Child and dependent care tax credit
The bill creates an individual income tax credit based on the federal child and
dependent care tax credit. The federal credit may be claimed by an individual who
pays for the care of a “qualifying individual” so that the credit claimant can work or
actively look for work. A qualifying individual is the claimant's dependent child
under 13 years of age or the claimant's spouse or dependent who is incapable of self
care. The total expenses for care that a claimant may take into account when
calculating the federal credit is $3,000 if there is one qualifying individual and
$6,000 if there is more than one qualifying individual. Depending on the claimant's
adjusted gross income, the credit may be worth between 20 percent and 35 percent
of the allowable expenses. The federal credit is nonrefundable, which means it may
be claimed only up to the amount of the claimant's tax liability.
Under current law, Wisconsin does not have a child and dependent care tax
credit but does allow individuals to deduct the expenses that qualify for the federal
credit when computing their income for state tax purposes.
For taxable years beginning after December 31, 2020, the bill creates a tax
credit based on the amount claimed under the federal credit and repeals the existing
deduction. Under the bill, an individual who is eligible for and claims the federal
child and dependent care tax credit may claim 50 percent of the same amount as a
nonrefundable credit on his or her Wisconsin income tax return. The Wisconsin
credit may not be claimed by a part-year resident or nonresident of this state.
Caregiver tax credit
The bill creates an income tax credit for individuals who pay for items that
directly relate to the care or support of a family member who requires assistance with
one or more daily living activities and is over the age of 18. The credit equals 50
percent of the expenses, limited to a maximum annual credit per family member of
$500, or $250 for married spouses filing separately. If more than one individual may
claim the credit based on the same family member, the maximum annual credit
amount is apportioned among them based on expenses paid. For married couples
filing jointly, the credit phases out between federal adjusted gross income of $150,000
and $170,000, and no credit may be claimed if federal AGI exceeds $170,000. For all
other taxpayers, the phase out range is between federal AGI of $75,000 and $85,000,
and no credit may be claimed if federal AGI exceeds $85,000. Under the bill,
expenses that qualify for the credit include amounts spent on improving the
claimant's primary residence to assist the family member, purchasing equipment to
help the family member with daily living activities, and obtaining other goods or
services to help care for the family member. Expenses that do not qualify for the
credit include general food, clothing, transportation, and household repair costs, as
well as amounts that are reimbursed by insurance or other means. The credit is
nonrefundable, which means it may be claimed only up to the amount of the
claimant's tax liability.
Earned income tax credit
The bill increases the amount that an individual with fewer than three
qualifying children may claim as the Wisconsin earned income tax credit. Under
current law, the Wisconsin EITC is equal to a percentage of the federal EITC. The
percentage is 4 percent of the federal EITC if the individual has one qualifying child,
11 percent if the individual has two qualifying children, and 34 percent if the
individual has three or more qualifying children. The credit is refundable, which
means that if the credit exceeds the individual's tax liability, he or she will receive
the excess as a refund check.
Under the bill, the percentage of the federal EITC that an eligible individual
may claim for Wisconsin purposes is 16 percent if the individual has one qualifying
child, 25 percent if the individual has two qualifying children, and 34 percent if the
individual has three or more qualifying children.
Subtraction for active duty pay
Under current law, members of a reserve component of the U.S. armed forces
who are called into active federal service or special state service under specified
sections of the U.S. Code may subtract the military pay they receive from the federal
government while on active duty. The bill expands the existing subtraction to include
members who are activated under an additional section of the U.S. Code that relates
to orders to active duty for preplanned missions in support of the combatant
commands. Also under the bill, members of the Wisconsin national guard may, when
computing their state income taxes, subtract from income the pay they receive from
the state while on active state duty.
