AB872: Bill Text

Analysis by the Legislative Reference Bureau

Combined reporting

Under current law, a taxpayer may elect to include in its combined group, for income and franchise tax reporting purposes, every corporation in its commonly controlled group, regardless of whether such corporations are engaged in the same unitary business of the taxpayer. Under current law, the Department of Revenue (DOR) may not disallow such an election, or disregard its effect. Under this bill, if DOR determines that such an election has the effect of tax avoidance, DOR must disregard the election's tax effect or disallow the election.

Under current law, for each taxable year that a corporation that is a member of a combined group has net business loss carry-forward from a taxable year beginning before January 1, 2009, the corporation may, for 20 taxable years, use up to 5 percent of the net business loss carry-forward to offset the income of all other members of the combined group. The bill eliminates this provision.

Qualified production activities income credit

Under the federal Internal Revenue Code, a taxpayer may claim a deduction equal to 9 percent of the taxpayer's qualified production activities income in the taxable year or 9 percent of the taxpayer's total taxable income, whichever is less. For federal tax purposes, qualified production activities income is, generally, the amount of the taxpayer's domestic production gross receipts that exceed the sum of the cost of goods sold and other expenses, losses, or deductions. Domestic production gross receipts are, generally, gross receipts derived from property that was manufactured, produced, grown, or extracted in the United States.

Under current law, an individual taxpayer may claim a state income tax credit equal to the taxpayer's qualified production activities income derived from manufacturing property and agricultural property, multiplied by a certain percentage. A corporation or insurer may claim a state income and franchise tax credit equal to the lesser of its taxable income apportioned to this state or its qualified production activities income derived from manufacturing property or agricultural property located in this state, multiplied by a certain percentage. The percentage of qualified production activities income that a taxpayer may claim as a credit is 1.875 percent for 2013, 3.75 percent for 2014, 5.526 percent for 2015, and 7.5 percent for 2016 and for each year thereafter.

The bill eliminates the tax credit for qualified production activities income.

Changes to rates and brackets

Under current law, there are four income tax brackets for single individuals, certain fiduciaries, heads of households, and married persons. The brackets are indexed for inflation. The rate of taxation under current law for the lowest bracket for single individuals, certain fiduciaries, heads of households, and married persons is 4.40 percent of taxable income; the rate for the second bracket is 5.84 percent; the rate for the third bracket is 6.27 percent; and the rate for the highest bracket is 7.65 percent. Before applying bracket indexing, the four brackets for individuals, certain fiduciaries, and heads of households, to which the above rates apply, are as follows: taxable income from $0 to $7,500; taxable income exceeding $7,500 but not exceeding $15,000; taxable income exceeding $15,000 but not exceeding $225,000; and taxable income exceeding $225,000. This rate and bracket structure first applies to taxable year 2013, and was enacted in 2013 Wisconsin Act 20, the state budget bill.

This bill repeals the changes made to the rates and brackets in 2013 Wisconsin Act 20 and, for taxable years 2013 and thereafter, reduces and restores certain rates and restores the brackets that existed before the budget bill was enacted. Under the former law and this bill, which will take effect retroactively to taxable year 2013 once the bill is enacted, there are five income tax brackets for single individuals, certain fiduciaries, heads of households, and married persons. The brackets are indexed for inflation. The rate of taxation under former law for the lowest bracket for single individuals, certain fiduciaries, heads of households, and married persons is 4.60 percent of taxable income; the rate for the second bracket is 6.15 percent; the rate for the third bracket is 6.50 percent; the rate for the fourth bracket is 6.75 percent; and the rate for the highest bracket is 7.75 percent. This bill lowers the rates of taxation for the three lowest brackets to 4.0 percent, 5.84 percent, and 6.27 percent.

With regard to taxable year 2012, before indexing for inflation for 2013, for single individuals, certain fiduciaries, and heads of households, for example, the lowest bracket applies to taxable income of over $0 up to $10,570; the second bracket applies to taxable income over $10,570 up to $20,360; the third bracket applies to taxable income over $20,360 up to $158,500; the fourth bracket applies to taxable income over $158,500 up to $232,660; and the fifth, or top, bracket applies to taxable income over $232,660.

Personal exemptions

Under current law, an individual income tax personal exemption exists in the amount of $700 for each taxpayer who is required to file an income tax return and $700 for the taxpayer's spouse, except if the spouse is filing separately or as a head of household. A taxpayer may also claim a $700 exemption for each dependent for whom he or she is entitled to claim an exemption under the Internal Revenue Code. In general, an additional exemption of $250 may be claimed by a taxpayer, and spouse, who has reached the age of 65 before the close of the taxable year to which his or her tax return relates.

