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STARTING AND OPERATING A BUSINESS IN WISCONSIN Copyright © 2008, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Wisconsin has a fairly typical tax and legal structure under which businesses must operate, not unlike that of most of other states. Like most states, Wisconsin imposes an income tax, a franchise or income tax on corporations, a sales and use tax, and various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in Wisconsin in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. At present, the state's economy is reasonably strong, but has slowed down in the last year, as is evidenced by Wisconsin's rate of unemployment and other economic measures. For example, in October, 2008, the Wisconsin's unemployment rate was 5.1%, up from 4.8% a year earlier, but this is considerably lower than the national unemployment rate, which was 6.5% in October, 2008. To view the latest federal Bureau of Labor Statistics unemployment rate data for Wisconsin or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Wisconsin can do so as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Wisconsin also provides for limited liability partnerships, in which no partner is liable for certain debts of the partnership, somewhat like a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV . (b) Sole Proprietorships. In general, sole proprietorships in Wisconsin can be established with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. In addition, if you sell any kind of tangible personal property at retail or provide certain types of services, you may be required to obtain a sales tax license and collect sales tax, as discussed in Section IV(d). No separate tax form filing is required, generally, for a sole proprietorship, under the Wisconsin income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c), for information on the Wisconsin income tax and filing requirements for individuals. Doing business as a sole proprietor in Wisconsin is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, nor obtain workers' compensation coverage for yourself. However, if your sole proprietorship operates under an assumed or fictitious business name (trade name), it will generally be required to register the name with the Register of Deeds of the county where you have your principal place of business, as discussed in Section IV(g). (c) Partnerships. Wisconsin's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, in general. Partnerships, as entities, are not subject to state income tax in Wisconsin. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). Partnerships are required to file an annual tax information return with the state, however. For more on Wisconsin partnership tax return filing requirements, see Section IV(c). In addition, if a partnership operates under an assumed or fictitious business name (trade name), it will generally be required to register the name with the Register of Deeds of the county where it has its principal place of business, as discussed in Section IV(g). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Wisconsin can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. Partnership agreements and any modifications to such agreements can, if desired, be filed in the office of the Register of Deeds of the county in which its principal place of business is located. The county will collect a small filing fee for each such filing, of $1 or more. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for the partnership's debts), may also be formed under Wisconsin law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and it must file two copies of a certificate of limited partnership, Form 302, with the Department of Financial Institutions, together with a filing fee of $70. Foreign limited partnerships must also register before being allowed to do business in Wisconsin, and must file Form 321 and pay a registration fee of $75. For information on limited partnership filing requirements, see the contact information for the offices of the Wisconsin Department of Financial Institutions, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a new form of partnership permitted under the laws of Wisconsin. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Wisconsin state income tax purposes. Unlike LLC's, an LLP typically operates like a regular partnership, and is not required to file articles of organization. Partners in a general partnership can obtain a significant degree of limited liability by simply registering the partnership with the state as an LLP. However, becoming an LLP will not affect the liability of a partner in an LLP for his or her own omissions, negligence, wrongful acts, misconduct or malpractice or that of any person under his or her direct supervision and control. To form an LLP in Wisconsin, you must register and pay a filing fee of $100 to the Wisconsin Department of Financial Institutions. Foreign LLP's, those created under the laws of another state, must register with the Department of Financial Institutions and also pay a registration fee of $100. Note that one potential drawback of LLP's, if you will do business in other states besides Wisconsin, is that you may not enjoy limited liability with regard to creditors of the LLP if you do business in some such states. Some states, like California and New York, only recognize certain types of professional partnerships as LLP's. Such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. For more information on LLP registration requirements, see the contact information for the offices of the Department of Financial Institutions, listed in Section VI(a). (d) Corporations. To form a corporation in Wisconsin, you must file articles of incorporation with the Wisconsin Department of Financial Institutions, Division of Corporate and Consumer Services, and pay a fee of $100. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Wisconsin, by filing an application for a certificate of authority and paying a filing fee of $100, plus $3 for each $1,000 of capital in excess of $60,000 that is to be employed in the state. The filing fee was increased as of July 27, 2005. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Wisconsin, see the contact information for the offices of the Department of Financial Institutions, listed in Section VI(a). Once your corporation is formed, it will be required to file annual reports and pay a filing fee of $40 ($25 if filing on-line) to the Department of Financial Institutions each year. Failure to file an annual report on a timely basis could result in suspension or revocation of your corporation's charter. Foreign corporations must pay an annual fee of $80 (or $65 if filed online), plus an additional fee if they have increased the amount of capital employed in the state, in an amount equal to $3 per $1,000 of such additional capital. In addition to paying federal income taxes on its income, a corporation that does business in Wisconsin must also file corporate franchise or income tax returns with the state. Corporations that do business in Wisconsin are generally subject to a corporate franchise tax on their taxable income. Those which merely own property in the state or engage in interstate or foreign commerce in the state are instead subject to the corporation income tax, imposed at the same rates as the franchise tax. See Section IV(c), for a discussion of state corporate income tax rates and tax return filing requirements. For tax forms and more information on corporate income and franchise taxes in Wisconsin, see the contact information for the offices of the Department of Revenue, Division of Income, Sales, and Excise Tax, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Wisconsin recognizes S corporations for income tax purposes, and treats them in a manner that is similar to the federal tax treatment. See Section IV(c), for more on the tax treatment of S corporations by the state of Wisconsin. (f) Limited Liability Companies. Wisconsin, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Wisconsin may also choose to operate in the form of an LLC. LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes, and in most states as well, including Wisconsin. See Section IV(c), for a discussion of the income tax treatment of LLC's under Wisconsin tax laws. To form an LLC under the laws of Wisconsin, one or more persons must file articles of organization with the Department of Financial Institutions, which must be accompanied by a filing fee of $130, if filing electronically ($170 if filed on paper). Wisconsin state law allows formation of one-owner LLC's, which now may qualify for treatment as sole proprietorships for federal tax purposes. Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Wisconsin, by filing an application for a certificate of authority with the Department of Financial Institutions and paying a filing fee of $100. In addition to initial filing fees, an LLC is required to file an annual report and pay the applicable filing fee, which is $25 for a domestic LLC or $80 for a foreign LLC. For more information on filing articles of organization for an LLC, see the contact information for the offices of the Department of Financial Institutions, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Wisconsin is one of the few states that still has a bulk sale law and you will need to comply with this law when you purchase assets of an existing business. Failure to do so will expose you to liability to any creditors of the seller who do not get paid off when the sale of the business occurs. Wisconsin's bulk sale law closely follows the bulk transfer provisions of the Uniform Commercial Code. The basic requirements, when purchasing the assets of business in a bulk sale, are as follows:
Compliance with the bulk sales law should be handled by a competent business attorney, as its requirements are quite specific and very technical in nature. Handling the legal aspects of a business purchase is one area where we do not recommend a do-it-yourself approach. Representing yourself in a business acquisition is, in our view, the legal equivalent of do-it-yourself brain surgery, particularly in a state like Wisconsin that has a bulk sale law. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business occurs. In Wisconsin, you should obtain a tax release for unemployment taxes from the Division of Unemployment Insurance of the Department of Workforce Development, and should request a Sales and Use Tax Clearance Certificate from the Wisconsin Department of Revenue. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. To obtain the seller's favorable experience rating as a successor employer, you will need to apply on a timely basis to the Department of Workforce Development, requesting that you be treated as a successor employer. When you transfer or acquire a business, you must let the Department of Workforce Development know within 30 days of the sale/acquisition. Notice can be given by telephone, by completing a Form UCT-115, Report of Business Transfer, or by other written notice with information about the transfer. Succeeding to the seller's experience rating is generally optional. However, where the transfer is between related businesses, owned or controlled by the same person or persons, treatment as a successor employer is mandatory for the employer to whom the employees are transferred. PLANNING POINT: EXAMPLE: IV. WISCONSIN TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
The general pattern of taxation in Wisconsin is fairly typical and
similar to that of most U.S. states, but taxes are fairly high.
The Massachusetts Taxpayers Foundation study of state taxes in 2004
(based on 2002 data) found that Wisconsin had the fifth-highest
state taxes in the nation, of $117.26 per $1,000 of residents'
income. New York had the highest state taxes, at $130.79, and
Tennessee the lowest, at just under $84 per $1,000 of income.
Wisconsin imposes all of the usual types of state taxes,
including personal income tax, corporate franchise (income)
tax, and sales and use taxes. In general, the state income
tax laws are closely patterned after the federal laws, in
terms of the tax treatment of partnerships, corporations, S
corporations, and LLC's, as are the estimated tax requirements
and the filing deadlines for individual, partnership, and
corporation income or franchise tax returns, all of which
makes life somewhat simpler for the taxpayer.
All businesses operating in Wisconsin that have at least
$4 million in annual gross receipts are subject to an annual
recycling surcharge or tax that can range from $25 to as much as
$9,800. The recycling tax rate is 3% of a C corporation's gross
Wisconsin income tax or franchise tax liability, subject to the
above minimum or maximum amounts of $25 or $9,800. For all other
types of business entities, including S corporations, sole
proprietorships, partnerships and LLC's (taxable as partnerships),
the recycling tax rate is 0.2% of the company's net business
income that is apportionable to Wisconsin, subject to the $25
or $9,800 minimum or maximum surcharge. The surcharge is
generally an addition to the state income or franchise tax
and must be taken into account in computing a business'
estimated income or franchise tax.