Manufacturing and agriculture credit limitation
Currently, a person may claim a tax credit on the basis of the person's income
from manufacturing or agriculture. A taxpayer may claim a credit equal to 7.5
percent of the income derived from either the sale of tangible personal property
manufactured in whole or in part on property in this state that is assessed as
manufacturing property or from the sale of tangible personal property produced,
grown, or extracted in whole or in part from property in this state assessed as
agricultural property. If the amount of the credit exceeds the taxpayer's income tax
liability, the taxpayer does not receive a refund, but may apply the balance to the
taxpayer's tax liability in subsequent taxable years.
The bill limits to $300,000 the amount of income from manufacturing that a
person may use as the basis for claiming the credit. The bill does not affect the
amount of income from agriculture that may be used as a basis for claiming the
credit.
Work opportunity tax credit
The bill creates a state income and franchise tax credit to supplement the
federal Work Opportunity Tax Credit. The federal tax credit is available to
employers who hire individuals from specified targeted groups. The targeted groups
are veterans, ex-felons, Temporary Assistance for Needy Families recipients,
designated community residents, vocational rehabilitation referrals, summer youth
employees, Supplemental Nutrition Assistance Program recipients, Supplemental
Security Income recipients, long-term family assistance recipients, and long-term
unemployment recipients. In general, the federal credit equals 40 percent of the
wages, limited to $6,000, paid to the individual during the first year of employment
if the individual works at least 400 hours and 20 percent of such wages if the
individual works between 120 and 400 hours. Different limitations and rules exist
for members of certain targeted groups. The federal tax credit is scheduled to expire
on January 1, 2026.
Under the bill, an employer may claim a state tax credit for wages paid to
individuals who are members of a targeted group, as determined under federal law,
for services performed in Wisconsin. The state credit is equal to 50 percent of the
amount that the claimant could claim under the federal credit for those wages and
must be claimed at the same time as the federal credit.
First-time homebuyer savings accounts
The bill creates a tax-advantaged first-time homebuyer savings account.
Under the bill, an individual, known as the account holder, may open an account at
a financial institution for the purpose of paying the down payment and closing costs
for the purchase of a single-family residence in Wisconsin by the account's
designated beneficiary. The beneficiary, who may be the account holder, must be a
Wisconsin resident who has not owned a single-family residence during the 36
months prior to the purchase. An individual may be designated the beneficiary of
more than one account, but not by the same account holder. The account holder may
change the beneficiary at any time. An account may only remain open for 10 years.
The bill provides that an account holder, when calculating his or her income for
state tax purposes, may subtract the deposits that he or she made into the account
during the year, as well as any interest and other gains on the account that are
redeposited into it. The maximum amount of deposits that the account holder may
subtract per account each year is $5,000, which is increased to $10,000 if he or she
is married and files a joint return. Over all taxable years, the account holder may
not subtract more than $50,000 of deposits into any account for each beneficiary. The
bill provides that other persons may contribute to the account, but they may not
subtract their contributions.
Under the bill, with limited exceptions, if an amount is withdrawn from the
account for any reason other than paying the down payment and closing costs, the
account holder is subject to a 10 percent penalty tax on the withdrawal and must
include the amount of the withdrawal in income for state tax purposes.
The bill requires that the account holder annually submit information about
the account to DOR, including a list of the account's transactions. These provisions
apply to taxable years beginning after December 31, 2021.
Homestead tax credit
Under current law, the homestead tax credit is a refundable income tax credit
that may be claimed by homeowners and renters. The credit is based on the
claimant's household income and the amount of property taxes or rent constituting
property taxes on his or her Wisconsin homestead. Because the credit is refundable,
if the credit exceeds the claimant's income tax liability, he or she receives the excess
as a refund check. Under current law, there are three key dollar amounts used when
calculating the credit:
1. If household income is $8,060 or less, the credit is 80 percent of the property
taxes or rent constituting property taxes. If household income exceeds $8,060, the
property taxes or rent constituting property taxes are reduced by 8.785 percent of the
household income exceeding $8,060, and the credit is 80 percent of the reduced
property taxes or rent constituting property taxes.
2. The credit may not be claimed if household income exceeds $24,680.
3. The maximum property taxes or rent constituting property taxes used to
calculate the credit is $1,460.
