Wisconsin Legislature Eliminates the Alternative Minimum Tax
After a protracted legislative session, the Wisconsin state legislature passed its biennial budget bill (2017 Wisconsin Act 59) on September 21, 2017. The bill changes many state tax areas including:
- The repeal of the alternative minimum tax
- A refundable research and development (R&D) tax credit
- Sales and use tax updates to construction contracts
- Property tax elimination
The effective date of most provisions was September 23, 2017, though there is a wide range of effective dates. Some of the more significant changes are summarized below.
Income tax updates
Federal tax conformity
Wisconsin now generally adopts (with exceptions) the federal Internal Revenue Code as amended through December 31, 2016, for tax years beginning after December 31, 2016.
Repeal of the Wisconsin alternative minimum tax
Wisconsin Act 59 repeals the state’s alternative minimum tax (AMT) for individual income tax purposes for tax years beginning after December 31, 2018.
Limitation of credit for tax paid to other states
Effective for the 2017 tax year, the Wisconsin credit for tax paid to other states is limited to the amount of tax that would have been paid if the income was taxed under the Wisconsin individual income tax regime. There is no limitation, however, on the credit if the tax was paid to one of Wisconsin’s four border states: Minnesota, Michigan, Iowa, and Illinois.
Manufacturing and agriculture credit limitation
Legislators have repealed the overlap that has historically allowed individual Wisconsin taxpayers to claim both the manufacturing and agriculture tax credit and the credit for tax paid to other states for the same activities. Beginning with the 2017 tax year, the amount of eligible, qualified production activities income that a taxpayer can claim in computing the manufacturing and agriculture credit, must be reduced by the amount of the qualified production activities income that is claimed for the credit for tax paid to another state.
R&D tax credit
Act 59 updates the previously nonrefundable R&D tax credit so that up to 10 percent of the credit claimed for a particular tax year can be refunded, effective for taxable years beginning after December 31, 2017.
Sales and use tax changes
Expansion of construction contract sales tax exemptions
In 2013, Wisconsin enacted a sales tax exemption for products sold by a contractor as part of a lump-sum contract for real property construction if the sales price for the products was less than 10 percent of the total, lump-sum contract price.
Effective for contracts entered into after December 1, 2017, this exemption has been expanded by Act 59 to apply to all real property construction contracts, whether or not they are quoted as a lump sum. However, for the exemption to qualify, the total sales price of the products still must be less than 10 percent of the total contract price.
Act 59 also expands this exemption to apply to both prime contractors and their subcontractors. If a prime contractor qualifies for this exemption, then the prime contractor is still considered the consumer of the products and must pay the related sales/use tax. In addition, if a prime contractor qualifies for the exemption, then the sale of products by the subcontractor to the prime contractor are now also exempt if the total sales price of the taxable products is less than 10 percent of the total contract price. In those cases, the subcontractor is deemed to be the consumer of those products and must pay sales/use tax on them.
Subcontractors are now covered by the sales and use tax exemption on purchases when contracting with tax-exempt entities. Currently, for contracts between a prime contractor and a tax-exempt entity, the prime contractor may purchase materials exempt from sales tax for resale. This exemption is expanded under Act 59 to include products purchased by subcontractors for eventual resale to a tax-exempt entity.
Finally, effective for contracts entered into on July 1, 2018 or later, the exemption for products sold in relation to a real property construction contract with a tax-exempt entity is also expanded to include contracts with Wisconsin colleges and educational institutions.
Property tax changes
Machinery, tools, and patterns are now exempt from personal property tax
Effective for property tax assessments starting in January 2018, the state exempts any machinery, tools, and patterns not used in manufacturing from property tax. The definition of machinery excludes buildings.
Forestry mill tax repealed (state property tax)
Effective with the January 1, 2017, property tax assessments, Wisconsin has eliminated the state portion of the property tax (also known as the forestry mill tax). Locally-levied property taxes were not affected by Act 59.
How we can help
We can advise you on the applicability of newly created Wisconsin tax credits to your situation. Contact your tax advisor with questions.