This bill increases the personal exemption amount for certain taxpayers starting with taxable year 2014. Under the bill, if a single individual has Wisconsin adjusted gross income (WAGI) of less than $12,000, his or her personal exemption is $4,310. The personal exemption amount for such an individual phases down to approximately $700 as his or her WAGI increases from $12,000 to the maximum income threshold of $60,000. If such an individual's WAGI is more than the maximum income threshold, the individual calculates his or her exemption under current law.

Similarly under the bill, the personal exemption amount for a head of household, a married couple filing jointly, and a married individual filing separately are all increased to $4,310 per person for those whose WAGI, or joint WAGI in the case of a married couple filing jointly, is less than $14,000 (head of household), $20,000 (married joint), or $10,000 (married separate). The exemption amount phases down to approximately $700 ($1,400 for a married couple filing jointly) as WAGI increases to the maximum income threshold, which is $70,000 (head of household), $100,000 (married joint), or $50,000 (married separate). If a taxpayer's WAGI is more than the maximum income threshold, the taxpayer calculates his or her, or the couple's, exemption under current law. The bill does not make any change to the current law exemption provisions for dependents or individuals who are age 65 or above.

Earned income tax credit

Under current law, as created in 2011 Wisconsin Act 32, the earned income tax credit (EITC) is reduced for claimants with two or more qualifying children. The bill repeals those provisions and restores former law. Under the bill, the EITC, as a percentage of the federal credit, would be 4 percent for claimants with one qualifying child, 14 percent for claimants with two qualifying children, and 43 percent for claimants with three or more qualifying children.

Homestead tax credit

Under current law, as created in 2011 Wisconsin Act 32, the homestead tax credit formula factors (maximum income, maximum property taxes, and income threshold) are not indexed for inflation after 2010. The bill repeals those provisions and restores former law. Under the bill, the homestead tax credit formula factors would be indexed for inflation for 2013 and beyond.

Exclusion of capital gains

Under current law, there is an income tax exclusion for individuals, fiduciaries, members of limited liability companies and partnerships, and shareholders of tax-option corporations for 30 percent of the net long-term capital gains realized from the sale of assets held more than one year and the sale of all assets acquired from a decedent, and an exclusion for 60 percent of such gains realized from the sale of farm assets held more than one year and the sale of all farm assets acquired from a decedent.

Under this bill, the exclusion of 30 percent of such net long-term capital gains, and all assets acquired from a decedent, does not apply to taxable years beginning after December 31, 2013. The bill does not affect the exclusion of the gains realized from the sale of farm assets held more than one year and the sale of farm assets acquired from a decedent.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.

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:

AB872,1 Section 1. 71.01 (14) of the statutes is amended to read:

AB872,5,5 71.01 (14) "Wisconsin net operating loss" of persons other than corporations means "federal net operating loss" adjusted as prescribed in s. 71.05 (6) (a) and (b), (7) to (12) and (19) to (21), except s. 71.05 (6) (b) 9., except that no deductions allowable on schedule A for federal income tax purposes are allowable.

AB872,2 Section 2. 71.03 (2) (a) 1. of the statutes is amended to read:

AB872,5,17 71.03 (2) (a) 1. Every individual domiciled in this state during the entire taxable year who has a gross income at or above a threshold amount which shall be determined annually by the department of revenue. The threshold amounts shall be determined for categories of individuals based on filing status and age, and shall include categories for single individuals; individuals who file as a head of household; married couples who file jointly; and married persons who file separately. The threshold amounts shall also be determined by taking into account the exemption amounts in s. 71.05 (23) (b) 1. and 3. and (be). The department of revenue shall establish a threshold amount for each category of individual at an amount at which no individual in that category whose gross income is below that amount has a state income tax liability.

AB872,3 Section 3. 71.05 (6) (a) 25. of the statutes is repealed.

AB872,4 Section 4. 71.05 (6) (b) 9. of the statutes is amended to read:

AB872,6,12 71.05 (6) (b) 9. On assets held more than one year and on all assets acquired from a decedent, 30 percent of the capital gain as computed under the internal revenue code, not including capital gains for which the federal tax treatment is determined under section 406 of P.L. 99-514; not including amounts treated as ordinary income for federal income tax purposes because of the recapture of depreciation or any other reason; and not including amounts treated as capital gain for federal income tax purposes from the sale or exchange of a lottery prize. For purposes of this subdivision, the capital gains and capital losses for all assets shall be netted before application of the percentage. This subdivision does not apply to taxable years that begin after December 31, 2013.