Beginning with claims filed in 2021, the bill reduces the percentage used for
household income over $8,060 from 8.785 to 6.655 percent and increases the
maximum income amount from $24,680 to $30,000. The bill also indexes the $8,060,
$30,000, and $1,460 amounts for inflation, beginning in 2023.
Veterans and surviving spouses property tax credit
Under current law, an eligible veteran or surviving spouse may claim a
refundable income tax credit that equals the amount of property taxes paid during
the year on his or her principal dwelling in Wisconsin. Current law does not
expressly address the treatment of renters. DOR allows an eligible veteran or
surviving spouse who is a renter to claim the credit if he or she is required to pay the
property taxes under a written agreement with the landlord and pays the property
taxes directly to the municipality.
Under the bill, an eligible veteran or surviving spouse who is a renter may claim
the credit in an amount equal to his or her rent constituting property taxes. The bill
defines “rent constituting property taxes" to mean 20 percent of the rent paid during
the year for the use of a principal dwelling if heat is included in the rent, and 25
percent of the rent if heat is not included.
Medical care insurance subtraction
The bill modifies the income tax subtraction for amounts paid for medical care
insurance by self-employed individuals. Under current law, the subtraction may not
exceed the individual's net earnings from a trade or business that are taxable by
Wisconsin. Under the bill, the subtraction may not exceed the individual's wages,
salary, tips, unearned income, and net earnings from a trade or business that are
taxable by Wisconsin.
The bill similarly modifies the provision under current law that prorates the
subtraction for self-employed nonresidents and part-year residents based on the
percentage of the individual's net earnings from a trade or business taxable by
Wisconsin to total net earnings from a trade or business. Under the bill, the
subtraction is prorated based on the percentage of the individual's wages, salary,
tips, unearned income, and net earnings from a trade or business that are taxable
by Wisconsin to total wages, salary, tips, unearned income, and net earnings from a
trade or business. The bill also eliminates obsolete provisions related to the medical
care insurance subtraction for self-employed individuals.
Private school tuition deduction
Under current law, an individual, when computing income for income tax
purposes, may deduct the tuition paid during the year to send his or her dependent
child to private school. The maximum deduction is $4,000 for an elementary school
pupil and $10,000 for a secondary school pupil.
Under the bill, only individuals whose Wisconsin adjusted gross income is
below a threshold amount may claim the deduction for private school tuition. The
threshold amount is $100,000 for single individuals and heads of household,
$150,000 for married couples filing jointly; and $75,000 for married individuals filing
separately.
Limitation on capital gains exclusion
Current law allows individuals, when computing their income for state tax
purposes, to subtract 30 percent of the net capital gains realized from the sale of
assets held more than one year or acquired from a decedent. The subtraction is
increased to 60 percent for gains realized from the sale of farm assets held more than
one year or acquired from a decedent.
Under the bill, an individual may not make the 30 percent subtraction if his or
her federal adjusted gross income exceeds $400,000 for a single individual or head
of household filer; $533,000 for a married couple who files jointly; or $266,500 for a
married individual who files separately. The bill creates an exception for individuals
whose federal AGI, after subtracting 30 percent of net capital gains from nonfarm
assets, is below the threshold amount. These individuals may make the subtraction,
subject to the 30 percent limitation, but must reduce the amount subtracted by the
amount that federal AGI exceeds the threshold amount. The bill makes no changes
to the 60 percent subtraction.
Education award subtraction
Under current law, an individual who completes a term of service in the
AmeriCorps program may receive a Segal AmeriCorps education award to pay for
post-secondary educational expenses and to repay student loans. The awards are
subject to federal and state income taxation. Under the bill, an individual may
subtract the amount received as an award during the taxable year when calculating
his or her income for Wisconsin income tax purposes.
