Now that the state budget logjam is finally free, the Joint Finance Committee’s tax package has been released and approved as part of the final budget. The plan provides significant relief from the state’s alternative minimum tax (AMT) and the income tax marriage penalty, retains the historic rehabilitation tax credit, and simplifies claiming the R&D tax credit.
- As the state cut income taxes in both 2013 and 2014, the number of taxpayers paying the AMT increased by more than 260%. The budget federalizes the AMT by indexing exemption and phase-out amounts in 2017. This change will dramatically reduce the number of taxpayers paying the AMT.
- Wisconsin unfortunately penalizes married taxpayers compared to those who file as individuals. The budget begins to narrow the difference by allocating over $20 million in relief to married filers in 2016.
- The Governor’s budget had proposed limiting the historic rehabilitation tax credit, actually a state supplement to the federal credit. The Legislature removed the change to this credit, which has been utilized extensively to renovate large old buildings, particularly in downtowns. A separate credit for buildings constructed prior to 1936 (not granted certified historic status) was limited to just one Green Bay project.
- The budget includes a priority of WMC’s Tax Committee to simplify the process for claiming the research and development credit by updating the base period for “qualified research expenses.” The current base period relies on figures from the 1980s and can be difficult to navigate for manufacturers and others attempting to claim the credit.
The budget also contains some changes to the Manufacturing & Agriculture Credit, otherwise known as the Manufacturers Credit. The amount of the credit for 2015 was reduced from 5.526% to 5.025% but will still reach its full 7.5% in 2016. Also, there were changes approved for considering depreciation in the calculation of direct and indirect costs in claiming the credit and a positive change allowing manufacturers to claim the credit in the year in which production occurs at a Wisconsin facility rather than waiting until January of the year following when a facility was assessed as a manufacturer by the state.
Unfortunately, 102 new state auditor positions were approved under the budget, but the budget also requires the Department of Revenue to report on how much revenue the new auditors collect, how many audits are being conducted, and a comparison of how much audit revenue was generated from businesses headquartered in Wisconsin as well as those based outside the state.
The budget also delays the bad debt deduction for private label credit cards approved last year, makes significant changes to room tax revenue distributions, and exempts most construction materials for non-profits and local governments from the sales tax.