For more details on the recycling surcharge, request a copy
of Publication 400 from the Wisconsin Department
of Revenue. For state tax forms and other tax information, see
the contact information for the Wisconsin Department of Revenue
in Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States, will
have to have at least one government license of some kind. In
most cases, this will be a local license, issued by your city or
county. Before you open your business, contact your local city
or county hall and find out if your particular business needs one
or more local licenses. Most kinds of local business licenses
are granted upon payment of a fee, with no further requirements,
except possibly for annual or other periodic renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning and
planning restrictions. If you own or rent any type of
facility, you will generally need fire department permits,
showing that you meet fire safety codes and any construction
or improvements to an existing structure will usually
require a building permit. If you intend to simply operate
your business from your home, you may be in violation of
local zoning requirements, but this is less likely to be a
concern if you don't have clients, customers, suppliers, or
employees coming to your house on business, on a regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Wisconsin has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
The Department of Regulation and Licensing is the
state agency responsible for issuing credentials and
regulating various professions in the State of Wisconsin.
Regulation of the professions is accomplished through
various licensing boards as well as directly by the
Department in some cases.
The Wisconsin Department of Regulation and Licensing
provides centralized administrative services to 20
regulatory boards. Currently the department and boards
are responsible for regulating over 100 different types
of credentials in more than 50 professional fields.
For assistance with state licensing and business registration
requirements in Wisconsin, see the contact information for
the offices of the Department of Regulation and Licensing,
listed in Section VI(a).
(c) Income and Franchise Taxes.
Wisconsin has both an individual income tax and a corporate
income tax or franchise tax on corporations. A recycling surcharge
is also imposed on businesses that have $4 million or more in
gross receipts, as is discussed in Section IV(a).
PASS-THROUGH ENTITY WITHHOLDING
Wisconsin now requires that all pass-through entities,
including partnerships, LLC's, and S corporations, must withhold
Wisconsin income or franchise taxes on income allocable to
nonresident owners. In addition, effective since December 28,
2005, the Department of Revenue has ruled that such entities
must file electronically and make payments of those withheld
taxes by electronic means, unless granted a waiver. An automatic
waiver from the electronic filing and payment requirements is
granted to any pass-through entity that has $25,000 or less
of Wisconsin income passed through to all of its owners
(partners, members, or shareholders).
Form PW-1 must be filed to report the
withheld tax, which is computed at a 6.75% tax rate for owners
that are individuals, estates, or trusts, or 7.9% for such
nonresident owners that are corporations or partnerships.
However, in lieu of withholding, a pass-through entity may
file a composite Wisconsin tax return (Form 1CNP)
on behalf of its nonresident owners, if it has two or more such
owners who have no other sources of taxable income from Wisconsin.
Note that no withholding is required for a nonresident owner whose
allocable share of the Wisconsin pass-through income is less than
$1,000. Also, under 2007 legislation, withholding will not be
required with respect to a nonresident owner who files an affidavit
with the Department of Revenue, agreeing to file Wisconsin income
tax returns and to be subject to the state's taxing jurisdiction.
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
The Wisconsin individual income tax is imposed at a
maximum tax rate of 6.75%. Individual taxpayers generally
pay state income tax on their business earnings from a sole
proprietorship, or on their share of the earnings of a
pass-through entity, such as a partnership, S corporation,
or LLC. The Wisconsin personal income tax return is
Form 1, which must be filed with the Department
of Revenue by April 15th each year, for the preceding
calendar year.
Partnerships, or entities taxable as partnerships, such as
LLC's, are not subject to state income taxation in Wisconsin,
but must file an information return with the Department of
Revenue each year, showing each partner's share of taxable
income, losses, and credits.
The partnership information return, Form 3,
is due by April 15th of the following year, in the case of a
calendar year partnership. Since 2005, partnerships with
nonresident partners have been required to withhold Wisconsin
income or franchise tax on income allocable to such partners,
as discussed above in this section
under the heading on PASS-THROUGH ENTITY WITHHOLDING.
Individual taxpayers doing business as sole proprietors
(or who are partners in partnerships, members of LLC's, or
shareholders in S corporations), who have taxable income
from the business, will generally be required to make
advance payments of estimated Wisconsin individual income
taxes, on Form 1-ES, if their net tax
liability (not covered by withholding) exceeds $200.
Estimated tax payments are due in four installments,
on the 15th day of the 4th, 6th, and 9th months of the
taxable year, and the 15th day of the first month of the
following year.
To avoid penalties for underpayment of estimated tax, you
must either pay in 90% of the current year's tax, or 100%
of the previous year's tax.
Although sole proprietorships and partnerships are not
generally subject to state income tax, sole proprietors or
partnerships with $4 million or more in gross receipts are
subject to a recycling surcharge (tax), equal to 0.2% of their
net income, as is discussed in Section IV(a).