Flood insurance premiums
The bill creates a nonrefundable individual income tax credit for flood
insurance premiums. The credit is equal to 10 percent of the amount of the premiums
that an individual paid in the taxable year for flood insurance, but the amount of the
claim may not exceed $60 in any taxable year. Because the credit is nonrefundable,
it may be claimed only up to the amount of the individual's tax liability.
Dividends received deduction
Current law allows corporations to deduct, for income and franchise tax
purposes, the dividends received from related corporations. The dividends must be
paid on common stock, and the corporation receiving the dividends must own at least
70 percent of the total combined voting stock of the other corporation. Current law
also allows businesses to carry forward net business losses to future taxable years
in order to offset income in those years. Under the bill, a business may not take the
dividends received deduction into account when determining if it has a net business
loss that can be carried forward.
Net operating loss carryback
The bill repeals the provision under which an individual may carry back a net
operating loss to the two prior taxable years in order to reduce the amount of income
subject to tax in those years.
Pass-through entities and refundable tax credits
Current law allows businesses operating in this state to claim a number of
income and franchise tax credits to promote job creation and economic development.
The following credits allow a business to receive a refund if the amount of the credit
exceeds its tax liability: the jobs tax credit, the business development credit, the
enterprise zones jobs credit, the electronics and information technology
manufacturing zone credit, and the research credit. Partnerships, limited liability
companies, and tax-option corporations may not claim these credits, but, instead,
the partners, members, and shareholders of the respective entities may claim the
credits in proportion to their ownership interests in the entity. Generally, the entities
determine the aggregate amount of the credits that the partners, members, or
shareholders may claim.
The bill allows partnerships, limited liability companies, and tax-option
corporations to claim the refundable tax credits, not including the electronics and
information technology manufacturing zone credit and the research credit.
Research credit refunds
Current law allows a person to claim an income and franchise tax credit equal
to a percentage of the person's qualified research expenses that exceed 50 percent of
the average qualified research expenses for the three taxable years immediately
preceding the taxable year for which the person claims the credit. For example, a
person may claim a credit equal to 11.5 percent of the person's excess qualified
research expenses related to research related to the design and manufacturing of
energy efficient lighting systems, building automation and control systems, or
automotive batteries for use in hybrid-electric vehicles.
If the amount of the credit exceeds the person's tax liability, the person will
receive a refund in an amount not exceeding 10 percent of the allowable claim. The
taxpayer may apply any remaining unused portion of the credit to subsequent
taxable years. Under the bill, if the amount of the credit exceeds the person's tax
liability, the person will receive a refund in an amount not exceeding 20 percent of
the allowable claim and may continue to claim the remaining unused portion in
subsequent taxable years.
Federal changes to college savings accounts
The bill adopts for state income tax purposes current and future provisions of
the federal Internal Revenue Code related to qualified tuition programs, including
the provision that requires a taxpayer to reduce the amount that he or she claims as
interest on education loans by the amount of distributions from a qualified tuition
program treated as qualified higher education expenses under federal law. In
addition, current state law requires a taxpayer to add back to his or her federal
adjusted gross income any amount distributed from a qualified tuition program that
was not used for qualified higher education expenses, if the amount was contributed
to the qualified tuition program account after December 31, 2013, and the taxpayer
also claimed that amount as a subtraction. Under the bill, the taxpayer must make
that addition regardless of when the amount was contributed to the account.
Broker-dealer apportionment factor
Under current law, multistate businesses must apportion their income to
Wisconsin and the other state or states for income and franchise tax purposes.
Current law requires that DOR promulgate rules for apportioning the income of
specialized industries. A DOR rule provides that broker-dealers, investment
advisers, investment companies, and underwriters apportion income using a single
receipts factor. The rule also provides that, under certain circumstances, the factor's
numerator includes the modified gross receipts from the sales of trading assets,
unless DOR orders or allows modified net gains to be used instead. The bill amends
the DOR rule to provide that the factor's numerator includes the modified net gains
from the sales of trading assets, rather than modified gross receipts.
