On Feb. 18, 2021, Wisconsin Gov. Tony Evers signed Assembly Bill 2 and Assembly Bill 3, addressing certain conformity to the CARES Act and making other legal and administrative changes to the state’s tax regime. Selected changes are highlighted below.
Paycheck Protection Program conformity
Assembly Bill 2 includes the highly anticipated conformity to the federal tax treatment of the Paycheck Protection Program (PPP) loans. Accordingly, Wisconsin now conforms to the CARES Act’s treatment of forgiven PPP loans, excluding the forgiven debt from being treated as taxable income. Additionally, in January 2021, the Wisconsin Department of Revenue issued guidance stating that taxpayers could not deduct expenses paid for with forgiven PPP loans. Assembly Bill 2 provides the necessary legislative support to permit businesses to deduct the expenses the forgiven loans were used to pay.
Reporting of federal changes
Assembly Bill 2 extends the time allowed for reporting federal final audit determinations and amended returns from 90 to 180 days.
Sales tax changes
Pursuant to Assembly Bill 2, the following sales tax changes are effective beginning Feb. 20, 2021:
- The resale exemption is expanded to persons providing landscaping, printing, fabricating, processing or photographic services or performing services to tangible personal property who are providing non-taxable sales.
- The economic sales tax nexus provision is amended to eliminate the 200 or more separate transactions threshold component. The $100,000 sales threshold remains unchanged.
SALT deduction limitation workaround amendments
Assembly Bill 3 makes changes to the state’s elective pass-through entity tax regime. Beginning in 2018, Wisconsin enacted an elective 7.9% entity-level income tax on pass-through entities. Under that law, S corporations making the election were unable to use the individual capital gain exclusion. Partnerships making the election; however, were allowed the exclusion. The new law rectifies the disparity between the treatment of S corporations and partnerships making the election. The act retroactively applies to tax years beginning after Dec. 31, 2019 and allows 30% or 60% long-term individual capital gain exclusion. There are other limitations associated with making the election; however, for S corporations this change may require another review of whether the Wisconsin election is beneficial. Taxpayers considering a pass-through entity tax election should remember that the strategy may not benefit all owners.
These bills are widely believed to be the start to a busy year of tax changes as Gov. Evers recently announced his fiscal year 2021-23 executive budget, which appears to propose additional changes. In the meantime, taxpayers subject to Wisconsin taxes should be aware of the new conformity rules governing PPP loan forgiveness. Businesses organized as S corporations should consider whether the new law affects whether to make the pass-through entity tax election. Finally, remote sellers should consider that, while the elimination of the 200 transaction threshold will ultimately make establishing an economic sales tax nexus in Wisconsin more difficult, states are increasing enforcement of remote seller sales tax collection and filing responsibilities. Taxpayers considering the pass-through entity election or have questions about Wisconsin conformity to recent federal changes should reach out to their state and local tax advisers for more information.