b. Retain the PTRC in tax year 2000 at 6.4% of property taxes or rent constituting property taxes to a maximum of $2,000 in taxes or rent. The maximum credit would be $128. Compared to the Joint Finance provisions, the estimated cost of this modification would be $156.0 million in 2000-01. The PTRC would be eliminated with tax year 2001 and thereafter, as under the Finance Committee provision.
c. Reestimate the cost of the property tax/rent credit by -$4,500,000 in 1999-00 and -$8,300,000 in 2000-01 to account for lower property taxes due to the increased lottery credit. The 6.4% PTRC would cost an estimated $147.7 million in 2000-01 rather than $156.0 million due to the impact of the increased lottery credit.
In addition, reestimate the cost of the Joint Finance provisions by $5.0 million in tax year 2000 and $8.0 million in tax year 2001 ($8.0 million in 2000-01, which includes $3.0 million as the reestimated cost of the withholding table adjustment) to reflect revised general fund tax estimates released by the Legislative Fiscal Bureau in July, 1999. Compared to current law, the Conference Committee's provision is estimated to reduce revenues by $352.9 million in tax year 2000 and $316.6 million in tax year 2001 (in 2000 dollars). On a fiscal year basis, the proposal is estimated to cost $478.8 million in 2000-01, which includes $125.8 million as the cost of adjusting the withholding tables on July 1, 2000, to reflect the 2001 tax rates.
Veto by Governor [F-15 and F-16]: The Governor's partial veto makes the following changes.
Miscellaneous Itemized Deductions. Delete the exceptions to the elimination of miscellaneous itemized deductions from the itemized deduction credit. As passed by the Legislature, the enrolled bill would eliminate miscellaneous itemized deductions from the calculation of the itemized deduction credit, with the exception of union and professional dues and travel and home office expenses. No miscellaneous itemized deductions will be considered under the Governor's veto. This is estimated to have a minimal impact on revenues.
Property Tax/Rent Credit. Increase the PTRC for tax year 1999 to 16.4% for a maximum credit of $328 and increase the PTRC for 2000 to 10% for a maximum credit of $200. Retain the elimination of the PTRC beginning with tax year 2001. The veto reduces general fund tax revenues by an estimated $150.6 million in 1999-00 and $94.0 million in 2000-01 as compared to the enrolled bill. These estimates reflect projected reductions in property taxes due to the lottery credit increase in 1999(00) and levy credit increase in 2000(01) contained in the act.
[Act 9 Sections: 1674, 1674t, 1688d, 1689 thru 1707, 1711, 1714, 1715, 1716, 1716p, 1717, 1721, 1722, 1784 thru 1787 and 9343(20)&(20tx)]
[Act 9 Vetoed Sections: 1711, 1716m and 1716p]
Act 10: Eliminate the PTRC for tax year 1999 and thereafter. Compared to Act 9, this would increase tax revenues by an estimated $399.1 million in 1999-00 and $241.7 million in 2000-01 for a total of $640.8 million over the biennium. This funding was used to partially fund a one-time sales tax rebate of $700 million in 1999-00.
[Act 10 Sections: 2, 2m and 3]
2. INDIVIDUAL INCOME TAX CREDIT FOR MILITARY INCOME
GPR-REV - $260,000
Assembly/Legislature: Provide an income tax credit for up to $200 in income received as an active duty member of the U.S. Armed Forces while stationed outside of the U.S. beginning in tax year 2000. A married couple would be eligible for a credit of up to $400 if both spouses qualify. Require that the credit be subtracted from the regular income tax for purposes of determining if the Wisconsin alternative minimum tax applies. Finally, specify that the credit would not be available to nonresident and part-year resident taxpayers. This provision is estimated to reduce income tax revenues by $260,000 in 2000-01.
Veto by Governor [F-14]: Eliminate the requirement that the credit be subtracted for purposes of the alternative minimum tax.