Internal Revenue Code references
The bill adopts, for state income and franchise tax purposes, certain changes
made to the Internal Revenue Code by the federal Tax Cuts and Jobs Act, enacted
in December 2017. The bill adopts provisions of the act related to amortization of
research and experimental expenditures, certain special rules for the taxable year
of inclusion, and limitations on excessive employee renumeration, the
business-related deduction for interest, the deduction by employers of expenses for
fringe benefits, the deduction for Federal Deposit Insurance Corporation premiums,
and losses for taxpayers other than for corporations,.
Property taxation
Assessments; leased property and comparable sales
The bill provides that, for property tax purposes, real property includes any
leases, rights, and privileges pertaining to the property, including assets that cannot
be taxed separately as real property, but are inextricably intertwined with the real
property. The bill also requires real property to be assessed at its highest and best
use. Current law requires that real property be assessed at its full value and upon
actual view or from the best information that the assessor can obtain from
“arm's-length sales" of comparable property. The bill defines an “arm's-length sale"
as a sale between a willing buyer and willing seller, neither being under compulsion
to buy or sell and each being familiar with the attributes of the property sold.
The bill also provides that an assessor may determine the value of leased
property by considering the lease provisions and actual rent pertaining to the
property, if the lease provisions and rent are the result of an “arm's-length
transaction.” The bill defines an “arm's-length transaction” as an agreement
between willing parties, neither being under compulsion to act and each being
familiar with the attributes of the property.
The Wisconsin Supreme Court decided in 2008 that a property tax assessment
of leased retail property using the income approach must be based on “market rents,"
which is what a person would pay to rent the property, based on rentals of similar
property, as opposed to “contract rents," which is the amount that the lessee actually
paid to rent the property. See, Walgreen Company v. City of Madison, 2008 WI 80,
752 N.W.2d 689. The bill changes Wisconsin law to specify that an assessment using
the income approach must be based instead on contract rents.
The bill also provides that to determine the value of property using generally
accepted appraisal methods, an assessor must consider all of the following as
comparable to the property being assessed:
1. Sales or rentals of properties exhibiting the same or a similar highest and
best use with placement in the same real estate market segment.
2. Sales or rentals of properties that are similar to the property being assessed
with regard to age, condition, use, type of construction, location, design, physical
features, and economic characteristics.
The bill defines “real estate market segment” to mean a pool of potential buyers
and sellers that typically buy or sell properties similar to the property being
assessed, including potential buyers who are investors or owner-occupants.
The bill also provides that a property is not comparable to the property being
assessed if the seller has placed restrictions on the highest and best use of the
property or if the property is dark property and the property being assessed is not
dark property. The bill defines “dark property” as property that is vacant or
unoccupied beyond the normal period for property in the same real estate market
segment.
Manufacturing property assessment fees
Under current law, DOR assesses manufacturing property for property tax
purposes and imposes a fee on each municipality in which the property is located to
cover part of the assessment costs. DOR bills the municipalities for the fee. If a
municipality does not pay by March 31 of the following year, DOR reduces the
municipality's July shared revenue distribution by the amount of the fee.
The bill directs DOR to first collect the fees by reducing municipalities' July and
November shared revenue distributions. If DOR is unable to collect the fee from a
municipality in this manner, then the fee is directly imposed on the municipality.
Community health centers
The bill creates a property tax exemption for the property of a community
health center that receives federal grants to provide health services to vulnerable
populations, is a nonprofit organization exempt from federal income taxes, and
annually treats at least 30,000 patients. With regard to land owned by the
community health center, the exemption is limited to 25 acres necessary for the
location and convenience of buildings while such property is not used for profit.
Current law provides similar property tax exemptions for property owned by
churches or religious, educational, or benevolent associations. Under current law,
land owned by churches or religious associations that is necessary for the location
and convenience of buildings and used for educational purposes and not for profit is
subject to a 30-acre limitation.
