the pass-through entity has elected not to be treated as a partnership under section 761 of the Internal Revenue Code.

(cm) A pass-through entity that is a publicly traded partnership, as defined under section 7704 (b) of the Internal Revenue Code, that is treated as a partnership under the Internal Revenue Code is not subject to the withholding under sub. (2) , if the entity files with the department an information return that reports the name, address, taxpayer identification number, and any other information requested by the department for each unit holder with an income in this state from the entity in excess of $500.

(4)   Administration.

(a) Each pass-through entity that is subject to the withholding under sub. (2) shall file an annual return that indicates the withholding amount paid to the state during the pass-through entity's taxable year. The entity shall file the return with the department no later than:

1. For tax-option corporations, the 15th day of the 3rd month following the close of the taxable year.

2. For partnerships, limited liability companies, estates, and trusts, the 15th day of the 4th month following the close of the taxable year.

(bm)

1. For the return under par. (a) , the department shall allow an automatic extension of 7 months or until the corresponding due date of the pass-through entity's federal income tax return or return of partnership income, whichever is later. Except for payments of estimated taxes, and except as provided in subd. 2. , withholding taxes payable upon filing the return are not delinquent during the extension period but shall be subject to interest at the rate of 12 percent per year during that period.

2. For taxable years beginning after December 31, 2008, for persons who qualify for a federal extension of time to file under 26 USC 7508A due to a presidentially declared disaster or terroristic or military action, withholding taxes that are otherwise due from a pass-through entity under sub. (2) are not subject to 12 percent interest as otherwise provided under subd. 1. during the extension period and for 30 days after the end of the federal extension period.

(bn) If a pass-through entity subject to withholding tax under sub. (2) does not file the return under par. (a) on or before the extension date provided in par. (bm) , the pass-through entity is liable for the penalty provided in s. 71.83 (1) , in addition to any unpaid tax, interest, and penalty otherwise assessable to a nonresident partner, member, shareholder, or beneficiary on income from the pass-through entity.

(cm) Except as provided in par. (L) , pass-through entities shall make estimated payments of the withholding tax under sub. (2) in 4 installments, on or before the 15th day of each of the following months:

1. The 3rd month of the taxable year.

2. The 6th month of the taxable year.

3. The 9th month of the taxable year.

4. The 12th month of the taxable year.

(dm) Section 71.29 (3) , (3m) , (4) , (5) , (6) , and (11) , as it applies to estimated payments of income and franchise taxes for corporations, also applies to estimated payments of the withholding tax imposed under sub. (2) for pass-through entities.

(em) Except as provided in par. (fm) , in the case of any underpayment of estimated withholding taxes under par. (cm) , interest shall be added to the aggregate withholding tax for the taxable year at the rate of 12 percent per year on the amount of the underpayment for the period of the underpayment. In this paragraph, “period of the underpayment" means the time period beginning with the due date of the installment and ending on either the unextended due date of the return under par. (a) or the date of payment, whichever is earlier. If 90 percent of the tax due under sub. (2) for the taxable year is not paid by the unextended due date of the return under par. (a) , the difference between that amount and the estimated taxes paid, along with any interest due, shall accrue delinquent interest in the same manner as income and franchise taxes under s. 71.82 (2) (a) .

(fm) No interest is required under par. (em) for a pass-through entity if any of the following conditions apply:

1. The amount of withholding tax due under sub. (2) is less than $500.

2. The amount of withholding tax due under sub. (2) is less than $5,000, the pass-through entity had no withholding tax liability under sub. (2) for the preceding taxable year, and the preceding taxable year was 12 months.

(g) Except as provided under par. (h) , the amount of each installment required under par. (cm) is 25 percent of the lesser of the following amounts:

1. Ninety percent of the withholding tax under sub. (2) that is due for the taxable year.

2. The withholding tax due under sub. (2) for the preceding taxable year, except that this subdivision does not apply if the preceding taxable year was less than 12 months or if the pass-through entity did not file a return under par. (a) for the preceding taxable year.

(h) If 22.5 percent for the first installment, 45 percent for the 2nd installment, 67.5 percent for the 3rd installment, and 90 percent for the 4th installment of the tax due under sub. (2) for the taxable year; computed by annualizing, under methods prescribed by the department, the pass-through entity's income for the months in the taxable year ending before the installment's due date; is less than the installment required under par. (g) , the pass-through entity may pay the amount under this paragraph, rather than the amount under par. (g) . For purposes of computing annualized income under this paragraph, the apportionment percentage computed under s. 71.25 (6) , (10) , and (12) from the return under par. (a) filed for the previous taxable year may be used if that return was filed with the department on or before the due date of the installment for which the income is being annualized and if the apportionment percentage on that previous year's return was greater than zero. Any pass-through entity that pays an amount calculated under this paragraph shall increase the next installment computed under par. (g) by an amount equal to the difference between the amount paid under this paragraph and the amount that would have been paid under par. (g) .

(i) On or before the due date, including extensions, of the entity's return, a pass-through entity that withholds tax under sub. (2) shall annually notify each of its nonresident partners, members, shareholders, or beneficiaries of the amount of the tax withheld under sub. (2) that the pass-through entity paid on the nonresident partner's, member's, shareholder's, or beneficiary's behalf. The pass-through entity shall provide a copy of the notice to the department with the return that it files for the taxable year.

(j) A nonresident partner, member, shareholder, or beneficiary of a pass-through entity may claim a credit, as prescribed by the department, on his or her Wisconsin income or franchise tax return for the amount withheld under sub. (2) on his or her behalf for the tax period for which the income of the pass-through entity is reported.

(k) Any tax withheld under this section shall be held in trust for this state, and a pass-through entity subject to withholding under this section shall be liable to the department for the payment of the tax withheld. No partner, member, shareholder, or beneficiary of a pass-through entity shall have any right of action against the pass-through entity with respect to any amount withheld and paid in compliance with this section.

(L) The department shall deem timely paid the estimated payments of the withholding tax imposed under sub. (2) that become due during the period beginning on January 1, 2009, and ending on July 1, 2009, provided that such estimated tax payments are paid by the next installment due date that follows in sequence following July 1, 2009. However, if the next installment due date following July 1, 2009, is less than 45 days after July 1, 2009, such estimated payments, in addition to the payment due less than 45 days after July 1, 2009, shall be deemed timely paid if paid by the next subsequent installment due date.

2005 a. 25 , 254 ; 2007 a. 20 ; 2009 a. 28 .