[Bill Sections: 1724 thru 1728, 1739, 1741, 1747, 1749, 1754, 1760, 1789 and 9343(17)]
11. DEVELOPMENT AND ENTERPRISE DEVELOPMENT ZONE PROGRAM AND TAX CREDIT MODIFICATIONS
Governor: Modify the development and enterprise development zones programs and tax credits as outlined below. Although these changes could affect the amount of credits claimed, the bill does not include a fiscal effect for these provisions.
a. Limit on Total Tax Credits. The current limit on the total amount of tax credits that can be claimed under the development zone program of $33,155,000 would be eliminated. Instead, a maximum limit on the total amount of tax credits that could be claimed under both the development and enterprise development zone programs would be established at $300,000,000.
b. Enterprise Development Zones. The Department of Commerce would be authorized to designate up to 100 enterprise development zones. The current requirement that the Department obtain approval from the Joint Committee on Finance to designate more than 50 zones would be eliminated.
In addition, Commerce would be authorized to designate enterprise development zones for environmental remediation projects. "Environmental remediation" would be defined as removal or containment of environmental pollution and restoration of soil or groundwater that is affected by environmental pollution in a brownfield if that removal, containment or restoration began after the area that contains the site was designated as an enterprise development zone. Commerce would be required to determine that the project would likely provide for significant environmental remediation and that other current law criteria were met. At least ten of the total number of enterprise development zones designated would have to be for environmental remediation projects.
c. Development Zones Tax Credit--Jobs Component. The full-time jobs component of the development zones tax credit would be modified to: (1) increase from $6,500 to $8,000 the maximum credit that could be claimed for each full-time job that was created and filled by a member of a targeted group; (2) eliminate the credit for retaining a job that is filled by a member of a targeted group; (3) provide a maximum tax credit of $8,000 for retaining a full-time job in an enterprise development zone if Commerce determines that a significant capital investment was made to retain the full time job; and (4) increase from $4,000 to $6,000 the maximum tax credit that could be claimed for each full-time job created or retained and filled by an individual who is not a member of a targeted group. In addition, at least one-third of jobs credits claimed would have to be based on jobs created and filled by members of a targeted group. Currently, the credits must be based on jobs created or retained for targeted group members. These modifications would first apply to tax years beginning on January 1, 2000.
d. Administrative Provisions. The requirement that targeted group members for whom tax credits are claimed must be certified within 90 days after the first day of employment would be eliminated. This provision would first apply to tax years beginning on January 1 of the year in which the bill takes effect, unless the bill takes effect after July 31. In that case, this provision would first apply to tax years beginning in the following year. The bill would also authorize Commerce to specify by rule the circumstances under which an exception could be established from the requirement that the development zones tax credit must be based on regular, full-time nonseasonal jobs that are created or retained. This provision would first apply to tax years beginning on January 1, 2000. The bill would also correct a cross-reference regarding eligibility for the credits.
Wisconsin has two programs which provide tax credits to businesses as incentives to expand and locate in designated economically distressed areas--development zones and enterprise development zones. The programs are designed to promote economic growth through job creation and investment in the distressed areas. Designation criteria target areas with high unemployment, low incomes and decreasing property values. Businesses which locate or expand in the different zones are eligible to receive the following tax credits:
a. Environmental Remediation Component. A credit against income taxes due can be claimed for 50% of the amount expended for environmental remediation in a brownfield located in a development zone or enterprise development zone.
b. Full-Time Jobs Component. A credit of up to $6,500 against corporate income taxes can be claimed for each full-time job created or retained in a development or enterprise development zone and filled by a member of a targeted group (generally, public assistance recipients and other economically disadvantaged individuals). In addition, a credit of up to $4,000 can be claimed for each full-time job created or retained in a development or enterprise development zone that is filled by an individual who is not a member of a targeted group.
