United States

Wisconsin enacts various tax changes in biennial budget

Mix of tax increases and decreases

TAX ALERT  | 

On July 12, 2015, Wisconsin Gov. Scott Walker signed 2015 Wisconsin Act 55 , which provides a mix of tax reduction and increase measures along with greater conformity to the federal tax code.

These provisions are summarized below.

Income tax

Federal conformity
For tax years beginning after Dec. 31, 2013, Wisconsin now generally conforms to the Internal Revenue Code as of Dec. 31, 2013, with some exceptions.

Also, effective Jan. 1, 2017, Wisconsin's alternative minimum tax will follow federal alternative minimum tax treatment.

Elimination of job creation deduction
The job creation deduction that provided a $2,000 or $4,000 deduction per employee for increasing full-time equivalent employees was amended to expire for tax years beginning after Dec. 31, 2014.

Temporary reduction in manufacturing and agriculture tax credit
For taxable years beginning after Dec. 31, 2014, and before Jan. 1, 2016, the amount of manufacturing and agriculture tax credit is reduced to 5.025 percent (originally 5.526 percent). However, the maximum amount of the credit, when fully phased-in beginning after Dec. 31, 2015, remains unchanged at 7.5 percent.

New business development tax credit
For taxable years beginning after Dec. 31, 2015, the business development tax credit replaces the economic development tax credit and jobs tax credit. Under the business development tax credit, taxpayers certified by the Wisconsin Economic Development Corporation may claim as a credit all of the following:

  • Up to 10 percent of the amount of wages paid to an eligible employee in the taxable year
  • Up to 5 percent of wages paid to an eligible employee in an economically distressed area
  • Up to 50 percent of certain job training costs
  • Up to 3 percent of personal property investment and up to 5 percent of real property investment
  • A percentage of wages paid to full-time employees performing corporate headquarters functions in Wisconsin

Additionally, the new business development tax credit is refundable.

Standard deduction increases
The standard deduction for married couples filing jointly is increased to $19,010 with a phase-out beginning at Wisconsin adjusted gross income of $21,360 and greater. The standard deduction for married individuals filing separately is increased to $9,030 with a phase-out beginning at Wisconsin adjusted gross income of $10,140. These increased standard deduction amounts will continue to be indexed for inflation.

529 plan changes
Beginning on Aug. 1, 2015, the contribution limitation for college savings plans is set at $425,000, and the balance limitation is indexed to a national average tuition for future years.

Achieving a Better Life Experience (ABLE) accounts established
Authorized under federal legislation and similar to 529 college savings plans, ABLE account funds are used to pay the qualified disability expenses of the beneficiary, and income earned by ABLE accounts is not subject to tax.

Sales and use tax

An exclusion specifies that the operator of a distribution facility is not considered a retailer obligated to collect sales or use tax on sales made by third-parties from the distribution facility. The act also codifies some pre-existing administrative nexus standards for sales and use tax.

A new sales and use tax exemption was created for sales of farm-raised deer to a hunting preserve or game farm in Wisconsin. However, other proposed exemptions for amusement devices and contractors performing contracts for tax-exempt entities did not survive the governor's line item veto.

Takeaways

2015 Wisconsin Act 55 represents a mix of tax reduction and increases that could have an uneven impact on taxpayers. The creation of the new business development tax credit may be a boon to growing taxpayers, particularly since it is refundable, but it comes at the cost of the new job creation deduction and a reduction in the calendar year 2015 manufacturing and agriculture tax credit. Individual and business taxpayers should review the measures implemented by the enactment of 2015 Wisconsin Act 55 to determine how they may be impacted.


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