Publication 102 - Wisconsin Tax Treatment Of Tax-Option (S) Corporations And Their Shareholders Page 24
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30Publication 102
a copy of the other state’s tax return to the Form 5S
F. Wisconsin Resident Shareholders of S Corporations
it files with the Department of Revenue.
That Aren’t Required to File Wisconsin Franchise
or Income Tax Returns
Example: A Wisconsin tax-option (S) corporation does
business in another state which doesn’t recognize its S
S corporations that aren’t domiciled in Wisconsin or aren’t
status. The corporation has 5 equal shareholders; 3 are
authorized to transact business in Wisconsin and that aren’t
Wisconsin residents, one was a Wisconsin resident for 3
engaged in business in Wisconsin to the degree necessary to
months of the corporation’s 1997 calendar year, and one
have a Wisconsin franchise or income tax filing requirement
is a nonresident. For 1997, the corporation pays $1,000 of
aren’t subject to the Wisconsin tax-option (S) law. However,
tax to the other state. One-fifth of the tax paid, or $200, is
Wisconsin resident shareholders of these corporations must
allocated to each of the Wisconsin resident shareholders.
report the same income or loss to Wisconsin as they report
One-fourth of one-fifth of the tax paid, or $50, is allocated
on their federal returns, adjusted for necessary transitional
to the part-year resident shareholder.
adjustments and certain modifications.
c. If the corporation isn’t subject to Wisconsin fran-
The transitional adjustments described in Part IX.B apply to
chise or income tax law and the corporation pays an
Wisconsin resident shareholders of corporations not subject
income or franchise tax to another state on or mea-
to the Wisconsin tax-option (S) law. However, not all of the
sured by the income earned there, the Wisconsin
modifications described in Part IX.C apply.
resident shareholder must submit a letter from the
corporation. The letter must include a schedule
The modifications described in Part IX.C.1 and 2 for a
showing the shareholder’s pro rata share of the items
taxed by the state, the adjusted gross income, and
shareholder’s share of the difference in a corporation’s
federal and Wisconsin items of income, loss, and deduction
the net tax paid.
should not be made. The corporation isn’t required to file a
Wisconsin income or franchise tax return and, therefore,
State taxes which may qualify for the credit include the
doesn’t compute income or loss under the Wisconsin
following:
Statutes. Thus, the items of income, loss, and deduction are
passed through to the shareholders and included on the
•
Illinois replacement tax.
shareholders’ Wisconsin returns in the same manner as for
•
Michigan single business tax, provided the alterna-
federal purposes.
tive gross receipts short method isn’t used to com-
pute the tax.
Since income, loss, and deductions flow through separately
•
New York tax based on net income.
to the Wisconsin return, modifications may be necessary to
•
Pennsylvania net income tax.
conform to Wisconsin law concerning the income taxable
•
Texas franchise tax to the extent that it is based on
and the deductions allowable to a Wisconsin resident. For
net taxable earned surplus.
example, an addition modification is required for municipal
bond interest, and a credit, instead of a deduction, may be
State taxes which do not qualify for the credit include
allowable for charitable contributions.
the following:
A Wisconsin resident shareholder of such a corporation must
•
Michigan single business tax computed using the
modify federal S corporation income or loss for the federal
gross receipts short method.
and Wisconsin stock and debt basis differences described in
•
Minnesota built-in gains tax, capital gains tax,
Part IX.C.3 and 4. However, the characterization of distribu-
excess passive income tax, or minimum fee.
tions as dividend or non-dividend is determined under the
•
New York fixed dollar minimum tax, tax imposed
federal rules because no Wisconsin AAA is computed for the
on subsidiary capital, or franchise tax based on
corporation.
allocated capital.
•
Pennsylvania capital stock tax, franchise tax, or
A Wisconsin resident shareholder of this type of corporation
corporation loans tax.
also is entitled to modify federal S corporation income or
•
Washington business and occupation tax.
loss for the shareholder’s share of a federal deduction which
•
Texas franchise tax to the extent based on net
the corporation chooses not to take on its federal return, but
taxable capital.
the benefit for which is claimed as a tax credit on its share-
holders’ individual federal returns.
For additional information, see the tax release in Wiscon-
sin Tax Bulletin 85 (January 1994, page 21).
22
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