Rep. Amy Loudenbeck and Sen. Rick Gudex are circulating legislation, LRB 2997, that allows for the limited transfer of Economic Development Tax Credits. As Loudenbeck and Gudex state in their co-sponsorship memo, “Under current Wisconsin law, non-refundable tax credits can only be used if there is a corresponding state income tax liability. If there is no income tax liability, the tax credits have no value to the qualified applicant.”
This inordinately impacts emerging entrepreneurs because they often lack sufficient levels of profitability, and the corresponding income tax obligations, to benefit from tax credits they are eligible for. Certain business structures (S-Corps, LLCs or LLPs) and types of businesses (namely those engaged in warehouse and distribution) also have many unusable credits because they may not directly possess an income tax liability since the income generation nexus of these operations is usually linked to another business activity location. In these instances, tax credits provide very limited – if any – benefits to the original recipients.
Allowing the transfer of credits within a contractually controlled environment and with oversight from the Wisconsin Economic Development Corporation (WEDC) will enhance the usefulness of Wisconsin’s Economic Development Tax Credit program. For instance, in exchange for a firm’s WEDC-approved tax credit award, a landlord could provide the original credit recipient with reduced rental rates; finance tenant improvements; cover relocation costs; or assist with underwriting a tenant’s talent and training needs; etc.