The Wisconsin corporate franchise (or income) tax rate, on
corporations other than S corporations, is 7.9% of taxable
income. There is also a surcharge for recycling, equal to 3%
of the income tax or franchise tax liability of a C corporation,
with a minimum surcharge of $25 and a maximum of $9,800. For S
corporations, which generally have no income tax or franchise
tax liability, the surcharge is equal to 0.2% of their taxable
income, subject to the same $25 or $9,800 minimum or maximum.
For more on the recycling surcharge, see the discussion in
Section IV(a).
The state corporation income or franchise tax return, for
corporations operating solely in Wisconsin, is Form 5,
which must be filed with the Department of Revenue by the 15th day
of the third month following the end of the taxable year, or by
March 15th in the case of a corporation whose taxable year is the
calendar year. Corporations operating both within and outside
of the state must file Form 4, rather than
Form 5, and must apportion their taxable income
between Wisconsin and other jurisdictions where they do business.
Corporations are required to make estimated tax payments
of their state corporate income tax in advance, if their tax
liability for the year, including the recycling surcharge,
equals or exceeds $500. Estimated tax payments are due in
advance, in four equal installments, on the 15th day of the
3rd, 6th, 9th, and 12th months of the taxable year. Payments
should be made with a corporate estimated tax voucher,
Form 4-ES.
The total estimated tax that must be paid in by corporations
is usually equal to 90% of the actual tax liability for the
year. However, for small corporations with less than $250,000
of Wisconsin net income, if the preceding year was a full
year of 12 months, the current year payments need only be
equal to 100% of the prior year's tax liability, if that is
less than 90% of the current year tax liability. For such
small corporations, if the preceding year was a full taxable
year of 12 months and there was no Wisconsin tax liability,
no estimated tax payments are required for the current year.
Penalties will be imposed for failure to make the required
estimated tax payments on a timely basis.
S corporations are treated much the same under the Wisconsin
income and franchise tax law as under federal tax law, in
that their income is generally taxable to the S corporation
shareholders, and not to the corporation itself. However, S
corporations with $4 million or more in gross receipts and which
do business in Wisconsin are subject to the recycling surcharge
(tax), as is discussed in Section IV(a).
A corporation that has elected S corporation tax
treatment for federal tax purposes may, if desired, elect
on Form 5E to be taxed as a regular
corporation (C corporation) for Wisconsin income and
franchise tax purposes.
An S corporation must file an annual tax return, on
Form 5S, which is due by the 15th day of
the third month following the end of the tax year, or
March 15th, in the case of a calendar year taxpayer.
Since 2005, S corporations with nonresident
shareholders have been required to withhold Wisconsin
income tax on income allocable to such shareholders, as
discussed above in this section
under the heading on PASS-THROUGH ENTITY WITHHOLDING.
In addition to franchise (income) taxes that may be imposed
on a corporation by Wisconsin, any foreign corporation that
qualifies to do business in the state must pay an initial
fee based on the value of its capital that is considered to
be employed in the state, at the time it registers for a
certificate of authority to do business in Wisconsin. The fee
is $100, plus $3 for each $1,000 of capital, in excess of
$60,000, that is employed in the state. Subsequently, if the
amount of capital employed in the state has increased during
a year, the foreign corporation must pay an additional $3 per
$1,000 of such increase in capital, in addition to other annual
filing fees, as described in Section II(d).
TAXATION OF LIMITED LIABILITY COMPANIES
In Wisconsin, a limited liability company (LLC) is taxed
in the same manner as a partnership, thus avoiding the
possible double taxation of income that can occur with a
corporation. Note that under revised IRS regulations,
effective since 1997, an LLC may now elect to be treated
as a partnership if it has more than one owner, or as a
sole proprietorship if it does not, for federal income tax
purposes. Wisconsin law now recognizes the validity of a
one-owner LLC, and generally disregards its existence as an
entity for tax purposes, like a sole proprietorship, unless
the LLC has elected to be taxed as a corporation. However,
a disregarded entity LLC that is treated as an employer for
federal income tax purposes is considered an employer for
Wisconsin state income tax withholding purposes as well.
(Ordinarily the single owner of an LLC that has employees
will be considered the employer, not the LLC.)
Note that it is not always entirely clear whether an LLC is a
"single-member LLC" or not, in a community property state like
Wisconsin, where the "single owner" is a married person and the
LLC is owned as community property. Wisconsin adopted a community
property system of marital property law in 1986.
Fortunately, the federal Internal Revenue Service (IRS) has
taken a very lenient position in Rev. Proc. 2002-69,
stating that the IRS will accept whatever choice the couple
make, either to disregard the LLC as an entity (treating it as a
"single-member LLC") or to treat it as a partnership between the
husband and wife. Presumably, the couple's choice of federal tax
treatment will also apply for state tax purposes, since Wisconsin
follows the federal tax treatment of LLC's, generally.
