The enacted 2013-15 Wisconsin budget bill makes numerous personal income and corporation franchise and income tax changes, as described below. Provisions concerning sales and use taxes (TAXDAY, 2013/07/02, S.53) and other taxes (TAXDAY, 2013/07/02, S.54) are covered in separate stories.
Personal income rates: The legislation reduces all marginal tax rates under the personal income tax and decreases the number of brackets from five to four, effective for tax years beginning after 2012. Specifically, the rates are reduced from 4.6% to 4.4%, from 6.15% to 5.84%, from 6.5% to 6.27%, from 6.75% to 6.27%, and from 7.75% to 7.65%.
With respect to any federal law change that expands the state’s ability to require out-of-state sellers to collect and remit sales and use taxes on remote sales to Wisconsin residents, the legislation provides for the use of additional revenues to eliminate the alternative minimum tax and further reduce income tax rates.
Net operating losses: For personal income tax purposes, the legislation will allow net operating losses (NOLs) to be carried forward for up to 20 years and carried back for 2 years, beginning with tax year 2014. Currently, NOLs can be carried forward for up to 15 years, and carrybacks are not allowed.
Tuition deductions: The legislation creates a deduction for private school tuition, beginning in tax year 2014, and indexes the income phaseout levels for the higher education tuition deduction.
IRC conformity: For taxable years beginning after December 31, 2013, the legislation specifies that in computing depreciation, depletion, and amortization, “Internal Revenue Code” means the federal IRC in effect on January 1, 2014. A provision is also added to incorporate IRC §179, §179A, §179B, §179C, §179D, and §179E related to the expensing of depreciable business assets; for purposes of this provision, “Internal Revenue Code” means the federal IRC in effect for the year in which the property is placed in service.
For stock acquired after December 31, 2013, another new provision incorporates IRC §1202, as amended to December 31, 2012, related to the exclusion for gain from certain small business stock.
For tax years beginning after December 31, 2012, the legislation generally adopts IRC provisions in effect as of December 31, 2010, with exceptions (this is the same tie-in date applicable under prior law for tax years beginning after December 31, 2010). However, the legislation also adopts a number of IRC provisions that were either added to the IRC prior to December 31, 2010, but not previously adopted by Wisconsin, or added to the IRC after December 31, 2010 (e.g., a provision allowing current employees to roll over amounts in employer 401(k), 403(b), and 457(b) traditional retirement plans to Roth plans, under the American Taxpayer Relief Act).
Farm losses: Effective in tax year 2014, the legislation eliminates the limits on the amount of farm loss that may be used to offset other sources of income for taxpayers that are not actively engaged in farming.
Past audits: Under a new provision concerning reliance on past audits, a taxpayer subject to an audit determination, including all other members of the taxpayer’s combined group for purposes of determining the tax due under Wis. Stats. §71.23 for taxable years beginning after December 31, 2008, will not be liable for any amount that the department asserts is owed if specified conditions are satisfied (e.g., a department employee who was involved in the prior audit determination identified or reviewed the tax issue before completing the prior audit determination). The law includes certain exceptions; for example, the provision does not apply to any period associated with an audit determination if the taxpayer did not give the department employee adequate and accurate information regarding the tax issue in the prior audit determination or if the tax issue was settled in the prior audit determination by a written agreement.
Armed forces exclusion: An exclusion is created for income received by an armed forces member who dies while on active duty, generally effective for taxable years beginning after December 31, 2012.
Economic development surcharge: The legislation eliminates the economic development surcharge for farms, partnerships, and individuals beginning with tax year 2013.
Capital gains: An income tax deferral enacted in 2009 for capital gains reinvested in qualified new business ventures certified by the Wisconsin Economic Development Corporation (WEDC) is eliminated for tax years beginning after December 31, 2013. However, the legislation retains and modifies separate provisions allowing a deferral for gains reinvested in qualified Wisconsin businesses and an exclusion for gains from the sale of a Wisconsin capital asset.
The following credits are eliminated beginning in tax year 2014: electronic medical records; dairy manufacturing facility investment; meat processing facility investment; food processing facility and food warehouse investment; beginning farmer and farm asset owner; film production services and investment; super research and development; post-secondary education; dairy and livestock farm investment; ethanol and biodiesel fuel pump installation; biodiesel fuel production; water consumption; Internet equipment; relocated business; research facilities; community development finance; and health insurance risk-sharing plan assessment.
The woody biomass harvesting and processing investment credit is repealed in tax year 2015.
Various modifications are made to the jobs tax credit and the enterprise zone tax credit, e.g., increasing the amount of wages that must be paid to an employee by a claimant in a Tier I municipality or county.
The legislation increases the aggregate amount of economic development tax credits that the WEDC can allocate by $36 million. The WEDC is also permitted to request an additional increase of $39 million.
The legislation allows non-corporate businesses to claim the research and research facilities credits, beginning in tax year 2013. (However, as noted above, the research facilities credit is repealed in tax year 2014.)
Beginning in tax year 2013, the legislation increases the state supplement to the federal historic rehabilitation tax credit from 5% to 10% for personal income and corporation franchise and income tax purposes.
The legislation expands eligibility for the veterans and surviving spouses property tax credit, beginning with tax year 2014.
The limit on the amount of angel investment credits that the WEDC can allocate is eliminated.
Act 20 (A.B. 40), Laws 2013, applicable as noted; 2013-15 Budget Summary, Wisconsin Legislative Fiscal Bureau