b. Authorize Commerce to create an additional 15 enterprise development zones. The total number of zones authorized would be 79 (up to 100 could be designated with Joint Committee on Finance approval), including at least 10 of which would be for environmental remediation.
c. Specify that development zone credits could only be used to offset income from the claimant's business activities in the development or enterprise zone.
d. Delete the requirement that 25% of all development zone tax credits claimed must be based on creating or retaining full time jobs for development zone environmental remediation tax credits and provide that environmental remediation tax credits claimed in development and enterprise development zones would not have to be based on activities that created or caused to create jobs.
Conference Committee/Legislature: Include the Joint Finance provision. In addition, designate an area in the City of Kenosha as a development opportunity zone. The Kenosha development opportunity zone would exist for seven years. Any corporation that conducted economic activity in the zone and that, in conjunction with the local governing body of the City of Kenosha, submitted a project plan by July 1, 2000, would be eligible to claim the development zone credit and a development zone investment credit. The maximum amount of tax credits that could be claimed by businesses in the Kenosha development opportunity zone would be $7 million. (This provision is designed to provide assistance to Daimler Chrysler Company for expansion of its Kenosha engine plant.)
Businesses in the Kenosha development opportunity zone would be eligible to claim a development zone investment credit and the development zone credit provided under current law.
Investment Tax Credit. Eligible corporations could claim a credit against income taxes due of 2.5% of the purchase price of depreciable tangible personal property or 1.75% of the purchase price of depreciable tangible personal property that was expensed under section 179 of the Internal Revenue Code (IRC). The property must be purchased after the business is certified for tax benefits by Commerce. The credit would be available only for qualified new and used property that had at least 50% of its use devoted to the conduct of business operations at a location in the development zone or, if the property was mobile, the base of operations of the property for at least 50% of its use must be at a location in a development zone. If the credit was claimed for used property, the claimant may not have used the property for business purposes at a location outside the development zone.
Only taxes due on income generated by or directly related to business activities in the development zone could be offset by the credit. The credit would not be refundable but unused credit amounts could be carried forward fifteen years to offset future tax liabilities on income generated by activities in the development zone. However, if the corporation ceased business operations in the development zone, unused credit amounts could not be carried forward. If certification was revoked, no credit could be claimed beginning with the year in which the revocation occurs and unused credits could not be carried forward to offset tax liabilities in succeeding years. The claimant would be subject to recapture provisions when the investment credit property was disposed of or moved outside the development zone.
Development Zone Tax Credit. A consolidated development zone tax credit can be claimed by businesses in development and enterprise development zones, under both the individual and corporate income and franchise taxes. The credit is based on amounts spent on environmental remediation and the number of full-time jobs created or retained.
Veto by Governor [B-25]: Change the effective date of the provision related to certification of target group members from January 1, 2000, to January 1, 1999.
[Act 9 Sections: 1707g thru 1707m, 1708 thru 1709bb, 1741n thru 1741pp, 1742 thru 1743bb, 1754g thru 1754t, 1755 thru 1756e, 2998g thru 3013, 9310(1)&(2) and 9343(1g),(2)&(22d)]
[Act 9 Vetoed Section: 9343(2)]
[Bill Sections: 1708, 1709, 1742, 1743, 1755, 1756, 1798, 2999, 3001 thru 3012, 3014, 9310(1)&(2) and 9343(2)]
18. DEVELOPMENT ZONES JOBS TAX CREDIT
GPR - $600,000
Governor/Legislature: 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.
19. DEVELOPMENT ZONES SALES TAX CREDIT
GPR - $100,000
Governor/Legislature: 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.
20. DEVELOPMENT ZONES LOCATION CREDIT
GPR $1,000
Governor/Legislature: 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.
21. CORPORATE INCOME AND FRANCHISE TAX -- ACTIVITY NOT CREATING NEXUS [LFB Paper 113]
GPR-REV - $750,000
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.
Joint Finance: Delete provision.
Senate/Legislature: Provide that an out-of-state corporation would not have nexus with Wisconsin and would not be subject to the corporate income and franchise tax if each of the following conditions were met:
a. The out-of-state corporation stores tangible personal property in the state on property not owned by the corporation;
b. The tangible personal property is stored for 90 days or less;
c. The tangible personal property is stored on another person's property and is transferred to the person for manufacturing in the state;
d. The value of manufacturing real estate of the parcel on which the tangible personal property is stored and manufactured was between $10 million and $11 million on January 1, 1999.
This provision would take effect for tax years beginning on or after January 1, 2000, and would reduce corporate income and franchise tax revenues by an estimated $250,000 in 1999-2000 and $500,000 in 2000-01.
[Act 9 Sections: 1722yc and 9343(22dd)]
22. TAX TREATMENT OF CORPORATE PARTNERS AND LIMITED LIABILITY COMPANY MEMBERS
Joint Finance: Modify current corporate income and franchise tax provisions as follows:
a. Define "doing business in this state" to include owning a direct or indirect interest in a general or limited partnership or limited liability company that transacts in the state for pecuniary gain.
b. Provide that the corporate income and franchise tax would be imposed on corporations that derive income from sources within the state or from activities attributable to the state.
c. Provide that a general or limited partner's share of the numerator and the denominator of the partnership's apportionment factors would be included in the numerator and the denominator of the general or limited partner's apportionment factors and for a limited liability company treated as a partnership a member's share of the numerator and the denominator of the limited liability company's apportionment factors would be included in the numerator and the denominator of the member's apportionment factors.
d. Provide that these provisions would first apply to tax years beginning on or after January 1, 1999.
This provision would increase corporate income and franchise tax revenues by an estimated $7,500,000 in 1999-00 and $5,000,000 in 2000-01. The higher figure in the first year includes one-time revenues of $2,500,000 from reconciling estimated and final tax payments.
Currently, the Wisconsin tax treatment of corporate partners and LLC members depends on whether or not the partnership or LLC is an extension of the corporation's business. If the partnership or LLC is an extension of the corporation's business, the corporation is considered to be doing business in Wisconsin as a result of that ownership interest. On the other hand, if the partnership or LLC is not an extension of the corporation's business, the corporation is not subject to Wisconsin taxation if its only connection to Wisconsin is that ownership interest. These provisions would make corporate partners and members of Wisconsin partnerships and LLCs, respectively, subject to taxation if they were doing business in Wisconsin regardless of the type of interest in the entity.
Assembly: Modify the Joint Finance provision to include issuing credit, debit or travel or entertainment cards to customers in the state in the definition of doing business. Delete references to affiliated and subsidiary corporations and degree of ownership, control and management that are related to certain amounts not deductible because they are related to wholly exempt income.
Conference Committee/Legislature: Include the Joint Finance and Assembly provisions and modify the definition of doing business for corporate partners and LLC members and apportionable income for corporations to be income, gain or loss from sources that are apportionable as income, including unitary or operational income, that is taxable in the state.
Veto by Governor [F-8]: Delete provisions.
[Act 9 Sections: 1722cd, 1722y, 1722yd, 1748y and 9343(22t)]
[Act 9 Vetoed Sections: 1722cd, 1738s, 1753g and 9343(22t)]
23. SUSTAINABLE URBAN DEVELOPMENT ZONE TAX CREDIT
Joint Finance: Direct DNR, in cooperation with the Departments of Health and Family Services, Transportation, Revenue, Administration and Commerce, and the Cities of Milwaukee, Green Bay, La Crosse and Oshkosh, to develop a pilot program no later than January 1, 2001, that promotes the use of financial incentives to clean up and redevelop contaminated properties in the listed cities. Of $2,250,000 in total funding, the following amounts would be available as grants to the cities: (a) $1,000,000 for the City of Milwaukee; (b) $500,000 for the City of Green Bay; (c) $500,000 for the City of La Crosse; and (d) $250,000 for the City of Oshkosh. State funds could be used for the assessment, investigation and cleanup of brownfields properties in the cities. Persons that conduct an eligible project under the pilot program would be eligible for a sustainable urban development zone tax credit that would be created for the program. The credit would equal 50% of the amount expended for environmental remediation under the sustainable urban development zone program. Environmental remediation would mean removal or containment of environmental pollution and restoration of soil or groundwater that is affected by environmental pollution in a brownfield, unless an investigation determined that remediation was required but the remediation was not undertaken. The Department of Commerce would be required to certify persons that conducted projects in the sustainable urban development zones as eligible to claim the tax credits and to provide the claimant and the Department of Revenue with a copy of the certification. The fiscal effect is expected to be minimal in the 1999-01 biennium.
Senate: Provide $250,000 SEG in 1999-00 from the environmental management account of the environmental fund to expand the sustainable urban development zone pilot program created by Joint Finance to include the City of Beloit (which would receive the $250,000), and provide a total of $2,500,000 in funding (instead of $2,250,000 under Joint Finance) for the sustainable urban development zone program. Of the $2,500,000 in total funding, the following amounts would be available as grants to the cities for the investigation and cleanup of environmental contamination: (a) $1,000,000 for Milwaukee; (b) $500,000 for Green Bay; (c) $500,000 for La Crosse; (d) $250,000 for Oshkosh; and (e) $250,000 for Beloit. The Department of Transportation would be required to work with Beloit, in addition to the four other cities to develop transportation planning, transportation access and infrastructure improvements for inclusion in the DOT 2001-03 biennial budget request.
Conference Committee/Legislature: Approve the Senate provision, as modified to: (a) provide $200,000 SEG for Beloit instead of $250,000; and (b) provide $130,000 of the $200,000 from the environmental management account of the environmental fund and the remaining $70,000 from the all-terrain vehicle (ATV) account of the conservation fund. (See Natural Resources -- Air, Waste and Contaminated Land #23.)
Veto by Governor [B-31]: Delete the sustainable urban development zone tax credit and eliminate the requirement that the Departments of Health and Family Services, Revenue and Transportation assist in developing the pilot program.
[Act 9 Sections: 332e, 1719g, 1798 and 2649h]
[Act 9 Vetoed Sections: 1684d, 1709c, 1719g, 1719m, 1722bd, 1740c, 1743d, 1747m, 1748bm, 1749k, 1756h, 1760q, 1798, 2649h and 9343(22c)]
24. WHOLLY EXEMPT INCOME
Assembly/Legislature: Delete provisions that specify that wholly exempt income for corporations subject to franchise or income taxes includes amounts received from affiliated or subsidiary corporations because of the degree of common ownership, control or management between the payor and payee.
Veto by Governor [F-10]: Delete provisions.
[Act 9 Vetoed Sections: 1740n and 9343(22t)]
25. CORPORATE INCOME AND FRANCHISE TAX--ENDANGERED RESOURCES CHECKOFF
Joint Finance: Allow corporate income taxpayers to donate a portion of their tax refund or, if taxes are due, include an additional amount with their tax payment for the endangered resources program, consistent with provisions allowing individual taxpayer donations. In 1997-98, the endangered resources tax check-off generated $535,200.
Assembly/Legislature: Delay the effective date for implementation of the endangered resources check-off on corporate income and franchise tax returns from tax year 2000 to tax year 2001.
[Act 9 Sections: 1748b and 9343(2g)]
26. RECYCLING SURCHARGE
Conference Committee/Legislature: Impose a recycling surcharge on businesses. The surcharge would be calculated the same as under prior law with certain modifications. Prior law, until April, 1999, imposed a surcharge in tax year 1998 equal to 2.75% of gross tax liability for corporations (5.5% in tax years prior to 1998) and 0.2173% of net business income for nonfarm sole proprietorships, partnerships, limited liability companies taxable as partnerships and S corporations (0.4345% in tax years prior to 1998). Businesses with under $4,000 in gross income, farms with less than $1,000 of net income and members of the clergy were excluded from paying the prior surcharge.
