Joint Finance Fixes Marriage Penalty, Federalizes AMT, and Adjusts Business Tax Credits

MacIver News Service | July 2, 2015

The Republican omnibus motion for state taxes was 14 pages long with 48 total changes. Included below is our first blush analysis of the tax changes. The net fiscal effect of all changes amounts to a small increase, spending $37.7 million but saving $37.2 million

  • Re-estimates the use of the veterans and surviving spouses property tax credit, which would lower the amount needed to pay for this credit by $5.4 million GPR.
  • Makes changes to the Illinois Income Tax Reciprocity agreement to reflect that Illinois’ income tax will decrease to 3.75 percent in 2016. This means Wisconsin will save almost $12 million because of lower payments to Illinois.
  • Provides Joint Finance review of any new income tax reciprocity agreements with Minnesota.
  • Saves $4 million because of more recent claims data for the Earned Income Tax Credit.
  • Includes minor updates to state references of the Internal Revenue Code.
  • Authorizes Achieving a Better Life (ABLE) accounts for people with disabilities. ABLE allows individuals to pay the qualified disabilities expenses of the beneficiaries of these accounts. This will result in $1 million less revenue to the state.
  • Aligns Wisconsin’s treatment of the Alternative Minimum Tax (AMT) with the federal AMT. This decreases state individual income taxes by $6 million over the 2015-17 biennium and is projected to save taxpayers $55 million in the 2017-19 biennium.
  • Re-estimates the amount needed to be given to the Jobs Tax Credit program, saving the state $2.6 million. Also makes sure an ending balance of $22 million is lapsed back to the general fund under the Jobs Tax Credit account.
  • Gives $12.8 million more to the Enterprise Zones Tax Credit to reflect re-estimates of what is needed for the program.
  • Rejects Gov. Walker’s proposal to get rid of the state supplement to the federal Historic Rehabilitation Tax Credit, which will cost the state $7.8 million GPR in 2017.
  • Approves Gov. Walker’s recommendation to hire 102 more auditors at the Department of Revenue to enhance tax collections. However, an annual report will have to be filed with JFC that makes sure these positions are worth the investment.
  • Hires 11 more people to work at the State Debt Collection program. This is important because Milwaukee County will rely on enhanced debt collections to pay their share of the Milwaukee Bucks arena plan.
  • Temporarily decreases the Manufacturing and Agriculture Tax Credit by half a percentage point this year, then increases the credit by 2 percent in 2016 so it is fully phased in. The short-term savings for the state will be $16.8 million GPR next year.
  • Sets the standard deduction for jointly filing married couples at $19,010 and $9,030 for married individuals filing separately in 2016. This corrects for the marriage penalty, which typically grants more money to single filers than to married filers.
  • Repeals the income exclusion for businesses that create jobs. Before, small businesses could exclude $4,000 in income for every job created, and bigger business could exclude $2,000 in income for every job created. This is expected to save $2.7 million GPR per year.
  • Aligns the treatment of tax deductions for teachers’ purchases of school supplies with federal law. This measure will save $2.2 million GPR in this budget.
  • In one of the odder moves of the day, JFC will exempt deer sold to game farms and hunting preserves from sales tax liability. This will cost less than $400,000 over the next two years.
  • Pear cider will now be taxed under Wisconsin’s hard cider tax instead of the wine tax. Additionally, it will be easier to get an “off-premise” sale license for the sale of hard cider and pear cider.
  • The Town of Wyoming gets special treatment, as it will be able to grant one additional liquor license over its current quota for such licenses.
  • Cigarette manufacturers, bonded direct marketers, and cigarette distributors will get a slightly better discount on the amount they have to pay in cigarette taxes. The slight change from 0.7 percent to 0.8 percent will cost $1.1 million over the next two years.
  • Allows municipalities that have reached their liquor license quota to borrow one from a contiguous municipality that has not reached its quota.
  • One unidentified Indian tribe will be granted a liquor license. The language says that this tribe’s reservation encompasses between 60,000 and 70,000 acres.
  • JFC made three more changes to the Wisconsin Economic Development Corporation (WEDC). JFC will take away $19.8 million GPR from WEDC and allow the agency to issue up to $17 million in business development tax credits next year and $22 million in each year after that. Lastly, WEDC will not be able to give out loans over $10 million next year and over $5 million in 2017. However, that limit would not apply to the Technology Development Loan Program.
  • A number of changes were made to the College Savings Program, or 529 plans. The maximum contribution amount will be set at $425,000, which can be increased by a percentage that is tied to the amount that tuition and fees at private colleges go up. Specifications were also included on what parts of 529 plans do not need to be counted as income for state income tax purposes.
  • Other minor changes include: Re-estimating payments for expired tax credits, exempting payment penalties for businesses that were Qualified New Business Ventures (QNBV) before April 20, 2012, expands eligibility for QNBV program and increases the transfer fee for that program from 1 percent to up to 5 percent, adds the purchase of a note or bond that can be converted to equity interest to the definition of “Bona Fide Angel Investment” and simplifies the Research Tax Credit calculation.

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