[Act 9 Sections: 1715m, 1719g, 1719j and 9343(20ty)]
[Act 9 Vetoed Sections: 1719g and 9343(20ty)]
3. INDIVIDUAL INCOME TAX DEDUCTION FOR POLITICAL CONTRIBUTIONS
Assembly: Provide an income deduction for up to $500 in political contributions made by an individual beginning in tax year 1999 (a total of $1,000 for a married couple filing a joint return). Specify that contributions made to individual candidates for elective public office in Wisconsin, including federal, state and local races, would be allowed. This provision is estimated to reduce income tax revenues by $60,000 annually.
Conference Committee/Legislature: Delete provision.
4. ASSIGNMENT OF LOTTERY PRIZES: TAXATION
Assembly/Legislature: Allow lottery prizes to be used as security for a loan or assigned to another person. Specify that all income that is realized from the sale of or purchase and subsequent sale of lottery prizes is taxable to Wisconsin if the winning tickets were originally bought in Wisconsin. In addition, specify that such income would be taxed as ordinary income and would not qualify for the capital gains exclusion. Allowing prize winners to assign their prize to another person would have an unknown impact on state tax revenues. More information on this provision is provided under "Lottery."
[Act 9 Sections: 1674v, 1682pd, 1722yb, 1722ym, 1738t, 1748Lm, 1748Ln, 1748y, 1748yb, 1748ym, 1749p, 1753d, 1753m, 1786, 3023t, 3025m and 9343(23cm)]
5. INCOME TAX EXCLUSION FOR MASS TRANSIT FRINGE BENEFITS
Senate/Legislature: Allow taxpayers to exclude from taxable income the amount paid by an employer for a public transportation pass, token or fare card that is provided to the employe, or the value of such pass, token or fare card. Specify that this provision would first apply to taxable years beginning on the January 1 following the year in which the bill takes effect.
Under current law, the maximum amount that may be excluded as a transportation fringe benefit, not including parking, is $60 per month. This amount would be increased to $65 per month in 1999 and to $100 per month in 2002 under the federal Internal Revenue Code update provision of the budget bill. This provision would eliminate the limit on the amount that may be excluded for employer-provided transit passes, which is estimated to have a minimal impact on tax revenues.
Veto by Governor [F-13]: Delete provision.
[Act 9 Vetoed Sections: 1688h and 9343(7c)]
6. INCOME TAX EXCLUSION FOR AMOUNTS RECEIVED BY VICTIMS OF NAZI OR AXIS PERSECUTION
Senate/Legislature: Exclude any amounts received as a settlement for claims for recovered assets, or any amount of assets or any gain generated on such assets, that were stolen from, hidden from or otherwise lost by an individual who was persecuted by Nazi Germany or any Axis regime during any period from 1933 to 1945 and that have been recovered, returned or otherwise paid to the original victim, heir or beneficiary. Specify that this provision applies to cash, bonds, stocks, deposits in a financial institution, proceeds from a life or other type of insurance policy, jewelry, precious metals, artwork or any other item of value owned by such a victim during any period from 1920 to 1945. Specify that this exclusion would take effect with tax year 1999.
The fiscal effect of this provision is unknown because there is no information available on the number of Wisconsin taxpayers that would be affected by this provision nor on the amount of income that would be excluded from taxation.
[Act 9 Section: 1688f]
[Bill Sections: 1674, 1685, 1689 thru 1707, 1711, 1713 thru 1717, 1721, 1722, 1784 thru 1787 and 9343(20)]
7. HOMESTEAD TAX CREDIT: EXPANSION [LFB Paper 110]
Governor: Increase funding by $2,600,000 in 1999-00 and $1,100,000 in 2000-01 to reflect estimated expenditures for the homestead credit under current law (-$3,000,000 in 1999-00 and -$5,000,000 in 2000-01) and to fund the Governor's proposed expansion of the homestead tax credit ($5,600,000 in 1999-00 and $6,100,000 in 2000-01). Under the bill, the maximum income amount under the credit would increase from $19,154 to $20,290, beginning with claims filed in 2000 and thereafter based on property taxes or rent constituting property taxes accrued during the previous year (tax year 1999). In addition, the bill would reduce the percentage used in phasing out the credit for higher-income claimants from 13% to 11.8%. The homestead credit formulas under current law and under the Governor’s proposal are shown below. Under current law and the Governor's proposal, property taxes claimed for the credit may not exceed $1,450 and the maximum credit is $1,160. With the reestimate of current law funding and the proposed expansion, the bill would provide a total of $84,600,000 in 1999-00 and $83,100,000 in 2000-01.
Current Law Credit = 80% (Property Taxes – 13.0% (Household Income - $8,000))
Proposed Credit = 80% (Property Taxes – 11.8% (Household Income - $8,000))
Joint Finance: Include the provision but decrease funding by $3,400,000 in 1999-00 and $4,500,000 in 2000-01 to reflect a reestimate of the cost of the credit, including the proposed expansion. Total funding for the homestead credit would be $81,200,000 in 1999-00 and $78,600,000 in 2000-01.
Senate: Provide $7,700,000 in 2000-01 to fund a further expansion of the homestead tax credit beginning with claims filed in 2001 and thereafter on property taxes or rent constituting property taxes accrued during the previous year (tax year 2000). Increase the maximum income amount from $20,290, as recommended by the Governor and adopted by the Joint Committee on Finance, to $22,000 and reduce the percentage used in phasing out the credit for higher-income claimants from 11.8% to 10.4%.
Conference Committee/Legislature: Provide $18,200,000 in 2000-01 to further expand the homestead credit beginning with claims filed in 2001 and thereafter on property taxes or rent accrued during the previous year (tax year 2000). Increase the maximum income amount to $24,500 and reduce the percentage used in phasing out the credit for higher-income claimants to 8.8%.
The following chart shows the parameters of the credit under prior law for tax year 1998 and under the budget provisions for 1999 and 2000.
Prior Law Act 9
Tax Year 1998 Tax Year 1999 Tax Tear 2000
8. EARNED INCOME TAX CREDIT [LFB Paper 1082]
Maximum Income $19,154 $20,290 $24,500
Maximum Property Taxes 1,450 1,450 1,450
Property Tax Reimbursement Rate 80% 80% 80%
Income Threshold 8,000 8,000 8,000
Phase-Out Rate 13.0% 11.8% 8.8%
Maximum Credit 1,160 1,160 1,160
[Bill Sections: 1762 and 1763]
In addition, reestimate the cost of the homestead credit by -$3,300,000 in 1999-00 and -$8,700,000 in 2000-01 to account for lower property taxes due to the increased lottery credit. With these modifications and the expansion of the program, the homestead credit is estimated to cost $77,900,000 in 1999-00 and $88,100,000 in 2000-01.
Veto by Governor [F-41]: Increase the estimated cost of the homestead credit to $79,100,000 in 1999-00 and $96,300,000 in 2000-01 to reflect the partial vetoes affecting the size of the lottery credit and providing a one-time funding increase for the school levy tax credit. Changes in the levy credit and lottery credit impact the cost of the homestead credit because the homestead credit is based on the claimant's income and amount of property taxes paid.
[Act 9 Sections: 1762 thru 1763c]
Act 10: Increase the estimated cost of the homestead credit to $96,800,000 in 2000-01 to reflect the Act 10 provision that eliminates the one-time school levy credit increase provided under the Governor's partial vetoes of Act 9. The estimated cost for 1999-00 ($79,100,000) remains unchanged.
Governor: Decrease funding by $2,500,000 GPR in 1999-00 and increase funding by $3,500,000 GPR in 2000-01 for estimated costs of the earned income tax credit (EITC). Total funding would be $74,000,000 GPR in 1999-00 and $80,000,000 GPR in 2000-01. This funding level includes $2,000,000 each year to reflect a November, 1998, Internal Revenue Service ruling that gains realized on the sale of property used in a trade or business are not counted as investment income for purposes of the EITC. This ruling restores eligibility to individuals (particularly farmers) who were not previously able to claim the credit due to the limitation on disqualified income.
Joint Finance: Decrease funding for the EITC by $1,800,000 GPR in 1999-00 and $3,600,000 GPR in 2000-01 to reflect a reestimate of funding needed for the credit. Total funding for the EITC would be $72,200,000 in 1999-00 and $76,400,000 in 2000-01.
Specify that $58,000,000 in 1999-00 and $61,000,000 in 2000-01 of the total cost of the EITC would be funded from a newly created annual PR-S appropriation consisting of federal temporary assistance to needy families (TANF) revenues transferred from the Department of Workforce Development (DWD) to fund the share of the EITC permitted under federal law. Decrease GPR funding for the EITC by the same amounts and specify that the GPR appropriation would be used to cover the costs of the credit that are not paid from the TANF appropriation.
Final federal regulations for the TANF program allow TANF funding to be used to cover the share of the EITC that is refunded to the claimant (rather than used to reduce the claimant's income tax liability). An additional restriction specifies that TANF funds may not be used to provide the credit to certain legal immigrants. More information on this provision is shown under "Workforce Development -- Economic Support and Child Care."
Conference Committee/Legislature: Reduce funding by $9,000,000 in 1999-00 ($2,000,000 GPR and $7,000,000 PR) and by $9,400,000 in 2000-01 ($2,400,000 GPR and $7,000,000 PR) to reflect revised estimates of the cost of the earned income tax credit. Funding for the EITC would total $63,200,000 in 1999-00 ($51,000,000 PR and $12,200,000 GPR) and $67,000,000 in 2000-01 ($54,000,000 PR and $13,000,000 GPR).
[Act 9 Sections: 475, 611, 612m, 1278g and 1719b]
9. LIMIT EDUCATIONAL EXPENSES ALLOWED UNDER THE ITEMIZED DEDUCTION CREDIT
Governor/Legislature: Specify that any amount claimed under the deduction for higher education tuition expenses would not be allowed for purposes of the itemized deduction credit. Specify that this provision would first apply to taxable years beginning on January 1 of the year in which the bill takes effect, except that if the bill takes effect after July 31, the provision would first apply to taxable years beginning on January 1 of the following year.
Under current law, a deduction from income is allowed for higher education tuition expenses for each taxpayer or dependent of a taxpayer, up to $3,000 per student each tax year. The student must be attending an institution of higher education located in Wisconsin or that is subject to the Minnesota-Wisconsin tuition reciprocity agreement. The maximum deduction is available to taxpayers with income below $50,000 if single, $80,000 if married-joint and $40,000 if married-separate. The amount of the deduction phases-out as income increases above these amounts until eliminated when income exceeds $60,000 if single, $100,000 if married-joint and $50,000 if married-separate. In addition, education expenses may be deducted as an itemized deduction for federal tax purposes, and also under the state's itemized deduction credit, if the education is undertaken to maintain or improve a skill required for employment, trade or business. Currently, an individual can deduct the same expenses under both provisions and receive a double benefit.
[Act 9 Sections: 1712 and 9343(4)]
[Bill Sections: 1712 and 9343(4)]
10. CLARIFY THE LIMITS AND PRORATION OF THE HIGHER EDUCATION TUITION EXPENSE DEDUCTION
Governor/Legislature: Specify that the proration of the higher education tuition expense deduction for nonresident and part-year resident taxpayers would apply to the full deduction, as it currently applies to the phase-out of the deduction for higher-income taxpayers.
Under current law, a deduction from income is allowed for higher education tuition expenses for each taxpayer or dependent of a taxpayer, up to $3,000 per student per tax year. The student must be attending an institution of higher education located in Wisconsin or that is subject to the Minnesota-Wisconsin tuition reciprocity agreement. The deduction is subject to the income limitations noted in the previous entry.
The deduction is currently prorated for nonresident and part-year resident taxpayers based on the ratio of income that is taxable in Wisconsin to total income. However, as drafted under current law, the proration provision only applies to the phase-out of the deduction for higher income taxpayers and not to taxpayers with income below the minimum income amounts.
In addition, extend the current law provision that limits the amount of the deduction for nonresident and part-year resident taxpayers to the aggregate wages, salary, tips, unearned income and net earnings from a trade or business that are taxable to this state to apply to full-year resident taxpayers. Specify that the limitation would first apply to taxable years beginning on January 1 of the year in which the bill takes effect, except that if the bill takes effect after July 31, the provision would first apply to taxable years beginning on January 1 of the following year.
For nonresident and part-year resident taxpayers, the deduction is limited to the amount of income subject to tax in Wisconsin. The bill provision would extend this limitation to all taxpayers so that the amount of the deduction would not exceed the taxpayer's taxable income.
[Act 9 Sections: 1687, 1688 and 9343(3)]
[Bill Sections: 1687, 1688 and 9343(3)]
11. INDIVIDUAL INCOME TAX DEDUCTIONS FOR ALIMONY AND SUPPLEMENTAL UNEMPLOYMENT COMPENSATION FOR NONRESIDENT TAXPAYERS
Governor/Legislature: Delete a current law provision that requires all alimony and repayments of supplemental unemployment benefits deducted for federal income tax purposes and made while the individual was a nonresident of Wisconsin to be added to income for purposes of calculating Wisconsin adjusted gross income. The denial of these deductions to nonresidents could violate the privileges and immunities clause of the U.S. Constitution. Specify that this provision, as it relates to the repayment of supplemental unemployment compensation, would first apply to taxable years beginning on January 1 of the year in which the bill takes effect. However, if the bill takes effect after July 31, the provision, as it relates to the repayment of supplemental unemployment compensation, would first apply to taxable years beginning on January 1 of the following year.
[Act 9 Sections: 1684 and 9343(5)]
[Bill Sections: 1684 and 9343(5)]
12. DISTRIBUTING INCOME TAX REFUNDS BETWEEN FORMERLY MARRIED PERSONS
Governor/Legislature: Specify that if a judgment of divorce apportions any income tax refund due to formerly married persons to one of the former spouses or between the spouses, and if they include a copy of that portion of the judgment with their return, the Department would be directed to issue the refund under the terms of the judgment or to issue one check to each of the former spouses according to the apportionment terms of the judgment. This provision would first apply to a judgment of divorce that is entered on the effective date of the bill.
Under current law, a refund payable on the basis of separate returns must be issued to the person who filed the return and a refund payable on the basis of a joint return is issued jointly to the persons who filed the return.
[Act 9 Sections: 1788 and 9343(9)]
13. TAXATION OF TRUSTS
Joint Finance: Modify current law as it relates to the taxation of inter vivos trusts (trusts created by a living person) as follows: (a) authorize Wisconsin to tax trusts created by persons who were Wisconsin residents at the time the trust becomes irrevocable, whether the trust is administered in Wisconsin or in another state; and (b) prohibit Wisconsin from taxing the trusts of nonresidents that are administered in Wisconsin. Specify that a trust is irrevocable if the power to revest title does not exist and that a trust is revocable if the person whose property constitutes the trust may revest title to the property. Specify that this provision would take effect with tax year 2000. This provision is estimated to result in a revenue loss of $300,000 in 2000-01.
Conference Committee/Legislature: Modify the Finance Committee provision to specify that this provision would first apply to taxable years beginning on January 1, 1999. In addition, specify that this provision would only apply to trusts or portions of trusts that become irrevocable after the date this provision takes effect. Due to these modifications, the fiscal effect compared to current law would be minimal; revenues would increase by $300,000 in 2000-01 compared to the Finance Committee provision.
[Act 9 Sections: 1674e, 1721es, 1721it and 9343(13g)&(23x)]
14. INTERNAL REVENUE CODE UPDATE [LFB Paper 116]
GPR-REV $22,070,000
Joint Finance: Provide that, beginning in tax year 1999, state individual income and corporate and business tax provisions referenced to the federal Internal Revenue Code (IRC) would refer to the code in effect on December, 31, 1998, rather than December 31, 1997, as under current law. Modify current lottery provisions to allow prize winners to make a designation of whether to receive the prize as a lump sum or as an annuity within 60 days after winning if the lottery prize is payable over at least 10 years. In addition, allow individuals who won prior to October 21, 1998, and currently receive the prize as an annuity, to designate a lump sum payment for the remaining portion of the prize, if the option is exercised by December 31, 2000. The following table provides a summary of the items that are estimated to have an impact on state revenues.
Summary of Federal Law Changes with Substantive Fiscal Effects
