Governor Scott Walker and the state Legislature made dramatic improvements in lowering our state tax burden and simplifying our tax code as part of the 2013-15 state budget.
Following Governor Walker’s initial proposal in February to lower individual income tax rates, the Legislature used surplus tax revenues to nearly double the scope of the tax cut.
A total of $650 million in income tax relief will be provided to Wisconsin taxpayers over the next two years. All five state individual income tax brackets will be reduced (and one bracket eliminated) beginning in 2013:
2013 Individual Income Tax Rates
While WMC had sought greater reductions to the top individual income tax bracket and the 7.9 percent corporate income tax rate, the Legislature remained focused on broad-based middle class income tax relief – and delivered. Therefore the corporate income tax rate remains 7.9 percent.
A wide range of other significant pro-growth reforms championed by WMC were adopted in the budget:
- Federal depreciation and depletion rules were adopted, beginning January 1, 2014. This will simplify compliance by phasing-out comparable state rules over a five-year transition period.
- Future changes made to the Section 179 expensing provision by Congress are now automatically be adjusted at the state level. Wisconsin has not federalized Section 179 provisions since 2001.
- Provisions governing net operating losses were also federalized, allowing losses to be carried forward up to 20 years and carried back for two years. Previous Wisconsin law allowed a 15-year carry-forward but no carry-backs.
- The R&D tax credit was extended to pass-through entities. This change allows S corporations and LLCs to claim the credit. Wisconsin previously allowed only C corporations to utilize this benefit.
- If federal law is changed to allow the collection of state sales taxes on out-of-state retailers, the revenues generated from this source will automatically be used to further lower state income tax brackets.
- The economic development surcharge is eliminated for pass-through entities. Many LLCs had been assessed this surcharge multiple times in a pyramiding fashion, which ranged from $25 to $9,800 per assessment.
- The state tax code has been updated to almost wholly reflect the Internal Revenue Code, leading to greater simplification and compliance for state taxpayers.
- A municipal fee appeal process was established that allows taxpayer challenges to unreasonably high municipal fees be brought to the state Tax Appeals Commission.
- Appeals of sales and use tax determinations and manufacturing property assessments can now be made in the circuit court of the county in which a taxpayer is located, owns property or does business. Previous law required these appeals to be filed only in Dane County circuit court.
- A prior audit determination provision was adopted prohibiting state auditors from assessing tax liability to taxpayers if an earlier state audit had shown no such liability.
The Legislature adopted several other tax provisions, including the elimination of 18 little-used business tax credits, limiting the manufacturers’ tax credit to the amount of income or franchise tax paid on the income on which the credit is based, and reducing the amount of interest paid by the state on amounts owed to taxpayers from 9 percent to 3 percent.
Altogether, the state budget includes dramatic tax relief and will encourage investment in our state’s economy over the next two years. Governor Walker and legislative leaders have stated this budget is a first step and more relief is to come.
Visit https://www.wmc.org/issues/issues-policy/issue-areas/taxes-spending/ for more information on the tax package and what it means for your business.
By Jason Culotta, WMC Director of Tax & Transportation Policy
Follow Jason on Twitter @JGCulotta