However, where the LLC is owned by a husband and wife as joint
tenants, or tenants in common, or as tenants by the entirety, it
is unclear whether the IRS treatment would be as lenient as for
community property owners, since the IRS has not issued any
published rulings on whether an LLC can be a disregarded entity
if held in one of the various forms of tenancy by a married
couple, rather than being held as community property. Thus, it
is also unclear, where an LLC is owned by a husband and wife as
co-tenants, whether Wisconsin would treat the LLC as a single-member
LLC or as a partnership.
While, like a partnership, an LLC that is taxable as a
partnership is not subject to state income tax or franchise
tax, it may be subject to a recycling surcharge or tax. As
in the case of other legal entities, LLC's with $4 million
or more of annual gross receipts and that do business in
Wisconsin are subject to the recycling surcharge or tax,
equal to 0.2% of net business income apportionable to
Wisconsin, with a minimum surcharge of $25 or a maximum
of $9,800. For more on the recycling surcharge, see the
discussion in Section IV(a).
Beginning in 2005, LLC's with nonresident members have
been required to withhold Wisconsin income or franchise
tax on Wisconsin income allocable to such members, as
discussed above in this section
under the heading on PASS-THROUGH ENTITY WITHHOLDING.
(d) Sales and Use Tax.
Wisconsin imposes a general sales tax on retail sales of tangible
personal property and certain types of services at the statewide
rate of 5%. In addition, county governments are allowed to adopt
local sales taxes, at the rate of 0.5%, and many counties do so.
A 0.1% baseball stadium sales tax applies in the five counties in
and around Milwaukee, and a 0.5% additional football stadium tax
applies in Brown County.
Sellers are required to obtain a seller's permit and to
collect and pay over the state and local sales and use taxes
to the Department of Revenue. Retailers are prohibited from
absorbing the sales tax, which is imposed on the consumer and
is merely collected by the retailer. A retailer may not run
advertisements that suggest that it will absorb any portion
of the sales tax, such as "Pay no sales tax" or "We'll pay
your sales tax."
There are numerous exemptions from the sales tax, the most
important of which is the resale exemption. If you are a
wholesaler or retailer who purchases goods that you will
resell, your purchase of such goods may qualify as an exempt
sale for resale. Similarly, if you sell goods to wholesalers
or retailers for resale by them, your sale may also qualify
as an exempt sale for resale. In any such transaction, the
exemption is ordinarily available only if the purchaser gives
the seller a valid resale certificate, certifying that the
items are being purchased for resale, and not for use or
consumption by the buyer.
Wisconsin imposes sales tax on most sales of computer
software, but not on "custom software" that meets various
requirements, such as costing more than $10,000, or not
being pre-written software.
It is one of only a few states that has continued to impose
its sales tax on Internet access charges, since it was already
doing so before enactment of the Internet Tax Freedom Act in
1998, which "grandfathered" such existing sales taxes on
Internet access charges.
A shadow tax, the use tax, is also imposed at the same
rate as the sales tax. It is primarily intended to tax
property that is acquired from sources outside of the state,
in transactions not subject to sales tax, when such property
is used or consumed within Wisconsin. Use tax may also apply
to items purchased on an exempt basis, such as for resale,
if such items end up being used or consumed, instead of
being resold.
Before making any taxable sales, you will need to register
with the Department of Revenue on Form BTR-101, Application
for Business Tax Registration, to obtain a sales tax
permit. There is a one-time $20 registration fee, which is only
charged for the first seller's permit you obtain. You must renew
the registration every two years, for another $10 fee. If you
have employees, you can also apply for your state employer
identification number on the same registration form.
For more information on Wisconsin sales and use tax
registration and compliance, see the contact information
for the offices of the Department of Revenue in
Section VI(a).
(e) Real and Personal Property Taxes.
In Wisconsin, as in every other state, any business real estate
you own will be subject to real property taxes. In general,
there is little that you must do, unless you wish to challenge
your assessed valuation, since the assessor will bill you for
each year's property taxes as they come due.
Wisconsin also imposes personal property taxes on tangible
personal property. ("Personal property" is any kind of property
that is not real estate.) However, certain business personal
property, such as merchants' and manufacturers' inventories,
are exempt from personal property tax in Wisconsin.
While Wisconsin generally taxes tangible personal property,
it does not impose a property tax on intangible personal
property, such as stocks, bonds, promissory notes, and
other such paper assets.
(f) Other Business Taxes.
