Wisconsin Enacts Federal Tax Conformity and Other State Tax Changes
Wisconsin Governor Scott Walker signed Assembly Bill 259 (2017 Wisconsin Act 231) into law on April 3, 2018, updating the state’s tax code and conforming to certain provisions of the federal Tax Cuts and Jobs Act (TCJA) enacted by Congress in December 2017. Most changes are effective for the 2018 tax year, but a few are retroactive to the 2017 tax year.
Changes for 2017 affect persons with disabilities, 529s, and S corporation conversion
The new law conforms to the following three provisions of the TCJA, retroactive for tax years beginning before January 1, 2018:
- The TCJA’s increased contributions to ABLE accounts (savings accounts for individuals with disabilities and their families
- Treatment of tax-free rollovers to ABLE programs from 529 college savings programs
- Modification of the treatment of conversions from S corporation to C corporation status
Expensing, deduction, and transition tax did not conform
This law did not conform to any other changes enacted by the TCJA for tax years beginning before January 1, 2018, which means that, for the 2017 tax year, Wisconsin will not follow the immediate expensing provisions under Sec. 168(k), the enhanced deduction under Sec. 179, or the transition tax under Sec. 965.
2018 federal conformity affects medical expense and mortgage interest deductions
For tax years beginning after December 31, 2017, Wisconsin has conformed to the Internal Revenue Code as amended on December 31, 2017. This means that all of the changes enacted under the TCJA for federal purposes are generally applicable at the state level as well. For individuals, this means Wisconsin will follow the TCJA’s temporary reduction in the medical expense deduction floor and its limitation of itemized deductions for qualified home mortgage interest.
However, Wisconsin has specifically decoupled from many provisions that were included in the federal bill.
- Wisconsin does not allow the 20 percent deduction under Section 199A for qualified business income of pass-through entities that is allowed at the federal level, nor does it follow 100 percent bonus depreciation under Section 168(k).
- The state did not follow the TCJA’s limitation of the deduction on business interest under Section 163(j), or the deduction for employers under Section 274 regarding fringe benefits (with the exception of certain transportation fringe benefits, which were limited).
In a significant detour, Wisconsin did not follow any of the TCJA’s provisions relating to the United States’ conversion from a worldwide to a territorial taxing regime for multinational businesses. The state published a detailed chart of the TCJA provisions it will and will not follow for tax years beginning on or after December 31, 2017.
Expanded state tax credits and modified audit rules
Wisconsin expanded eligibility for tax credits under the Angel Tax Credit and the Early Stage Seed Investment Tax Credit programs beginning in tax year 2018. A business may be considered a “qualified new business venture” if the business hasn't received more than $12 million in investments that qualified for tax credits, which is up from the $8 million investment threshold for tax years prior to 2018.
The state has also modified provisions regarding reliance on past audits. While taxpayers generally are able to rely on prior Wisconsin audit determinations after undergoing an audit, effective for audit determinations issued on or after April 5, 2018, the new provision prohibits taxpayers from relying on prior audits in the event that any one of the following circumstances apply:
- the taxpayer provided incomplete or false information during the audit, or
- the issue was settled in a prior audit that was settled via written agreement between the Department and the taxpayer before April 5, 2018, whether or not the parties acknowledged in that settlement that the Department did not adopt the taxpayer’s position.
Child sales tax rebate and sales tax holiday
Wisconsin is also giving back to taxpayers in the form of a child sales tax rebate and a sales tax holiday. The state is issuing a $100-per-child sales tax rebate beginning May 15, 2018 and ending on July 2, 2018.
A Wisconsin family with a child younger than 18 years old as of December 31, 2017, may be eligible for the one-time refund of $100 per eligible child. Wisconsin’s “back to school” sales tax holiday will take place on August 1 – 5, 2018. Clothing, computers, computer supplies, and school supplies (with certain cost limitations) can be purchased free of sales tax for those five days.
How we can help
In some cases, the Wisconsin conformity law may significantly alter your approach to tax planning. CLA’s state and local tax professionals understand how this state law intersects with the new federal tax reform law and how these changes impact your taxes in 2017 and beyond.