State Budget: Taxes and Economic Development

Tax Package

The governor proposed cutting property taxes by increasing state spending on the school levy tax credit by $211 million over two years. Under the budget bill, the governor’s tax credit increase will be delayed, by moving all the payments back one cycle, leaving one payment to the fiscal year after the biennial budget, effectively freeing up $105 million GPR for the 2015-2017 budget for K-12 education.

JFC created a sales and use tax exemption for goods sold to construction contractors for school, municipal and nonprofit facility projects. This exemption amounts to $11 million over the biennium. The committee also reduced the manufacturing and agricultural (MAC) credit from 5.526% to 5.025% for tax year 2015. By reducing this tax credit, taxes on eligible companies is estimated to increase by is $16.8 million in 2015-16. The committee did not adjust the 7.5% MAC credit for tax year 2016.

Another provision increased the standard deduction for married couples, which will result in a $20.9 million decrease in individual income taxes in 2016-17. The deduction for married-joint filers would increase by an estimated $550 and be set at $19,010 in 2016. For married-separate filers, the deduction would increase by an estimated $260 and be set at $9,030.

The committee also voted to federalize the alternative minimum tax exemption starting in tax year 2017. This provision is estimated to save Wisconsin taxpayers $6 million in 2017, $25.4 million in 2018 and $29.9 million in 2019. This adjustment reflects the difference in how Wisconsin defines adjusted gross income.

Another significant shift in the revenue estimates relates to re-estimations of the veterans property tax credit, the Illinois reciprocity payments and earned income tax credits. The total re-estimate for those credits and payments lowers funding projections $21.4 million over the biennium.

The committee adopted the governor’s request for 102 positions at Department of Revenue (DOR) to increase audits and supposedly collect more taxes. DOR must issue a report after the next five fiscal years on the amount of tax revenue generated by the additional auditors.

Some additional changes were made to the tax and retail sale of hard cider. Effective January 1, 2016, hard cider made from pears would be imposed with the hard cider tax, instead of the wine tax.

The governor’s budget included a provision that would expand the amount of the information to be included on the property tax bill extensively. JFC deleted the governor’s proposal and made alternative changes to the information on a property tax bill.

Economic Development

The governor’s budget included several provisions to modify and increase the state’s economic development programs. This included $55 million for a new regional revolving loan fund, merging the Wisconsin Economic Development Corporation (WEDC) and the Wisconsin Housing and Economic Development Authority to form a new state economic development and housing agency and the consolidation of tax credit programs into a new refundable Business Development Tax Credit.

In addition to not advancing the new merged agency (see Mergers section below), JFC rejected many of the governor’s economic development proposals. The committee deleted the proposed regional revolving loan fund and the provision to provide open records exemptions to businesses receiving financial assistance from WEDC. At the governor’s request, JFC removed the governor from the WEDC Board of Directors.

The committee repealed the governor’s changes to the Historic Tax Credit program, including the program cap. Current law will continue, with the exception of narrowing the provision to pre-1936 buildings.

The committee voted to repeal the exclusion for job creation. Beginning in tax year 2015, repeal the current law exclusion from income under the individual income tax and the corporate income/franchise tax for increased employment in Wisconsin equal to:

  • $4,000 multiplied by the increase in the number of FTE employees for businesses with gross receipts of $5 million or less in the tax year;
  • or, $2,000 per FTE employee for businesses with gross receipts of $5 million or more.

JFC adopted the governor’s proposal for a new Business Tax Development Credit: JFC increased the governor’s allocation of $10 million in each year to $17 million in 2016 and $22 million in 2017 and each year after. In addition, the committee adopted the reestimate of the Job Tax Credit that includes a modification to the refundable jobs tax credit. This will decrease payments by $3.4 million GPR in 2015-2016 and increase payments by $800,000 in 2016-2017.

The committee approved the governor’s request to phase out lending at the Wisconsin Economic Development Corporation (WEDC). Current levels will be reduced to $10 million in fiscal year 2015-2016 and $5 million in fiscal year 2016-2017. WEDC cannot originate any new loans as of June 30, 2017. WEDC will be able to continue to lend under the Technology Development Loan program will continue but will be capped at $3 million a year.

Lastly, JFC reduced WEDC’s operations and program appropriation by $19.8 million over the biennium. The funds will be placed in JFC’s program supplemental appropriation.

Agency Mergers

As requested by the governor, JFC removed the proposed agency mergers from the budget. The governor proposed to create a new Department of Financial Institutions and Professional Standards from the Department of Financial Institutions (DFI) and the DSPS. In addition, the governor proposed to consolidate WEDC and the Wisconsin Housing and Economic Development Authority (WHEDA) into the Forward Wisconsin Development Authority.