Sales of certain lands to American Indian tribes
Current law provides that before a county may sell tax delinquent real estate
in its possession it must provide public notice of the sale and the property's appraised
value. In addition, although the county may accept any bid on the property that is
advantageous to it, the county may not accept at the first attempt to sell the property
a bid that is less than the property's appraised value. After that first attempt, the
property may be sold at less than its appraised value if the sale is reviewed and
approved by the county board or by a committee designated by the board. Also, the
county may not sell the property for less than the highest bid unless the county board
prepares a written statement for public inspection that explains its reasons for
accepting a lower bid. Under current law, these provisions do not apply to the sale
or exchange of lands to or between municipalities or to the state. Under the bill, the
provision for the sale of tax delinquent real estate also does not apply to the sale or
exchange of lands to or between federally recognized American Indian tribes or
bands.
School aid reduction information
The bill requires that a person's property tax bill include information from the
school district in which the property is located regarding the amount of any gross
reduction in state aid to the district as a result of pupils enrolled in the statewide
choice program, the Racine choice program, or the Milwaukee choice program or as
a result of making payments to private schools under the special needs scholarship
program.
General taxation
County and municipality sales and use taxes
Current law allows a county to enact an ordinance to impose sales and use taxes
at the rate of 0.5 percent of the sales price or purchase price on tangible personal
property and taxable services. The county must use the revenue from the taxes for
property tax relief. The bill allows a county to impose, by ordinance, an additional
sales and use tax at the rate of 0.5 percent of the sales price or purchase price on
tangible personal property and taxable services. However, the ordinance does not
take effect unless approved by the majority of the voters of the county at a
referendum. The revenue from those taxes may be used for any purpose designated
by the county board or specified in the ordinance or in the referendum approving the
ordinance.
The bill also allows a municipality with a 2020 population exceeding 30,000 to
enact an ordinance to impose sales and use taxes at the rate of 0.5 percent of the sales
price or purchase price on tangible personal property and taxable services. The
ordinance does not take effect unless approved by the majority of the voters of the
municipality at a referendum. The revenue from those taxes may be used for any
purpose designated by the governing body of the municipality or specified in the
ordinance or in the referendum approving the ordinance.
Sales tax exemption for energy systems
Current law provides a sales and use tax exemption for a product that has as
its power source wind energy, direct radiant energy received from the sun, or gas
generated from anaerobic digestion of animal manure and other agricultural waste,
if the product produces at least 200 watts of alternating current or 600 British
thermal units per day. The sale of electricity or energy produced by the product is
also exempt.
The bill modifies current law so that the exemption applies to solar power
systems and wind energy systems that produce electrical or heat energy directly
from the sun or wind and are capable of continuously producing at least 200 watts
of alternating current or 600 British thermal units. In addition, the exemption
applies to a waste energy system that produces electrical or heat energy directly from
gas generated from anaerobic digestion of animal manure and other agricultural
waste and are capable of continuously producing at least 200 watts of alternating
current or 600 British thermal units. A system for which the exemption applies
includes tangible personal property sold with the system that is used primarily to
store or facilitate the storage of the electrical or heat energy produced by the system.
Vapor products
Current law imposes a tax on vapor products, which are any noncombustible
products that produce vapor or aerosol for inhalation from the application of a
heating element to a liquid or other substance that is depleted as the product is used,
regardless of whether the liquid or other substance contains nicotine. The tax is
imposed at the rate of 5 cents per milliliter of the liquid or other substance based on
the volume as listed by the manufacturer.
The bill taxes vapor products at the rate of 71 percent of the manufacturer's list
price and modifies the definition of “vapor product.” Under the bill, “vapor product”
means a noncombustible product that employs a heating element, power source,
electronic circuit, or other electronic, chemical, or mechanical means that can be used
to produce vapor from a solution or other substance, regardless of whether the
product contains nicotine. A “vapor product” is defined to include an electronic
cigarette, electronic cigar, electronic cigarillo, electronic pipe, or similar product or
device, as well as any container of a solution or other substance that is intended to
be used with these items. The bill specifies that any product regulated by the federal
Food and Drug Administration as a drug or device is not a vapor product.