Wisconsin imposes a number of excise and other taxes on
businesses, some of which may affect you. These include:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. In Wisconsin, contact the Wisconsin Secretary of State for the appropriate application form, if you wish to register a trade name or trademark. See Section VI(c) for a link to the Secretary of State's web site. You will also need to register your fictitious business name, if you use one, in Wisconsin. This can be done by recording a verified statement, under Sec. 134.17 of the Wisconsin Statutes, with the Register of Deeds of the county within which the business maintains its principal office. Contact your local Register of Deeds for details on the procedures for filing. There are stiff penalties for failure to record a fictitious business name, where you operate under a fictitious name that appears or purports to be a corporate name. Penalties can include a $1,000 fine or imprisonment for up to one year. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Wisconsin imposes a state income tax on the income of individuals, you will need to also withhold Wisconsin income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Department of Revenue. Wisconsin follows the federal tax treatment and thus, beginning in 2009, has begun requiring single-member LLC's that are "disregarded entities" to obtain a state employer numbers for purposes of wage withholding. UPDATE NOTE: For more information on Wisconsin income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Wisconsin unemployment tax are required to register with the Department of Workforce Development (DWD) to obtain an employer identification number for unemployment tax purposes. Registration online is now also available, at the DWD web site (see link in Section VI(c)). A corporation or limited liability company (LLC) that is taxable as a corporation may elect in certain circumstances to exclude from unemployment insurance coverage certain principal officers of the corporation or members (owners) of the LLC. Thus, no state unemployment tax would have to be paid with regard to salaries paid to those individuals. However, see the following cautionary note: CAUTION: New employers are required to pay tax in 2009 on the first $12,000 of wages paid to each employee. Tax rates for new employers are fixed, but vary by industry and depending on the size of a firm's total payroll. The general new employer rate (other than for construction) is 3.25% for 2009 for small employers and 3.40% for employers with over $500,000 of taxable payroll. The applicable rate for all new construction industry employers is 6.60% in 2009. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Wisconsin law, cannot be charged to your employees or withheld from their wages. For more information on your Wisconsin unemployment tax obligations as an employer, see the contact information for the offices of the Department of Workforce Development, Division of Unemployment Insurance, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. States that require workers' compensation coverage also generally allow some companies that can demonstrate sufficient financial resources to self-insure, in lieu of purchasing such insurance from state-operated or private insurers. However, as a practical matter, most small businesses with employees will have to obtain workers' compensation insurance coverage, as few, if any, small firms will have the financial wherewithal to obtain state permission to self-insure. In Wisconsin, all non-farm businesses with three or more employees or who pay wages of $500 or more in a calendar quarter are required by law to have workers' compensation insurance, except those able to self-insure. Employers with three or more employees must obtain coverage immediately, while smaller employers who pay wages of $500 or more in a calendar quarter must obtain coverage within 10 days after the end of the first such calendar quarter. Farmers are required to have such coverage only if they employ 6 or more employees for any 20 days in a calendar year, and must obtain coverage within 10 days after such 20th day. Note, however, that sole proprietors or partners in a partnership are generally not considered to be employees and thus need not be covered, unless they voluntarily elect coverage. Similarly, up to two officers of a corporation that has no more than 10 stockholders may elect not to be covered for workers' compensation purposes. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. CAUTION: As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. Employers must report any work-related fatalities to the Division of Workers Compensation within 24 hours of the incident and must report any claim of injury to their insurance carrier within 7 days. For more detailed information regarding your obligations as an employer under the Wisconsin workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Department of Workforce Development, Division of Workers Compensation, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Wisconsin wage-hour laws, which provide for a state minimum hourly wage that increased to $5.70 an hour, effective as of June 1, 2005 and increased further to $6.50 on June 1, 2006. A training wage or lower wage for minors is now $5.90 an hour. The Department of Workforce Development, Equal Rights Division, provides a helpful informational poster (which you are not required to post), Form ERD-9247-P, which summarizes the state's minimum wage and overtime laws. In addition to the state minimum wage, the city of Madison adopted its own minimum wage ordinance, which would have increased the minimum wage in Madison in several steps to $7.75 plus an inflation adjustment by January 1, 2008. However, the state legislature has enacted an amendment to the state minimum wage law that requires statewide uniformity in the minimum wage and thus prohibits local governments from enacting their own local minimum wage ordinances. Thus, the Madison minimum wage ordinance has been pre-empted and is no longer in effect, after May 31, 2005. Like federal law, Wisconsin's labor laws also require payment of time-and-a-half overtime pay, for overtime hours worked in excess of 40 hours per week. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Wisconsin wage-hour rules. However, as a result to 2004 changes in federal overtime laws, many of the provisions of the Wisconsin overtime laws are now more stringent than the federal laws, so that employers in Wisconsin must be careful to comply with whichever overtime laws are more stringent in a given case, federal or Wisconsin. