2017 - 2018 LEGISLATURE
December 3, 2018 - Introduced by
Joint Committee on Finance. Referred to Joint
Committee on Finance.
1An Act to repeal
20.395 (2) (fq);
to renumber and amend
71.07 (7) (b) and 2
71.365 (1); to amend
71.05 (6) (a) 14., 71.07 (7) (c), 71.36 (1), 73.03 (71) and 3
77.51 (13g) (intro.); to create
71.05 (10) (dm), 71.07 (7) (b) 3., 71.21 (6), 71.365 4
(1) (b), 71.365 (4m), 71.775 (3) (a) 4., 73.03 (71) (d), 77.51 (13gm), 84.54 and 5
86.51 of the statutes; and to affect 2017 Wisconsin Act 59
, section 9145 (4w)
; 6relating to: state and local highway projects; expenditure of transportation
7moneys received from the federal government; determining a reduction in
8individual income tax rates; and election of pass-through entities to be taxed
9at the entity level.
Analysis by the Legislative Reference Bureau
This bill provides that for Southeast Wisconsin freeway megaprojects, major
highway development projects, and certain state highway rehabilitation projects for
which the Department of Transportation spends federal money, federal money must
make up at least 70 percent of the aggregate funding for those projects. The bill
provides that if DOT determines that it cannot meet this requirement or that it can
make more effective and efficient use of federal money, DOT may submit a proposed
alternate funding plan to the Joint Committee on Finance for review under its
passive review procedure.
The bill requires DOT to notify political subdivisions receiving aid for local
projects whether the aid includes federal moneys and how those moneys must be
spent. The bill provides that, for projects that receive no federal money and that are
reviewed and approved by a professional engineer or the county highway
commissioner, DOT may not require political subdivisions to comply with any
portion of DOT's facilities development manual other than design standards.
Under current law, DOT may make transfers of state and federal funding
between highway programs. This bill eliminates this authority.
This bill eliminates the special approval process for the second category of
major highway projects. Under this bill, these projects must be approved using the
process provided for the first category of major highway projects.
Under current law, the Department of Revenue must determine the amount of
additional revenue collected from the state sales and use tax as a result of any federal
law that expands the state's authority to collect sales and use taxes from out-of-state
retailers. After DOR makes that determination, it must then determine how much
the individual income tax rates may be reduced in the following taxable year in order
to decrease individual income tax revenue by the amount of additional sales and use
tax revenue. Finally, DOR must certify its determinations to the secretary of
administration, to the governor, and to the legislature and specify that the new
individual income tax rates will take effect in the following year. No further
legislation is required to make this change.
The U.S. Supreme Court recently upheld a South Dakota law that required the
collection of state sales and use taxes from any out-of-state seller that either
conducts 200 or more transactions annually with consumers in the state or has
annual sales in the state exceeding $100,000. See, South Dakota v. Wayfair, Inc., 585
U.S. ___ (2018). The Wayfair decision overturned longstanding precedent that
prevented a state from collecting sales and use tax from out-of-state sellers that did
not have a physical presence in the state. See, Quill Corp. v. North Dakota, 504 U.S.
This bill clarifies that the recent U.S. Supreme Court decision that expands a
state's authority to collect sales and use taxes from out-of-state retailers triggers the
determinations mentioned above. The bill also provides that the new individual
income tax rates based on the determinations would not take effect automatically in
the year following DOR's certification, but, instead, the Department of
Administration, in consultation with DOR, would determine the new tax rates to
take effect for the taxable year ending on December 31, 2019, and report its
determinations to the governor, JCF, and the Legislative Audit Bureau. LAB would
then review the determinations and report its findings to JCF and the Joint
Legislative Audit Committee. If LAB's review results in a re-determination of the
rates, JCF would determine which rates apply to the taxable year ending on
December 31, 2019, and report its determination to the governor, the secretary of
administration, and the secretary of revenue. Finally, the bill includes in the
definition of a “retailer engaged in business in this state” any retailer that has
annual gross sales into this state in excess of $100,000 or an annual number of
separate sales transactions into this state of 200 or more.
This bill allows pass-through entities to elect to be taxed at the entity level for
purposes of the state's income and franchise taxes.
Under current law, pass-through entities, such as tax-option corporations and
partnerships, are generally not subject to the income or franchise tax at the entity
level. Rather, any item of income, loss, or deduction flows through to their
shareholders, partners, or members, who are then subject to tax.
The bill allows tax-option corporations and partnerships, including limited
liability companies and other entities that are treated as partnerships under federal
tax law, to elect to be taxed at the entity level for purposes of the income and franchise
taxes. An entity that makes the election is taxed at a rate of 7.9 percent on its net
income that is reportable to Wisconsin, and the situs of income is determined as if
the election was not made. The entity may not claim losses and tax credits except
for the credit for taxes paid to other states. The bill also provides that the adjusted
basis of the entity's partners, shareholders, or members is determined as if the
election was not made. If the entity fails to pay the taxes due, DOR may collect the
amount from the entity's partners, shareholders, or members. Persons who hold
more than 50 percent ownership of the pass-through entity must consent to the
election and must consent to any revocation of the election. The bill allows the
election to be made for taxable years beginning in 2018 for tax-option corporations
and 2019 for other entities.
For further information see the state and local fiscal estimate, which will be
printed as an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
20.395 (2) (fq) of the statutes is repealed.
71.05 (6) (a) 14. of the statutes is amended to read:
(a) 14. Any amount received as a proportionate share of the earnings 4
and profits of a corporation that is an S corporation for federal income tax purposes 5
if those earnings and profits accumulated during a year for which the shareholders 6
have elected under s. 71.365 (4) (a)
not to be a tax-option corporation, to the extent 7
not included in federal adjusted gross income for the current year.
