Wisconsin Approves Income Tax Reduction, Business Tax Reforms

March 25, 2014

Wisconsin Governor Scott Walker (R) yesterday signed Act 145 into law, a budget bill that makes a number of tax changes. These include:

  • Reducing the lowest income tax rate from 4.4% to 4.0%, a tax reduction for all income taxpayers (a $98 million reduction over two years).
  • Increases net operating loss carryforwards from 15 years to 20 years, aligning the state with federal law
  • Caps tax revenue and state aid that can be received by technical college districts, and increases state aid to those districts. The hope is that the two items together will have the effect of reducing local property taxes by several hundred million dollars
  • Recoupling Wisconsin depletion rules to federal law
  • Clarifying that taxpayers are not required to use net operating loss (NOL) carrybacks, but may do so at their option
  • Tightens the job tax credit to require beneficiaries to increase net employment in Wisconsin
  • Allows several tax credits to be used against the state alternative minimum tax (AMT)
  • Clarifies definitions related to sales taxes on the printing industry

These reductions and reforms are retroactive to January 1, 2014, except the technical college reforms that will start in 2015. The corporate tax changes that align the state with federal law are especially welcome, as they reduce duplicative tax preparation and reduce Wisconsin’s corporate tax rule disadvantages relative to other states. They also build on previous reforms to align depreciation rules and net operating loss carrybacks with federal law, and will improve the state’s business tax competitiveness.

The income tax changes also build on earlier reductions since 2012. While the top rate has dropped only slightly, from 7.75 percent to 7.65 percent (compare that to neighboring Illinois’s proposed 8 percent top rate and Minnesota’s recent increase from 7.85 percent to 9.85 percent), all rates have dropped and one mid-level bracket was deleted (see table). Using his own executive authority, Walker has also reduced Wisconsin's excessive tax withholding, which is presently designed to withhold 120 percent of projected tax liability. Taxpayers get the excess money back when they file their taxes, but it is essentially a forced-interest free loan to the state in the meantime. The money also sat on the state's books as a liability, worsening the paper deficit by some $323 million.

2012

2013

2014

Bracket

Rate

Bracket

Rate

Bracket

Rate (pre-cut)

Rate (post-cut)

>$0

4.60%

>$0

4.40%

>$0

4.40%

4.00%

>$10,570

6.15%

>$10,750

5.84%

>$10,910

5.84%

5.84%

>$21,130

6.50%

>$21,490

6.27%

>$21,820

6.27%

6.27%

>$158,500

6.75%

 

 

 

 

 

>$232,660

7.75%

>$236.600

7.65%

>$240,190

7.65%

7.65%

 

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