[Bill Sections: 1708, 1709, 1742, 1743, 1755, 1756, 1798, 2999, 3001 thru 3012, 3014, 9310(1)&(2) and 9343(2)]
12. DEVELOPMENT ZONES JOBS TAX CREDIT
GPR - $600,000
Governor: Decrease the sum sufficient appropriation for the development zones jobs tax credit by $300,000 annually. Total funding for the credit would be $150,000 each year. This reflects a change enacted in 1995 Wisconsin Act 209 that provided that the credit was no longer refundable for tax years beginning on January 1, 1997.
13. DEVELOPMENT ZONES SALES TAX CREDIT
GPR - $100,000
Governor: Decrease the sum sufficient appropriation for the development zones sales tax credit by $50,000 annually. Total funding for the credit would be $150,000 each year. This reflects a change enacted in 1995 Wisconsin Act 209 that provided that the credit was no longer refundable for tax years beginning on January 1, 1997.
14. DEVELOPMENT ZONES LOCATION CREDIT
GPR $1,000
Governor: Increase funding by $500 annually for the development zones location credit for Native American businesses or tribal enterprises. Total funding would be $2,500 annually.
15. CORPORATE INCOME AND FRANCHISE TAX -- ACTIVITY NOT CREATING NEXUS
Governor: Provide that an out-of-state corporation is not considered to have nexus with Wisconsin and is not subject to the corporate income and franchise tax if the corporation stores tangible personal property in or on property in the state that is not owned by the corporation and the tangible personal property is transferred to another person in the state for fabricating, processing, manufacturing or printing in the state. The provision would first apply to tax years beginning on January 1 of the year in which the bill takes effect, if the bill takes effect prior to July 31. If the bill takes effect after July 31, the provision would first apply beginning on January 1 of the following year. The bill does not include a fiscal effect for this provision.
Under current law, essentially two circumstances give Wisconsin taxing jurisdiction over corporations. First, corporations which are created and authorized to act in a corporate capacity (incorporated) under Wisconsin law or foreign corporations which are licensed to transact business in the state are subject to the Wisconsin corporate income and franchise tax. Such firms are subject to the corporate income and franchise tax whether or not they conduct business or own property in the state.
Second, corporations which are organized under the laws of other states or foreign nations are generally subject to the Wisconsin corporate income and franchise tax if they exercise a franchise, conduct business or own property within the state. A non-Wisconsin (foreign) corporation is considered to have "nexus" with Wisconsin and be subject to taxation if it has one or more of the following "activities" in the state:
a. Maintenance of any business location in Wisconsin, including any kind of office.
b. Ownership of real estate in Wisconsin.
c. Ownership of a stock of goods in a public warehouse or on consignment in Wisconsin.
d. Ownership of a stock of goods in the hands of a distributor or other nonemploye representative in Wisconsin, if used to fill orders for the owner's account.
e. Usual or frequent activity in Wisconsin by employes or representatives soliciting orders with authority to accept them.
f. Usual or frequent activity in Wisconsin by employes or representatives engaged in purchasing activity or in the performance of services, including construction, installation, assembly or repair of equipment.
g. Operation of mobile stores in Wisconsin, such as trucks with driver-salespersons, regardless of frequency.
h. Miscellaneous other activities by employes or representatives in Wisconsin such as credit investigations, collection of delinquent accounts, conducting training classes or seminars for customer personnel in the operation, repair and maintenance of the taxpayer's products.
i. Leasing of tangible property and licensing of intangible rights for use in Wisconsin.
j. The sale of other than tangible personal property such as real estate, services and intangibles in Wisconsin.
k. The performance of construction contracts and personal services contracts in Wisconsin.
An out-of-state corporation is not considered to have nexus with Wisconsin and is not subject to the corporate income tax if: (a) the corporation stores tangible personal property, such as inventory or a stock of goods, in or on property in the state that is not owned by the corporation and the tangible personal property is delivered to another person in the state for manufacturing, fabricating, processing or printing in the state; (b) the corporation stores, in or on property not owned by the corporation, finished goods that have been fabricated, processed, manufactured or printed in the state and the entire amount of such goods is shipped or delivered out-of-state by another person in the state; or (c) the corporation is an out-of-state publisher which has finished publications printed and stored in this state in or on property not owned by the publisher whether or not the finished publications are subsequently sold or delivered in this state or shipped outside of it.