AB872,5 Section 5. 71.05 (6) (b) 9m. of the statutes is amended to read:

AB872,6,24 71.05 (6) (b) 9m. On farm assets held more than one year and on all farm assets acquired from a decedent, to the extent that they are not subtracted under subd. 9. or 10., 60 percent of the capital gain as computed under the Internal Revenue Code, not including capital gains for which the federal tax treatment is determined under section 406 of P.L. 99-514; not including amounts treated as ordinary income for federal income tax purposes because of the recapture of depreciation or any other reason; and not including amounts treated as capital gain for federal income tax purposes from the sale or exchange of a lottery prize. In this subdivision, "farm assets" means livestock, farm equipment, farm real property, and farm depreciable property. For purposes of this subdivision, the capital gains and capital losses for all assets shall be netted before application of the percentage.

AB872,6 Section 6. 71.05 (6) (b) 25. of the statutes is amended to read:

AB872,7,8 71.05 (6) (b) 25. All gains that are not excluded from taxation under subd. 9., on business assets or 9m. on assets used in farming, including shares in a corporation or trust that meets the standards under s. 182.001 (1), or both, held more than one year, that are sold or otherwise disposed of to persons who are related to the seller or transferor by blood, marriage or adoption within the 3rd degree of kinship as determined under s. 990.001 (16), as computed under the Internal Revenue Code, not including amounts treated as ordinary income for federal income tax purposes because of the recapture of depreciation or any other reason.

AB872,7 Section 7. 71.05 (6) (b) 47. b. of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,8,6 71.05 (6) (b) 47. b. With respect to partners and members of limited liability companies, for taxable years beginning after December 31, 2010, and before January 1, 2014, for 2 consecutive taxable years beginning with the taxable year in which the partnership's or limited liability company's business locates to this state from another state or another country and begins doing business in this state, as defined in s. 71.22 (1r), and subject to the limitations provided under subd. 47. d. and e., the partner's or member's distributive share of taxable income as calculated under section 703 of the Internal Revenue Code; plus the items of income and gain under section 702 of the Internal Revenue Code, including taxable state and municipal bond interest and excluding nontaxable interest income or dividend income from federal government obligations; minus the items of loss and deduction under section 756702 702 of the Internal Revenue Code, except items that are not deductible under s. 71.21; plus guaranteed payments to partners under section 707 (c) of the Internal Revenue Code; plus the credits claimed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (2dy), (3g), (3h), (3n), (3p), (3q), (3r), (3rm), (3rn), (3s), (3t), (3w), (5e), (5f), (5g), (5h), (5i), (5j), (5k), (5r), (5rm), and (8r); and plus or minus, as appropriate, transitional adjustments, depreciation differences, and basis differences under s. 71.05 (13), (15), (16), (17), and (19), multiplied by the apportionment fraction determined in s. 71.04 (4) and subject to s. 71.04 (7) or by separate accounting. No amounts subtracted under this subd. 47. b. may be included in the modification under par. (b) 9. or 9m.

AB872,8 Section 8. 71.05 (6) (b) 47. c. of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,8,19 71.05 (6) (b) 47. c. With respect to shareholders of a tax-option corporation, for taxable years beginning after December 31, 2010, and before January 1, 2014, for 2 consecutive taxable years beginning with the taxable year in which the tax-option corporation's business locates to this state from another state or another country and begins doing business in this state, as defined in s. 71.22 (1r), and subject to the limitations provided under subd. 47. d. and e., the shareholder's distributive share of the entity's net income or loss as determined under this chapter, including interest income from federal, state, and municipal government obligations, multiplied by the apportionment fraction determined in s. 71.25 (6m) and subject to s. 71.25 (9) or by separate accounting. No amounts subtracted under this subdivision may be included in the modification under par. (b) 9. or 9m.

AB872,9 Section 9. 71.05 (8) (b) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,9,11 71.05 (8) (b) A Wisconsin net operating loss may be carried back against Wisconsin taxable income of the previous 2 years and then carried forward against Wisconsin taxable incomes of the next 20 taxable years, if the taxpayer was subject to taxation under this chapter in the taxable year in which the loss was sustained, to the extent not offset against other income of the year of loss and to the extent not offset against Wisconsin modified taxable income of the 2 years preceding the loss and of any year between the loss year and the taxable year for which the loss carry-forward is claimed. In this paragraph, "Wisconsin modified taxable income" means Wisconsin taxable income with the following exceptions: a net operating loss deduction or offset for the loss year or any taxable year before or thereafter is not allowed, the deduction for long-term capital gains under subs. (6) (b) 9. and 9m. and (25) is not allowed, the amount deductible for losses from sales or exchanges of capital assets may not exceed the amount includable in income for gains from sales or exchanges of capital assets and "Wisconsin modified taxable income" may not be less than zero.