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Wisconsin. New state child labor rules went into effect on December 1, 2004, most of which were simply an adoption of recent changes in federal child labor laws. As a general rule, a work permit must be obtained before hiring any minor under the age of 18, except for agricultural or domestic service work. In many communities, work permits are issued by the local high school. Minors must be at least 14 years of age to be employed in most jobs. The exceptions to this are jobs in agriculture, street trades jobs such as delivering newspapers, work in school lunch programs and as golf course caddies. For these jobs, they must be at least 12 years of age. In addition, minors at least 12 years old may work in a business owned by their parent as long as it involves doing work which is not prohibited to minors who are older. Various types of work are prohibited for minors, and additional categories of work are prohibited for minors under the age of 16. Examples of jobs prohibited to minors under the age of 16 would be working in a factory or anywhere where manufacturing takes place, or operating power machinery. The operation of any machinery, including a power lawn mower or trimmer, is prohibited under age 16 when it is done in connection with a business. A 16- or 17-year-old is prohibited from operating a motor vehicle as a part of the job, with limited exceptions for 17-year-olds, similar to the federal child labor laws. There are also prohibitions against minors working in adult bookstores or with infectious agents. Wisconsin's child labor laws also regulate the total number of hours in a day or week that minors may work, summarized as follows:
Employers who employ any minors under age 18 are required to post the state child labor poster, which lists the total hours and times of day that children may work, Form ERD-9212-P. This poster may be obtained from the Wisconsin Department of Workforce Development or can be downloaded from their web site. See Section VI(c) for a link to their web site. To contact the Department of Workforce Development for more information about Wisconsin wage-hour and child labor laws, see the contact information for that state agency in Section VI(a). (e) State Occupational Safety and Health Laws. Employers in Wisconsin must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. The Wisconsin Department of Commerce, WisCON Consultation Program, provides free employer safety consultations to help you create a safer workplace. However, since Wisconsin has not adopted a federally-approved plan for enforcing health and safety laws in the state, the primary responsibility for enforcing health and safety standards in Wisconsin, as in a majority of the other states, remains with the federal Occupational Safety and Health Administration (OSHA) agency. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a safety consultation from the state WisCON Program and they detect violations, they will not cite you if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer and possible on-site safety consultations, see the contact information for the Wisconsin Department of Commerce, WisCON Consultation Program, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Wisconsin labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. Wisconsin laws generally require an employer to pay wages at least once in each 31 day period and to have regular paydays. An employee who quits or is fired must be paid any final wages that are due no later than the next regular payday. However, where employees are separated from service due to the employer's ceasing operations or otherwise disposing of the business, the affected employees must be paid final wages within 24 hours of the time of separation. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Wisconsin does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Wisconsin, and display a poster informing employees of their rights. You can obtain this poster from the Madison office of the Department of Workforce Development, Division of Equal Rights, at the address listed in Section VI(a). State law in Wisconsin prohibits discrimination on the basis of any of the following:
(4) Reporting new hires. Under federal welfare reform laws, employers in all states must now report newly-hired (or rehired) employees to a designated state agency (the Department of Workforce Development for Wisconsin employers) generally within 20 days after the date of hire. See the contact information for New Hire Reporting in Section VI(a). Employers may also choose to file new hire reports electronically, on the Department of Workforce Development website. Employers who file electronically must file reports (if needed) twice a month on dates not less than 12 days nor more than 16 days apart. Filing by telephone is not considered to be electronic filing. (5) State Family Leave Law. In addition to the federal Family and Medical Leave Act, Wisconsin has its own Family and Medical Leave law, which applies to Wisconsin employers with 50 or more permanent employees. It applies only to those workers who have worked for the employer for more than 52 consecutive weeks and for at least 1,000 hours during that 52 week period. Covered employees may take up to 8 weeks of family leave in a 12-month period, but not more than 6 weeks of such family leave following the birth or adoption of a child, and not more than 2 weeks of family leave to care for the employee's child, spouse or parent, if the child, spouse or parent has a serious health condition. Employees may take up to 2 weeks of medical leave for serious health conditions in a 12-month period. Taking any such leave does not entitle the employee to be paid while on leave. As a covered employer, you must display a Wisconsin Family and Medical Leave law poster in your workplace, which explains how the state law is applied, which differs in some respects from the similar federal act. Employers who employ 25 or more individuals, while not subject to the Wisconsin Family and Medical Leave Law, must also post a notice describing the employer's policy with respect to family and medical leaves of absence. (6) Workforce Reductions. Wisconsin has a law, somewhat similar to the federal "W.A.R.N." Act, that requires an employer with 50 or more employees within the state to give advance written notification at least 60 days before making a "business closing (plant closing)" or a "mass layoff" of employees in the state. A "business closing (plant closing)" is a permanent or temporary shutdown of an employment site or of one or more facilities or operating units within a single municipality that affects 25 or more employees. A "mass layoff" is one that reduces the workforce at an employment site or within a single municipality by at least 25% of the workforce or 25 employees, whichever is greater; or by at least 500 employees. "New or low-hour employees," who either worked less than 6 months