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Governor’s Budget Proposes Important Tax Changes For Wisconsin Businesses

Tax Law Alert John T. Barry, David Brunori

Governor Scott Walker's budget proposal suggests many changes to the state’s tax code. Companies conducting business in Wisconsin should be aware of these proposals and the potential consequences to their Wisconsin tax liabilities.

Perhaps most interesting to Wisconsin businesses, Walker proposes changes to the state's manufacturing and agriculture credit. Specifically, he proposes to end the overlap that allowed businesses to claim that credit as well as the credit for taxes paid to other states on the same income. He said the state would gain $9.7 million each year from the proposal.           

More significantly, the Governor's budget will sunset after seven years all new income, sales, and excise tax credits, deductions, or exemptions taking effect after December 31, 2016. While this would not change current credits, deductions, and exemptions, it could affect business planning based on future incentive programs.

On a related note, the Governor calls for strengthening the clawback process for the state's economic development corporation credits. As with other types of credits, he proposes to end taxpayers’ ability to get refund interest from those credits if the refunds result from amended returns.

The Governor would also like to cap total historic rehabilitation tax credit awards at $10 million per year. The award process would become more competitive, with job creation as a criterion for getting the credit. He also proposes to make it easier for Wisconsin to claw back the credits if targets are not met.

On the sales tax front, the governor proposes to raise the occasional sales tax exemption threshold from $1,000 to $2,000, and add an exemption for sales of food prepared offsite. And he wants to enact a two-day sales tax holiday in August for school supplies.

The Governor also recommends modifying the statutory sourcing rules for services provided to tangible property. The governor proposes that income from such services will be apportioned only to Wisconsin if the property is delivered directly or indirectly to customers in Wisconsin. This aligns with the Department of Revenue practices.

There are other tax related proposals in the Governor's budget. For example, the Governor proposes to change the carry forward rules for losses—making them less generous than in the past.

For questions, please contact John Barry at [email protected]/(414) 277-5825, David Brunori at [email protected]/(202) 780-2634, or your Quarles & Brady attorney.