United States: Wisconsin Enacts Legislation Reducing Taxes, Amending Net Operating Loss Provisions

On March 24, Wisconsin Governor Scott Walker signed legislation which provides for individual income tax and property tax relief.1 Also, for corporate income taxpayers the net operating loss (NOL) carryforward period is extended from 15 to 20 years.

Furthermore, the sales tax exemption for commercial printing is amended. The legislation was requested by the governor in light of an expected $1 billion budget surplus.2

Changes in Individual Income Tax Rates

The legislation reduces the lowest income tax bracket for individuals, trusts, and estates from 4.4 percent to 4.0 percent, retroactive to January 1, 2014.3 The rest of the tax brackets remain unchanged. This is expected to save Wisconsin taxpayers about $99 million.4

NOL Carryforwards and Carrybacks

The carryforward period for corporate NOLs is extended from 15 to 20 years.5 The extended carryforward period applies for tax years beginning on or after January 1, 2014.

The legislation clarifies that an individual taxpayer can choose to forgo the two-year carryback period for NOLs.6 Instead, the NOL can be carried forward, at the taxpayer's option. In addition, the Wisconsin Department of Revenue is not allowed to pay interest on any overpayment resulting from an NOL carryback.7 This legislation refers only to individual income tax NOL carrybacks as corporate NOLs can only be carried forward.

Depletion

For purposes of computing depletion for taxable years beginning on or after January 1, 2014, Wisconsin adopts the federal Internal Revenue Code (IRC) in effect for the year in which the property is placed in service.8 Prior to amendment, the IRC in effect on January 1, 2014 applied for the computation of depletion.

Tax Credits Allowed in Computation of Wisconsin AMT

The legislation now allows the following credits to be used to offset Wisconsin alternative minimum tax (AMT)9 in addition to the regular income tax:

  • Manufacturing and agricultural credit;10
  • Research credit;11 and
  • State historic rehabilitation credit.12

Commercial Printing Sales Tax Exemption

For sales made on or after October 1, 2013, the sales tax exemption for commercial printing is amended to provide that the exemption applies to a person primarily engaged, as determined by the Department, in commercial printing, book printing or support activities for printing described under Sections 323111, 323117 and 323120 of the North American Industry Classification System (NAICS).13 Also, the statute is amended to clarify that the exemption includes computers and servers used primarily to store copies of the product that are sent to a digital printer, a platemaking machine, or a printing press or used primarily in prepress or postpress activities.14

Property Tax Reduction

The legislation provides property tax relief to technical college districts by lowering the property tax levy that technical colleges can assess, and changing the references in the statute from "levy" to "revenue."15 The reduction in the tax revenue collected will be countered with additional state funding. This provision is expected to result in a reduction of over $100 in property taxes to the average homeowner. The total impact across the state will amount to approximately $406 million of property tax relief.16

Commentary

It was refreshing to see the governor and legislature expedite this bill to provide the AMT relief related to the manufacturing and agricultural credit so that taxpayers will be able to retain the benefits intended by the credit enacted two years ago. If this correction had not occurred, taxpayers would have been subject to the AMT during 2013 and would not have been able to offset the manufacturing and agricultural credit against it. It is apparent that Governor Walker is continuing on his quest to reduce taxes for individuals and property tax owners by returning over $500 million dollars in tax relief.

In the 2013-2014 budget legislation enacted last year, Wisconsin adopted the IRC in effect on January 1, 2014 for purposes of depreciation, depletion and amortization.17 The current legislation conforms Wisconsin's depletion computation to the IRC as in effect for the year in which the property is placed in service. Thus, the depletion computation will conform to federal law even if the federal depletion provisions are amended after January 1, 2014. The current legislation also amends the commercial printing sales tax exemption that was added by the 2013-2014 budget legislation.18 Because the amendment retroactively takes effect on October 1, 2013, the original effective date of the exemption, taxpayers presumably may have refund opportunities.

Footnotes

1 Act 145 (S.B. 1), Laws 2014. Note that the legislation also contains some minor corrections to certain credits that are being phased out in the next two years.

2 Press Release, Office of Wisconsin Governor Scott Walker, March 24, 2014.

3 WIS. STAT. §§ 71.06(1q)(a); 71.06(2)(i); 71.06(2)(j)1.

4 Press Release, Office of Wisconsin Governor Scott Walker, March 24, 2014.

5 WIS. STATS. §§ 71.26(4)(a); 71.45(4)(a), effective January 1, 2014. This extension of the NOL carryforward period applies to corporations and insurance companies. Note that the 2013-2014 budget legislation extended the NOL carryforward period to 20 years for individuals for tax years beginning on or after January 1, 2014. Act 20 (A.B. 40), Laws 2013, amending WIS. STATS. § 71.05(8)(b).

6 WIS. STAT. § 71.05(8)(b)2.

7 WIS. STAT. § 71.05(8)(c), effective for refunds paid on or after January 1, 2014.

8 WIS. STAT. § 71.98(3).

9 WIS. STAT. § 71.08.

10 WIS. STATS. § 71.07(5n)(b), effective retroactive to January 1, 2013.

11 WIS. STATS. § 71.07(4k)(b)1, effective January 1, 2014.

12 WIS. STATS. § 71.07(9r)(a), effective January 1, 2014.

13 WIS. STAT. § 77.54(61). This exemption was enacted by the 2013-2014 budget legislation and was effective October 1, 2013. Act 20 (A.B. 40), Laws 2013.

14 "Prepress activities" include making print-ready plates, typesetting, trade binding and sample mounting. "Postpress activities" include paper bronzing, die-cutting, edging, embossing, folding, gilding, gluing and indexing. WIS. STAT. § 77.54(61)(c).

15 WIS. STAT. §§ 38.16(3)(be); 38.16(3)(bg)2; 38.16(3)(br)1.

16 WIS. STAT. § 38.16(5)(a); Press Release, Office of Wisconsin Governor Scott Walker, March 24, 2014.

17 Act 20 (A.B. 40), Laws 2013, amending WIS. STAT. § 71.98(3).

18 Act 20 (A.B. 40), Laws 2013, adding WIS. STAT. § 77.54(61).

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