in the previous 12 months or who averaged less than 20 hours of work per week, are not counted as laid-off employees for purposes of the above definitions of workforce reductions. IMPORTANT NOTE: There are a number of exceptions to the notice requirement, such in the case of strikes or lock-outs, or natural or man-made disasters. Employers with 50 or more employees in Wisconsin are required to display in the workplace a Business (Plant) Closing and Mass Layoff Poster, Form ERD-9006-P, which can be obtained from the Wisconsin Department of Workforce Development. For more information on the requirements of this law, contact the Equal Rights Division of the Department of Workforce Development at the address listed for that division in Section VI(a). (7) Lie Detector Tests Prohibited. Wisconsin law generally prohibits employers from requiring any employee or job applicant to submit to a polygraph test, voice stress analysis test, or other lie detector tests as a condition for obtaining employment or continuing in employment. Unlike the lie detector test prohibitions under federal law or under most other states' laws, the Wisconsin law makes no exceptions for any types of businesses. However, in certain circumstances, where there is an ongoing investigation involving an economic loss or injury to the employer's business, such as from theft, embezzlement, sabotage, or unlawful industrial espionage, such tests may be permitted where the employee had access to the property that is the subject of the investigation and where the employer has a reasonable suspicion that the employee was involved in the incident. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Wisconsin, as many states have done in recent years, has set up a "one-stop" center to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the legal and regulatory licensing requirements. BUSINESS STARTUP INFORMATION. To obtain business registration forms and information on state permits or on starting or relocating your business in Wisconsin, contact: Mailing address: Wisconsin Department of Commerce Or, for express deliveries: 201 W. Washington Ave. Telephone: (608) 266-1018 Addresses and other contact information for other key state and federal government agencies in Wisconsin, mentioned in preceding sections of this book, are listed below for your convenience. CORPORATE, LLC AND PARTNERSHIP FILINGS. Contact the offices of the Department of Financial Institutions for information on:
Mailing address: Wisconsin Department of Financial Institutions Or, for express deliveries: 345 W. Washington Ave. 3rd Floor TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the Wisconsin Department of Revenue, which is the main tax collection agency in Wisconsin. Also register with this agency as an employer, for state income tax withholding purposes, as well as for state income and sales tax purposes, on Form BTR-101. Division of Income, Sales and Excise Tax STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
Department of Workforce Development STATE LICENSES. The following agency is the main Wisconsin licensing agency. Register with this state agency for all types of professional and business or occupational licenses. Mailing address: State of Wisconsin Or, for express deliveries: 1400 E. Washington Ave. Room 112 (608) 266-2112 (Information) STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Wisconsin sales and use tax law, from the Department of Revenue, at the address listed above for that agency. EMPLOYER WITHHOLDING. Contact the Department of Revenue to register as an employer, for purposes of Wisconsin income tax withholding, at the address listed above for that agency. STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject. Wisconsin Department of Workforce Development WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information: Wisconsin Department of Workforce Development STATE OSHA PROGRAM. There is no state OSHA program in Wisconsin. The federal government provides federal OSHA enforcement instead. For required posters and information on federal occupational safety and health laws that affect you as an employer in Wisconsin, contact: U.S. Department of Labor/OSHA For free safety consultations at your workplace, contact: Wisconsin Department of Commerce STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Wisconsin civil rights laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace: Department of Workforce Development NEW HIRE REPORTING. Employers must report newly hired or rehired employees to the Department of Workforce Development within 20 days of hiring, on Form WT-4, or twice monthly if filing reports electronically. Mail in or fax your new hire reports to: Wisconsin New Hire Reporting (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Wisconsin to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Wisconsin Small Business Development Center (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major Wisconsin state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Wisconsin. Since new sites are appearing frequently, you might also want to search for other Wisconsin government Web sites by using one of the popular Internet search engines, such as Google, MSN, or Yahoo. To start your Internet search for Wisconsin government information, you may want to begin with the following Internet sites: State of Wisconsin home page: State of Wisconsin list of government agencies, with links to each: Department of Financial Institutions (corporate, LLC and limited partnership filings): Wisconsin Secretary of State (optional trade name registration): Wisconsin Department of Commerce (assistance for new businesses): Wisconsin Department of Workforce Development, which administers various state labor laws, including unemployment insurance: Wisconsin Department of Revenue (tax agency, which provides downloadable tax forms and state tax information): (d) Financing Sources. For information and help on locating financing for your small business, contact the state and federal agencies listed below. The Wisconsin Department of Commerce has financial assistance programs available to businesses for economic development. These programs cover fixed assets, training, and new product development. For information, contact the Department of Commerce at the address listed above for that agency. The Wisconsin Housing and Economic Development Authority (WHEDA) offers financial assistance to Wisconsin business and agriculture. For information, contact: Wisconsin Housing and Economic Development Authority Or, contact the nearest U.S. Small Business Administration office in Wisconsin. The address of the main SBA Office in Wisconsin is: U.S. Small Business Administration |
Copyright © 2008 Michael D. Jenkins
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