AB872,10 Section 10. 71.05 (23) (b) 1. of the statutes is amended to read:

AB872,9,17 71.05 (23) (b) 1. A personal exemption of $700 if the taxpayer is required to file a return under s. 71.03 (2) (a) 1. or 2. and $700 for the taxpayer's spouse, except if the spouse is filing separately or as a head of household. The exemption under this subdivision may not be claimed by a taxpayer who is eligible for, and claims, the exemption under par. (be).

AB872,11 Section 11. 71.05 (23) (be) of the statutes is created to read:

AB872,9,21 71.05 (23) (be) For taxable years beginning after December 31, 2013, a personal exemption calculated as follows if the taxpayer is required to file a return under s. 71.03 (2) (a) 1. or 2.:

AB872,9,25 1. For a single individual who has a Wisconsin adjusted gross income of less than $12,000, an exemption of $4,310. For a single individual who has a Wisconsin adjusted gross income of at least $12,000, the exemption is the amount obtained by subtracting from $4,310 7.52 percent of Wisconsin adjusted gross income in excess of $12,000 but not less than $0, except that if the single individual's Wisconsin adjusted gross income is more than $60,000, the individual may not claim the exemption under this paragraph but the individual may claim the exemption under par. (b).

AB872,10,12 2. For a head of household who has a Wisconsin adjusted gross income of less than $14,000, an exemption of $4,310. For a head of household who has a Wisconsin adjusted gross income of at least $14,000, the exemption is the amount obtained by subtracting from $4,310 6.45 percent of Wisconsin adjusted gross income in excess of $14,000 but not less than $0, except that if the head of household's Wisconsin adjusted gross income is more than $70,000, the individual may not claim the exemption under this paragraph but the head of household may claim the exemption under par. (b).

AB872,10,21 3. For a married couple filing jointly that has an aggregate Wisconsin adjusted gross income of less than $20,000, an exemption of $4,310 for each spouse. For a married couple filing jointly that has an aggregate Wisconsin adjusted gross income of at least $20,000, the exemption is the amount obtained by subtracting, for each spouse, from $4,310 4.51 percent of aggregate Wisconsin adjusted gross income in excess of $20,000 but not less than $0, except that if the married couple's Wisconsin aggregate adjusted gross income is more than $100,000, the couple may not claim the exemption under this paragraph but the married couple may claim the exemption under par. (b).

AB872,11,4 4. For a married individual filing separately who has a Wisconsin adjusted gross income of less than $10,000, an exemption of $4,310. For a married individual filing separately who has a Wisconsin adjusted gross income of at least $10,000, the exemption is the amount obtained by subtracting from $4,310 9.03 percent of Wisconsin adjusted gross income in excess of $10,000 but not less than $0, except that if the individual's Wisconsin adjusted gross income is more than $50,000, the individual may not claim the exemption under this paragraph but the individual may claim the exemption under par. (b).

AB872,12 Section 12. 71.05 (25) (b) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,11,12 71.05 (25) (b) For taxable years beginning after December 31, 2015, for an investment in a qualified Wisconsin business made after December 31, 2010, and held for at least 5 uninterrupted years, a claimant may subtract from federal adjusted gross income the amount of the claimant's qualifying gain in the year to which the claim relates, to the extent that it is not subtracted under sub. (6) (b) 9. or 9m.

AB872,13 Section 13. 71.06 (1p) (intro.) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,11,20 71.06 (1p) Fiduciaries, single individuals and heads of households; 2001 to 2012 after 2000. (intro.) The tax to be assessed, levied and collected upon the taxable incomes of all fiduciaries, except fiduciaries of nuclear decommissioning trust or reserve funds, and single individuals and heads of households shall be computed at the following rates for taxable years beginning after December 31, 2000, and before January 1, 2013:

AB872,14 Section 14. 71.06 (1p) (a) of the statutes is amended to read:

AB872,11,22 71.06 (1p) (a) On all taxable income from $0 to $7,500, 4.6% 4.40 percent.

AB872,15 Section 15. 71.06 (1p) (b) of the statutes is amended to read:

AB872,11,25 71.06 (1p) (b) On all taxable income exceeding $7,500 but not exceeding $15,000, 6.15% 5.84 percent.

AB872,16 Section 16. 71.06 (1p) (c) of the statutes is amended to read:

AB872,12,3 71.06 (1p) (c) On all taxable income exceeding $15,000 but not exceeding $112,500, 6.5% 6.27 percent.

