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PART I. — GENERAL DESCRIPTION OF INCOME-TAX SYSTEM.1

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The income-tax of Wisconsin is a direct tax at progressive rates, assessed on the taxpayer, and in no instance collected by withholding at the source. It was introduced in 1911 and is now found in the Wisconsin Statutes 1927, Chapter 71, as amended.2

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1. TAXPAYERS.

(a) INDIVIDUALS.

Liability to assessment depends both on whether the taxpayer is resident within or without the State and upon the source of the income. Every person residing within the State (or his personal representative in case of death) pays tax upon all income from sources within the State and upon such income from sources without as is allocated for tax purposes to residence. Non-residents are liable to tax upon such income from property located or business transacted within the State as is not exempted.

The provision allocating certain items of income for taxation exclusively at source and others exclusively at residence is as follows:

“Income derived from rentals and royalties from real estate or tangible personal property, or from the operation of any farm, mine or quarry, or from the sale of real property or tangible personal property shall follow the situs of the property from which derived. All other income, including royalties from patents, income derived from personal services, professions and vocations and from land contracts, mortgages, stocks, bonds and securities or from the sale of similar intangible personal property, shall follow the residence of the recipient, except as provided in section 71.095” (regarding fiduciaries) (Statute 71.02 (c)).

(b) PARTNERSHIPS.

In regard to partnerships each individual partner is responsible for the tax on his distributive share of partnership income, whether distributed or not, and the partnership is not taxed as such. Income allocable to residence follows the residence of the individual partners. Income from business or tangible property is taxable if the situs is in Wisconsin, irrespective of where the partners are resident.

The following figures will illustrate the relative importance of income-tax in entire fiscal system and comparative yield: The income-tax of Wisconsin produced in the year ending June 30th, 1931, 11.33 per cent of the total State and local tax revenue — i.e., approximately $20,812,439 out of a total revenue of approximately $183,683,744. The principal levy is the general property-tax yielding $120,855,119. Other levies include various special property and other special taxes ($17,787,691), inheritance taxes ($2,810,216) and motor-vehicle taxes ($21,418,269).

(c) COMPANIES.

The liability of companies depends upon their place of residence and on the source of the income. A corporation is regarded as being resident in the State of Wisconsin if it was incorporated there, or if, though incorporated abroad, it carries on or transacts its principal business there (Wisconsin Statute 71.03 (e)). By “principal business” is meant the place where a preponderance of the income is produced and not necessarily the place where the directors meet or the general office is situated. In practice, it has been found that the head office, or real administrative centre, usually coincides with the place where the principal business is located.

2. TAXABLE INCOME.

Under the Wisconsin Income-Tax Act, the term “income” is not restrictive, but includes all gains, profits or income of any kind derived from any source whatever, except certain specified exempted items. The exempted items include, inter alia, inheritances and gifts, insurance, except that paid to a partnership or corporation upon the policies on the lives of its officers, partners or employees, and income of insurance companies and steam railroad corporations.

NATIONAL AND FOREIGN INCOME.

In general, if the situs of the source of income is in Wisconsin, it is Wisconsin income; if the situs is outside, it is foreign income. As has been indicated above, certain classes of income have been allocated to source for taxation purpose, whereas certain others are allocated to the State of residence of the taxpayer. Consequently, if real estate, tangible personal property, a farm, mine or quarry is situated in Wisconsin, the income therefrom is regarded as Wisconsin income. It is important to note that any tangible personal property must have obtained in Wisconsin a definite situs before its sale can constitute a sale within Wisconsin for purposes of income-tax. Otherwise the sale within the State of an article of tangible personal property which has just entered the State or is passing through the State, or has not yet acquired a definite situs therein, is regarded as coming under the category of property in interstate commerce, which is not subject to tax in Wisconsin.

3. ASSESSMENT OF TAX.

With regard to the assessment of the tax, the tax is upon “net income”, meaning “gross income less allowable deductions”. Gross income includes the gross amount of any kind of income from any source whatever. Allowable deductions include dividends from corporations, which are deductible by the stockholder on his personal return, provided that the corporation has paid a tax on 50 per cent or more of its income to Wisconsin.

In the case of business enterprises, assessment is based upon the amount of income less expenses incurred in the production of that income. At present, the tax is computed on the average net income of the three years preceding that in which the tax is assessed. Beginning in 1933, the tax is to be levied on the income of the preceding year. The 1933 tax may be levied on the untaxed income of 1930 and 1931 if that amount is greater than the income of 1932. Starting with the income year 1933, a business loss may be carried forward to the next year, and, if not completely offset, the balance may be carried forward to the year following.

Individuals are allowed credits against the tax in respect of their personal exemptions. The amounts are $8 for a single individual, $17.50 in the case of a married person or head of a family and $4 for each child or dependent.

The rates are progressive and range, for individuals, from 1 per cent on the first $1,000 to 7 per cent in the case of incomes in excess of $12,000; and for corporations, from 2 per cent on the first $1,000 to 6 per cent on amounts in excess of $6,000.

4. COLLECTION OF TAX.

The tax is imposed directly on the taxpayer, who is required to submit an annual return on or before March 15th, if income is computed on the calendar year basis and, if computed on the fiscal year basis, the return must be submitted seventy-five days after the close of the fiscal year.

The individual taxpayer merely indicates on his return his items of taxable income and deductions, and the computation of his liability is made by the local tax assessor, who lists the assessment on a roll and delivers the roll and a bill to the collector (county treasurer), the latter forwarding the bill to the taxpayer. Notice of assessment must be served on the taxpayer on the first day of the sixth month following the close of his fiscal or the calendar year and tax is payable in full within thirty days thereafter.

In the case of corporations, the declaration of income is made by the corporation; the Tax Commission computes the tax, enters the computation on a roll and sends the roll, together with a bill, to the collector (county treasurer), who in turn forwards the bill to the taxpayer. The latter pays the tax within thirty days to the collector.

The initial assessment is made on the basis of the figures submitted by the taxpayer (individual or corporation), but if it is subsequently discovered that the taxpayer has failed to declare the whole income, additional assessments may be made up to a period within seven years after the close of the income-tax year for which the return is made.

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