The new Manufacturing and Agricultural Tax Credit adopted during the last legislative session takes effect this year. In enacting this credit, the Legislature made a strong stand for investment and job creation in Wisconsin.
The manufacturing portion of this credit will have its greatest impact in three distinct ways:
- First and foremost, the credit will be a powerful incentive for existing manufacturers to expand their facilities here. Manufacturers that are already located in Wisconsin often have difficult choices to make when considering expansion in Wisconsin versus expanding facilities elsewhere. While Wisconsin has many advantages of interest to manufacturers, there is no question that Wisconsin’s individual and corporate income/franchise taxes are among the highest in the nation. This credit will help tip the balance in favor of expansion here. The timing of the credit is crucial as the economy continues to recover and manufacturers act on plans to meet expected demands;
- For the same reasons, this credit will encourage some out-of-state firms to locate their production facilities in Wisconsin as they expand;
- Finally, the credit will provide an incentive for start-ups to take root here in Wisconsin.
The agricultural portion of the credit will certainly serve to strengthen traditional Wisconsin agriculture, such as dairy and grain farming. In addition, the credit will encourage entrepreneurship in alternative and emerging agricultural endeavors.
Wisconsin is among the top two manufacturing states in the nation as a percentage of gross state product. Our state corporate income tax of 7.9% (paid by C corporations) and top individual income tax rate of 7.75% (paid by S corporations and LLCs) are not competitive with many states’ lower rates or outright lack of income tax. With the enactment of this credit, Wisconsin has become a much more attractive place for manufacturers to do business.
For 2013, the credit equals 1.875% and increases to 3.75% next year and 5.526% in 2015. At full phase-in during 2016, the credit will equal 7.5%. The credit can be applied against a claimant’s tax liability, but is not refundable.
The credit will constitute a powerful incentive for business expansion in Wisconsin, provided this phase-in schedule remains in place. Because manufacturers are gearing up to meet the anticipated increase in demand that should accompany the economy’s recovery, the timing of the credit could not be more crucial. It is important, therefore, that the current schedule not be altered in the current legislative session.