Governor Scott Walker has recently signed Wisconsin Act 59, effecting changes across several tax types and greater conformity to the federal tax code. The notable changes are summarized below:
SALES / USE TAX
Construction Contractors – Expansion of 10% Rule for Materials
Under prior law, if the contractor is engaged in a lump-sum contract and the total sales price attributed to taxable products is less than 10% of the total contract price, then the products are exempt. The contractor however is deemed to be the consumer of the products, and therefore owes sales/use tax at their cost. Under the new law, the 10% rule is expanded to real property construction contracts of all types (lump-sum, time & materials, cost-plus, etc.) entered into after Dec. 1, 2017.
Construction Contractors – State University / Technical College Building Exemption
Effective after July 1, 2018, contractors may file an exemption for tangible personal property when purchased as part of a contract for real estate construction activities, and the property is then transferred to certain entities within the University of Wisconsin and technical college systems.
Occasional Sale Exemption Increased
Effective Jan. 1, 2018, the occasional sales exemption limit is increased from $1,000 to $2,000 during a calendar year. This exemption applies to those not required to hold a retail seller’s permit. Examples of qualifying occasional sales are rummage sales and flea market sales.
Sales Tax on Internal Access Repealed
Wisconsin is currently one of a handful of states charging sales tax on internet access under the grandfather clause of the Internet Tax Freedom Act. Effective July 1, 2020 the tax on internet access is repealed.
Personal Property Exemption for Machinery, Tools, & Patterns
Effective with property tax assessments starting in Jan. 1, 2018, machinery, tools and patterns not used in manufacturing will be exempt from property tax. As machinery is defined, the exemption does not include buildings.
For tax years beginning after Dec. 31, 2016, Wisconsin now generally conforms to the IRC as of Dec. 31, 2016, including a change to follow federal law such that individuals older than 70½ can exclude up to $100,000 from taxable income when money is distributed from an individual retirement account direct to a charitable organization, applicable to tax years beginning after 2017.
Alternative Minimum Tax
The alternative minimum tax (AMT) is repealed, effective for tax years beginning after Dec. 31, 2016.
Net Operating Losses
Taxpayers may not carry forward a net operating or a net business loss to offset future income unless the taxpayer filed a tax return to claim the loss within four years after the due date for filing the tax return for the taxable year in which the loss was incurred. Additionally, the bill provides that a taxpayer that is allowed to carry back the loss to offset income in prior years may only do so if the taxpayer files a tax return to claim the carry-back within four years after the due date for filing the tax return for the taxable year to which the loss is carried back.
Manufacturing and Agriculture Credit
Beginning with tax years after 2016, the enacted legislation ends the overlap allowing individuals to calculate both the manufacturing and agriculture tax credit as well as the credit for taxes paid to other states on the same income. The amount of the eligible qualified production activities income a claimant can claim in computing the credit must be reduced by the amount of the qualified production activities income taxed by another state and upon which a credit is claimed for tax paid to the other state.
Research Credit Now Partially Refundable
Beginning with tax years starting after 2017, 10% of the research expense credit can be refunded. This change appears to apply only to new credits claimed after 2017.
Sourcing of Service Income
The sourcing of service income is modified so tax is imposed on the gross receipts from services relating to tangible personal property delivered to customers in Wisconsin and purchased by individuals who are physically present in Wisconsin at the time the services are rendered.
Tax Refunds Paid to Individuals
The Department of Revenue is now prohibited from issuing a refund to an employed individual before March 1, unless both the individual and the individual’s employer have filed all required returns and forms for the taxable year that the individual claims a refund.