[Bill Sections: 1723 and 9343(18)]
Other General Fund Taxes
16. CIGARETTE TAX REFUNDS AND TAX ON TOBACCO PRODUCTS
GPR - $5,958,500
Governor: Modify the statutes related to taxes on cigarettes and tobacco products as described below.
Cigarette Tax Refunds to Native Americans
Reduce, from 70% to 50%, the percentage of cigarette tax collections from sales of cigarettes on reservations or trust lands that would be refunded to Indian tribes. In addition, clarify that "Indian tribe" means an American Indian tribe or band.
Under current law, the Department of Revenue refunds 70% of cigarette tax collections in respect to sales on reservations or trust lands of an Indian tribe under specified conditions. State law further authorizes DOR to enter into agreements with Indian tribes to provide for the refunding of cigarette taxes paid on cigarettes sold on reservations to enrolled members of the tribe residing on the tribal reservation.
Federal law prohibits states from imposing a cigarette tax on sales by Native Americans to Native Americans on reservations. Ten of the 11 Indian tribes in the state have signed agreements with the state in which the tribes agree to sell only stamped (taxed) cigarettes and the state agrees to provide refunds to the tribes of 100% of taxes paid on cigarette sales to tribal members living on the reservation. For these tribes, DOR refunds 100% of tax collections on cigarettes sold to tribal members, and 70% of taxes on cigarettes that are sold to non-tribal members.
The remaining tribe, which does not have an agreement with the state, sells unstamped (untaxed) cigarettes to tribal members and stamped cigarettes to non-tribal members. For this tribe, the 70% refund applies only to tax collections from the sale of stamped cigarettes to non-tribal members.
The provision to reduce the refund rate would first apply to taxes imposed on the first day of the second month beginning after publication of the bill.
Tax on Tobacco Products
Current Law. Under current law, the Wisconsin tax on tobacco products is an occupational tax imposed on distributors of tobacco products. For domestic tobacco products sold by distributors, the distributors are required to pay a tax at the rate of 20% of the manufacturer's established list price (for imported products, federal tax is added to the list price before applying the 20% tax rate). However, the statutes provide exceptions to the tobacco products tax for the following:
a. tobacco products sold to or by post exchanges of the U.S. armed forces;
b. tobacco products sold to or by state-operated veterans hospitals in this state;
c. tobacco products sold to an interstate carrier of passengers for hire to be resold to bona fide passengers of such carriers;
d. tobacco products sold for shipment outside this state in interstate commerce; and
e. tobacco products that, under the Constitution and laws of the United States, may not be taxed by this state.
The U.S. Constitution and federal law have been interpreted in a manner that would exempt sales of tobacco products by distributors to Indian tribes from the tobacco products tax. According to DOR, in-state distributors of tobacco products typically claim exemptions from the tobacco products tax for their sales to Indian tribes. As a result, there may be retail sales on reservations of tobacco products to non-tribal members on which no tobacco products tax has been paid.
Change from an Occupational to an Excise Tax. The bill would change the tobacco products tax from an occupational tax to an excise tax. The tax would continue to be imposed at the distributor level. However, the bill would specify that the tax be passed on to the ultimate consumer of the tobacco products.
The bill would also eliminate the current exemption for sales that may not be taxed under the U.S. Constitution or federal law [item (e) above]. The bill would further specify that all tobacco products received in this state for sale or distribution in this state would be subject to the tax, unless they were specifically exempted. Under these provisions, it appears that sales of tobacco products by distributors to Indian tribes would not be exempt from the tax.