1does not apply to earnings and profits accumulated during a year for which a
2tax-option corporation has made an election under s. 71.365 (4m) (a) to be taxed at
3the entity level.
71.05 (10) (dm) of the statutes is created to read:
(dm) Any item of income, loss, or deduction passed through from an 6
entity that has made an election under s. 71.21 (6) (a) or 71.365 (4m) (a) to be taxed 7
at the entity level.
71.07 (7) (b) of the statutes, as affected by 2017 Wisconsin Act 59
is renumbered 71.07 (7) (b) 1. and amended to read:
(b) 1. Subject to conditions and limitations in pars. (c) and (d), if a 11
resident individual, estate or trust pays a net income tax to another state, that 12
resident individual, estate or trust may credit the net tax paid to that other state on 13
that income against the net income tax otherwise payable to the this
state on income 14
of the same year. The credit may not be allowed unless the income taxed by the other 15
state is also considered income for Wisconsin tax purposes. The credit may not be 16
allowed unless claimed within the time provided in s. 71.75 (2), but s. 71.75 (4) does 17
not apply to those credits. For purposes of this paragraph subdivision
, amounts 18
declared and paid under the income tax law of another state are considered a net 19
income tax paid to that other state only in the year in which the income tax return 20
for that state was required to be filed.
Income and franchise taxes paid to another state by a tax-option corporation, 22
partnership, or limited liability company that is treated as a partnership may be 23
claimed as a credit under this paragraph by that corporation's shareholders, that 24
partnership's partners, or that limited liability company's members who are 25
residents of this state and who otherwise qualify under this paragraph
, unless the
1tax-option corporation, partnership, or limited liability company has made an
2election under s. 71.21 (6) (a) or 71.365 (4m) (a)
71.07 (7) (b) 3. of the statutes is created to read:
(b) 3. Subject to the conditions and limitations in pars. (c) and (d), if 5
a tax-option corporation, partnership, or limited liability company makes an 6
election under s. 71.21 (6) (a) or 71.365 (4m) (a), that tax-option corporation, 7
partnership, or limited liability company may credit the net income or franchise tax 8
paid by the entity to another state on that income and the net income tax on that 9
income paid by the entity on behalf of its shareholders, partners, and members that 10
are residents of this state on a composite return filed with the other state against the 11
net income or franchise tax otherwise payable to this state on income of the same 12
year. The credit may not be allowed unless the income taxed by the other state is also 13
considered income for Wisconsin tax purposes and is otherwise attributable to 14
amounts that would be reportable to this state by shareholders, partners, or 15
members of the tax-option corporation, partnership, or limited liability company 16
that are residents of this state if the election under s. 71.21 (6) (a) or 71.365 (4m) (a) 17
was not made. The credit may not be allowed unless claimed within the time 18
provided in s. 71.75 (2), but s. 71.75 (4) does not apply to those credits. For purposes 19
of this subdivision, amounts declared and paid under the income tax law of another 20
state are considered a net income tax paid to that other state only in the year in which 21
the income tax return for that state was required to be filed.
(c) The credit total credits under par. (b) 1. and 2.
may not exceed an 25
amount determined by multiplying the taxpayer's net Wisconsin income tax by a
ratio derived by dividing the income subject to tax in the other state that is also 2
subject to tax in Wisconsin while the taxpayer is a resident of Wisconsin, by the 3
taxpayer's Wisconsin adjusted gross income. The credit under par. (b) 3. may not
4exceed an amount determined by multiplying the income subject to tax in the other
5state that is also subject to tax in Wisconsin by 7.9 percent.
71.21 (6) of the statutes is created to read:
(a) If persons who, on the day on which an election under this 8
paragraph is made, hold more than 50 percent of the capital and profits of a 9
partnership consent, a partnership that is a partnership for federal income tax 10
purposes may elect, on or before the due date or extended due date of its return under 11
this chapter, to be taxed at the entity level at a rate of 7.9 percent of net income 12
reportable to this state as described in par. (d) 1. for that taxable year.
(b) It is the intent of the election under par. (a) that partners of a partnership 14
may not include in their Wisconsin adjusted gross income their proportionate share 15
of all items of income, gain, loss, or deduction of the partnership. It is also the intent 16
that the partnership shall pay tax on items that would otherwise be taxed if this 17
election was not made.
(c) If persons who, on the day on which the election under this paragraph is 19
made, hold more than 50 percent of the capital and profits of a partnership that has 20
elected to be taxed at the entity level under par. (a) consent, a partnership that is a 21
partnership for federal income tax purposes may elect, on or before the due date or 22
extended due date of its return under this chapter, to revoke for that taxable year its 23
election under par. (a).
(d) If an election is made under par. (a), all of the following apply:
1. The net income of the partnership is computed under subs. (1) to (5) and the 2
situs of income shall be determined as if the election under par. (a) was not made.
2. The partnership may not claim the loss under s. 71.05 (8).
3. Except as provided in s. 71.07 (7) (b) 3., the tax credits under this chapter 5
may not be claimed by the partnership.
4. A partner's adjusted basis of the partner's interest in the partnership is 7
determined as if the election under par. (a) was not made.
5. The provisions of ss. 71.09 and 71.84 relating to estimated payments and 9
underpayment interest shall apply to the partnership.
6. If the partnership fails to pay the amount owed to the department with 11
respect to income as a result of the election under par. (a), the department may collect 12
the amount from the partners based on their proportionate share of such income.
(e) The department may promulgate rules to implement this subsection.
71.36 (1) of the statutes is amended to read: