Income taxation
Family and individual reinvestment credit
The bill creates a new family and individual reinvestment income tax credit for
taxable years beginning in 2023. The credit is nonrefundable and may be claimed
only up to the amount of the taxpayer's income tax liability. Under the bill, for a
single individual or an individual who files as a head of household whose adjusted
gross income (AGI) is less than $100,000, for a married couple filing jointly whose
combined AGI is less than $150,000, or for a married individual filing separately
whose AGI is less than $75,000, the credit is equal to 10 percent of the claimant's net
tax liability or, for a single individual, head of household, or married couple filing
jointly, $100, and for a married individual filing separately, $50, whichever is greater.
Net tax liability is a claimant's income tax liability after the application of most
nonrefundable income tax credits. Under the bill, the credit phases out to zero as a
single individual or head of household filer's AGI increases from $100,000 to
$120,000. A similar phaseout occurs for a married joint filer whose combined AGI
increases from $150,000 to $175,000 and a married separate filer whose AGI
increases from $75,000 to $87,500. Also, under the bill, no new claims for the
working families tax credit may be filed for a taxable year that begins after December
31, 2022.
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.
Expanding the child and dependent care tax credit
Under current law, an individual who is eligible to claim the federal child and
dependent care tax credit may claim a state income tax credit equal to 50 percent of
the amount the individual may claim as a federal income tax credit. The bill allows
an individual to claim a state income tax credit equal to the full amount claimed for
the federal child and dependent care tax credit.
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 (EITC).
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.
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.
First-time home buyer savings accounts
The bill creates a tax-advantaged first-time home buyer 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 this state by the account's designated
beneficiary. The beneficiary, who may be the account holder, must be a resident of
this state 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. The bill's
provisions apply to taxable years beginning after December 31, 2022.
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 this state. 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.
Veterans and surviving spouses property tax credit eligibility expansion
The bill reduces the eligibility threshold for an eligible veteran, the spouse of
an eligible veteran, and the unremarried surviving spouse of an eligible veteran to
claim the veterans and surviving spouses property tax credit under the individual
income tax system. Under the bill, a claimant may claim the credit if the
service-connected disability rating of the veteran for whom the claimant is claiming
the credit is at least 70 percent. Currently, that rating must be 100 percent.
Under the bill, the maximum credit that a claimant may claim is multiplied by
the percentage of the service-connected disability rating. The bill does not affect a
claimant who claims the credit based on the individual unemployability rating.
Under current law, a claimant may also claim the credit if the disability rating based
on individual unemployability of the veteran for whom the claimant is claiming the
credit is 100 percent.
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 for the 2023 tax year, the bill reduces the
percentage used for household income over $8,060 from 8.785 to 5.614 percent and
increases the maximum income amount from $24,680 to $35,000. The bill also
indexes the $8,060, $35,000, and $1,460 amounts for inflation during future tax
years.
Increasing retirement income subtraction and expanding eligibility
The bill increases and expands the individual state income tax subtraction, or
deduction, for payments or distributions received from qualified retirement plans
under the Internal Revenue Code or from certain individual retirement accounts.
Under the bill, beginning in tax year 2023, up to $5,500 of payments or distributions
received from qualified retirement plans or certain individual retirement accounts
may be subtracted annually from an individual's taxable income. In addition, the bill
expands eligibility for claiming the subtraction to individuals at least 65 years old
having a federal adjusted gross income under $30,000, or under $60,000 if married.
Under current law, up to $5,000 of payments or distributions received by
certain individuals from qualified retirement plans or from certain individual
retirement accounts may be subtracted. To be eligible, the individual must be at least
65 years old and have federal adjusted gross income under $15,000, or under $30,000
if married.
Increasing disability income subtraction and expanding eligibility
The bill increases and expands the individual state income tax subtraction, or
deduction, for disability payments received by a person under the age of 65 who is
retired and who is permanently and totally disabled. Under the bill, beginning in
tax year 2023, up to $5,500 of disability payments may be subtracted annually from
an individual's taxable income. In addition, the bill expands eligibility for claiming
the subtraction to individuals having a federal adjusted gross income under $30,000
or under $60,000 if married.
Under current law, up to $5,000 of disability payments may be subtracted, and
to be eligible, a person must have federal adjusted gross income under $20,200 or
under $25,400 if married and both spouses are disabled.
Tax credit for installing universal changing stations
The bill creates an income and franchise tax credit for small businesses that
install universal changing stations. Under the bill, a “universal changing station”
is a floor-mounted or wall-mounted, powered, and height-adjustable adult
changing table with a safety rail that can be used for personal hygiene by an
individual with a disability of either sex and the individual's care provider.
The credit applies for taxable years beginning after December 31, 2022. Under
the bill, a small business is any entity that, during the preceding taxable year, either
had gross receipts of no more than $1,000,000 or employed no more than 30 full-time
employees. The credit is equal to 50 percent of the amount the small business paid
to install the universal changing station, up to a maximum credit of $5,125. The
credit may be claimed only if the universal changing station meets certain
requirements relating to size, maneuverability space, weight load, and adjustability.
Research credit refunds
Under the bill, beginning in the 2024 tax year, if a person claims an amount for
the research credit that exceeds the person's tax liability, the person will receive a
refund in an amount not exceeding 50 percent of the allowable claim and may
continue to claim the remaining unused portion in subsequent tax years. Current
law allows a person to receive a refund in an amount not exceeding 15 percent of their
allowable claim for the research credit. Under current law, the research credit is an
income and franchise tax credit equal to a specified 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.
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.
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.
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 (AGI) 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. The bill applies to taxable years
beginning after December 31, 2022.
Repeal 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.
Dividends received deduction limitation
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.
Internal Revenue Code references
The bill adopts, for state income and franchise tax purposes, certain changes
made to the Internal Revenue Code by the following federal acts:
1. The American Rescue Plan Act of 2021.
2. The PPP (Paycheck Protection Program) Extension Act of 2021.
3. The Surface Transportation Extension Act of 2021.
4. The Further Transportation Extension Act of 2021.
5. The Infrastructure Investment and Jobs Act.
6. The Consolidated Appropriations Act of 2022.
7. The Supreme Court Security Funding Act of 2022.
8. The Inflation Reduction Act of 2022.
The bill also 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 the
limitation on losses for taxpayers other than for corporations; certain special rules
for the taxable year of inclusion; the limitation on business-related deduction for
interest; the limitation on the deduction by employers of expenses for fringe benefits;
the limitation on the deduction for Federal Deposit Insurance Corporation
premiums; and the limitation on excessive employee remuneration.
The bill also makes technical changes to the definition of “Internal Revenue
Code” for state income and franchise tax purposes so that the same definition is not
repeated for each type of taxpayer, as is the case under current law.
Property taxation
Repeal of the personal property tax
Under current law, beginning with the property tax assessments as of January
1, 2018, machinery, tools, and patterns, not including those items used in
manufacturing, are exempt from the personal property tax. However, beginning in
2019, the state pays each taxing jurisdiction an amount equal to the property taxes
levied on those items of personal property for the property tax assessments as of
January 1, 2017.
Under the bill, beginning with the property tax assessments as of January 1,
2024, no items of personal property will be subject to the property tax. Beginning in
2025, the state will pay each taxing jurisdiction an additional amount equal to the
property taxes levied on the items made exempt under the bill for the property tax
assessments as of January 1, 2023. Beginning in 2026, each taxing jurisdiction will
receive a payment to compensate it for its loss in personal property revenue equal
to the payment it received in the previous year, increased by the annual percentage
change in the consumer price index.
Under current law, generally, public utilities, including railroad companies, are
subject to a license fee imposed by the state instead of being subject to local property
taxes. The bill creates a personal property tax exemption for railroad companies in
order to comply with the requirements of the federal Railroad Revitalization and
Regulatory Reform Act.
Finally, the bill makes a number of technical changes related to the repeal of
the personal property tax, such as providing a process whereby manufacturing
establishments located in this state that do not own real property in this state may
continue to claim the manufacturing income tax credit.
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 (2008). 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.
School aid reduction information
The bill requires that a person's property tax bill include information from the
school district where 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.
Property tax exemption for WHEDA headquarters
The bill exempts land and buildings owned by WHEDA and used as its
corporate headquarters, including associated parking facilities, from the property
tax.
Property tax exemption for cranberry research station
The bill exempts from the property tax all property, not exceeding 50 acres of
land, owned or leased by a tax-exempt entity that is used primarily for research and
educational activities associated with commercial cranberry production.
Property tax exemption for baseball park development
The bill exempts from the property tax all baseball park development operated
by a professional baseball team for any legally permissible use. Current law exempts
sports and entertainment home stadiums and any functionally related or auxiliary
facilities from the property tax.
Manufacturing property assessment fees
