Wisconsin Governor Signs 2011-2013 Budget Bill

Governor Scott Walker signed Assembly Bill 40, Wisconsin’s 2011-2013 budget bill (“Budget Bill”), into law. The Budget Bill implements changes to current sales and use, personal income, and corporate franchise and income taxes.

The Budget Bill authorizes corporations with net business loss carry-forwards from taxable years beginning prior to January 1, 2009 to use the carry-forwards to further offset income of other group members. Beginning with the 2012 taxable year, for each taxable year that a corporation has pre-2009 carry-forwards, the corporation is permitted to use up to 5% of available pre-2009 carry-forwards to proportionately offset the Wisconsin income of other members of its combined group. Previously, corporations were only allowed to share carry-forwards incurred on or after January 1, 2009.

Effective retroactively to tax years beginning January 1, 2009, the Wisconsin Department of Revenue (“Department”) is prevented from disregarding or disallowing an election made by a corporate taxpayer to include in its combined group every corporation in its commonly controlled group. Wisconsin law formerly required the Department to disregard such election if the Department determined that the election had the effect of tax avoidance.

The Budget Bill establishes a qualified-production-activities income tax credit. For corporate income and franchise tax purposes, the credit is available for a certain percentage of a claimant’s eligible qualified-production income. The amount of the taxpayer’s eligible income is the lesser of (1) a claimant’s qualified-production-activities income derived from agricultural or manufacturing property in Wisconsin, (2) a claimant’s income apportioned to Wisconsin, or (3) the amount of taxable income as determined under Wisconsin combined reporting rules.

Additionally, the new law creates an exclusion from tax for the qualifying gain from the sale of a Wisconsin capital asset purchased after December 31, 2010 and held for at least five years. Further, effective January 1, 2011, a deferral is permitted for long-term capital gain reinvested into a qualified Wisconsin business.

Changes to sales and use taxes include an exemption for snow-making and snow-grooming machines and equipment, advertising and promotional direct mail, and modular and manufactured homes that are sold in Wisconsin but used outside the state. The Budget Bill provides that a retailer may claim a resale exemption on the purchase of merchandise that is not distinct and identifiable and that will be provided free when customers purchase another taxable item as part of the same transaction. Furthermore, the bill exempts vegetable oil or animal fat that is converted into motor vehicle fuel that will qualify as exempt personal renewable fuel.

TECHNICAL INFORMATION CONTACT:

Robert A. Sheehan
Principal
Ryan
401.272.3363
robert.sheehan@ryan.com