AB872,17 Section 17. 71.06 (1q) of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

AB872,18 Section 18. 71.06 (2) (g) (intro.) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,12,9 71.06 (2) (g) (intro.) For joint returns, for taxable years beginning after December 31, 2000, and before January 1, 2013:

AB872,19 Section 19. 71.06 (2) (g) 1. of the statutes is amended to read:

AB872,12,11 71.06 (2) (g) 1. On all taxable income from $0 to $10,000, 4.6% 4.0 percent.

AB872,20 Section 20. 71.06 (2) (g) 2. of the statutes is amended to read:

AB872,12,14 71.06 (2) (g) 2. On all taxable income exceeding $10,000 but not exceeding $20,000, 6.15% 5.84 percent.

AB872,21 Section 21. 71.06 (2) (g) 3. of the statutes is amended to read:

AB872,12,17 71.06 (2) (g) 3. On all taxable income exceeding $20,000 but not exceeding $150,000, 6.5% 6.27 percent.

AB872,22 Section 22. 71.06 (2) (h) (intro.) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,12,21 71.06 (2) (h) (intro.) For married persons filing separately, for taxable years beginning after December 31, 2000, and before January 1, 2013:

AB872,23 Section 23. 71.06 (2) (h) 1. of the statutes is amended to read:

AB872,12,23 71.06 (2) (h) 1. On all taxable income from $0 to $5,000, 4.6% 4.0 percent.

AB872,24 Section 24. 71.06 (2) (h) 2. of the statutes is amended to read:

AB872,13,2 71.06 (2) (h) 2. On all taxable income exceeding $5,000 but not exceeding $10,000, 6.15% 5.84 percent.

AB872,25 Section 25. 71.06 (2) (h) 3. of the statutes is amended to read:

AB872,13,5 71.06 (2) (h) 3. On all taxable income exceeding $10,000 but not exceeding $75,000, 6.5% 6.27 percent.

AB872,26 Section 26. 71.06 (2) (i) of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

AB872,27 Section 27. 71.06 (2) (j) of the statutes, as created by 2013 Wisconsin Act 20, is repealed.

AB872,28 Section 28. 71.06 (2e) (a) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,14,7 71.06 (2e) (a) For taxable years beginning after December 31, 1998, and before January 1, 2000, the maximum dollar amount in each tax bracket, and the corresponding minimum dollar amount in the next bracket, under subs. (1m) and (2) (c) and (d), and for taxable years beginning after December 31, 1999, the maximum dollar amount in each tax bracket, and the corresponding minimum dollar amount in the next bracket, under subs. (1n), (1p) (a) to (c), (1q) (a) and (b), and (2) (e), (f), (g) 1. to 3., and (h) 1. to 3., (i) 1. and 2., and (j) 1. and 2., shall be increased each year by a percentage equal to the percentage change between the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August of the previous year and the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August 1997, as determined by the federal department of labor, except that for taxable years beginning after December 31, 2000, and before January 1, 2002, the dollar amount in the top bracket under subs. (1p) (c) and (d), (2) (g) 3. and 4. and (h) 3. and 4. shall be increased by a percentage equal to the percentage change between the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August of the previous year and the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August 1999, as determined by the federal department of labor, except that for taxable years beginning after December 31, 2011, the adjustment may occur only if the resulting amount is greater than the corresponding amount that was calculated for the previous year.

AB872,29 Section 29. 71.06 (2e) (b) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,14,21 71.06 (2e) (b) For taxable years beginning after December 31, 2009, the maximum dollar amount in each tax bracket, and the corresponding minimum dollar amount in the next bracket, under subs. (1p) (d), (1q) (c), and (2) (g) 4., and (h) 4., (i) 3., and (j) 3., and the dollar amount in the top bracket under subs. (1p) (e), (1q) (d), and (2) (g) 5., and (h) 5., (i) 4., and (j) 4. , shall be increased each year by a percentage equal to the percentage change between the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August of the previous year and the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August 2008, as determined by the federal department of labor, except that for taxable years beginning after December 31, 2011, the adjustment may occur only if the resulting amount is greater than the corresponding amount that was calculated for the previous year.

AB872,30 Section 30. 71.06 (2m) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read:

AB872,15,2 71.06 (2m) Rate changes. If a rate under sub. (1), (1m), (1n), (1p), (1q), or (2) changes during a taxable year, the taxpayer shall compute the tax for that taxable year by the methods applicable to the federal income tax under section 15 of the Internal Revenue Code.

AB872,31 Section 31. 71.06 (2s) (d) of the statutes, as affected by 2013 Wisconsin Act 20, is amended to read: