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
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. If a municipality does not pay by March 31 of the following year, DOR reduces the municipality’s July and November shared revenue distribution by the amount of the fee. Under the bill, if DOR is unable to collect the fee from a municipality in this manner, then the fee is directly imposed on the municipality.
General taxation
Milwaukee County sales and use tax
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 Milwaukee County to impose, by ordinance, an additional sales and use tax at the rate of 1 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 a majority of the voters of the county at a referendum. The bill requires 50 percent of the revenue from those taxes to be distributed to the City of Milwaukee, and the revenue may be used for any purpose designated by the common council. The revenue retained by Milwaukee County may be used for any purpose designated by the county board or specified in the ordinance or in the referendum approving the ordinance.
County and municipality sales and use taxes
The bill allows counties besides Milwaukee 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 a 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, except for the City of Milwaukee, 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 a 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.
Little cigars
The bill taxes little cigars at the same rate as the excise tax imposed on cigarettes. Under current law, all cigars are taxed at the rate of 71 percent of the manufacturer’s established list price, limited to 50 cents per cigar. Under the bill, little cigars are taxed at the rate of 126 mills per little cigar, regardless of weight. The bill defines “little cigar” to mean a cigar that has an integrated cellulose acetate filter and is wrapped in any substance containing tobacco.
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 established 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.
Definition of “manufacturer’s list price”
Current law imposes a tax on tobacco products based on the “manufacturer’s established list price,” without defining the term. The bill removes the word “established” and defines “manufacturer’s list price” to mean the total price of tobacco products charged by the manufacturer or other seller to an unrelated distributor. The bill specifies that the total price must include all charges by the manufacturer or other seller that are necessary to complete the sale, without reduction for any cost or expense incurred by the manufacturer or other seller or for the value or cost of discounts or free promotional or sample products. The bill provides that a manufacturer or other seller is related to a distributor if they have significant common purposes and either substantial common membership or substantial common direction or control.
Sales and use tax exemption for gun safety items
The bill creates a sales and use tax exemption for sales of gun safes, trigger locks, and gun barrel locks.
Breastfeeding equipment
The bill creates a sales and use tax exemption for breast pumps, breast pump kits, and breast pump storage and collection supplies.
Sales tax exemption for diapers and feminine hygiene products
The bill creates a sales and use tax exemption for the sale of diapers and feminine hygiene products.
Prewritten computer software
The bill imposes the sales tax on the sale of the right to access and use prewritten computer software that remains in the possession of the seller or third party, including sales made on a per use, per user, per license, or subscription basis. Current law defines “prewritten computer software” as computer software that is not designed and developed by the author to the specifications of a specific purchaser.
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 is 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.