The bill would provide that a distributor of tobacco products who failed to file required reports and to collect and remit the tax on all tobacco products not specifically exempted would be subject to the following: (a) a fine of not less than $1,000 nor more than $5,000; (b) imprisonment for not less than 90 days nor more than one year; or (c) both types of penalties.
50% Refund to Tribes. The bill would require DOR to refund 50% of tobacco products tax collections in respect to sales on reservations or trust lands of an Indian tribe to the tribal council having jurisdiction over the reservation or trust land if all of the following conditions were met: (a) the tribal council had filed a claim for the refund with DOR; (b) the tribal council had approved the retailer; (c) the land on which the sale occurred had been designated a reservation or trust land on or before January 1, 1983; (d) the tobacco products had not been delivered by the retailer to the buyer by means of a common carrier, a contract carrier or the U.S. postal service; and (e) the retailer had not sold tobacco products to another retailer or to a subjobber. The bill would also expand the sum sufficient appropriation for cigarette tax refunds to include refunds related to the tobacco products tax.
Agreements with Tribes. The bill would authorize DOR to enter into agreements with Indian tribes to refund the tobacco products tax imposed on tobacco products sold on reservations or trust lands to enrolled members of the tribe residing on the tribal reservation.
These provisions on tobacco tax refunds and agreements with tribes would parallel current provisions related to cigarette tax collections.
Effective Date. The changes in the tobacco products tax would first apply to tobacco products taxes imposed, and to claims for refunds of such taxes filed, on the first day of the second month beginning after publication of the bill.
Fiscal Impact. The fiscal effect of these provisions is estimated to be a reduction in refunds to Indian tribes of $2,708,500 in 1999-00 and $3,250,000 in 2000-01. These estimates include: (a) reductions of $2,500,000 in 1999-00 and $3,000,000 in 2000-01 for the change in the refund percentage to Indian tribes for taxes paid on cigarettes sold to non-tribal members; and (b) reductions of $208,500 in 1999-00 and $250,000 in 2000-01 associated with the changes in the tobacco products tax.
It should be noted that the estimates related to the tobacco products tax reflect the net effect on the general fund, rather than an actual decrease in refunds to Indian tribes. The components of this estimate are an estimated increase in tobacco products tax collections of $417,000 in 1999-00 and $500,000 in 2000-01 and a corresponding increase in refunds equal to 50% of such collections. The difference between the estimated increases in collections and refunds results in the estimated net positive effect on the general fund of $208,500 in 1999-00 and $250,000 in 2000-01, which is shown by the administration as a reduction in the refund expense.
[Bill Sections: 610, 2171 thru 2182 and 9343(6)&(7)]
17. CIGARETTE TAX REFUNDS: CURRENT LAW REESTIMATE
GPR - $3,100,000
Governor: Reduce funding for cigarette tax refunds by $1,800,000 in 1999-00 and $1,300,000 in 2000-01 to reflect lower estimates of the amount required to reimburse Native American tribes under present law. Currently, the tribes receive a refund of 100% of the cigarette tax on cigarettes sold to Native Americans and 70% of the tax on sales made to non-Native Americans on reservations or trust lands. The reduced funding reflects estimates of lower cigarette tax collections, primarily as a result of anticipated reductions in cigarette consumption following price increases associated with the settlement of the tobacco lawsuit.
18. REAL ESTATE TRANSFER FEE AND SALES TAX ON TIME-SHARE PROPERTIES
GPR-REV $2,640,000
Governor: Modify the treatment of conveyances of time-share properties with respect to the real estate transfer fee and the sales tax as described below.
Real Estate Transfer Fee
Exempt from the real estate transfer fee and the requirement to file a real estate transfer return transfers of time-share property as defined in section 707.02(32) of the statutes, which relates to time-share ownership.
Section 707.02(32) defines "time-share property" as one or more time-share units subject to the same time-share instrument, together with any real estate or rights to real estate appurtenant to those units. In addition, to qualify as "time-share property" under this definition, an owner's interest in the property must provide the right to use or occupy a unit during at least four separate periods over at least four years.
