Under current law, telecommunications utilities in Wisconsin are subject to state taxation on the basis of property value (ad valorem), in lieu of local property taxation. However, prior to taxes due for 1997, telecommunications companies were assessed a gross revenues license fee. Act 351 repealed the gross revenues license fee on telecommunications companies on May 15, 1998, and imposed an ad valorem tax beginning with taxes due for 1998. Act 351 also imposed a transitional adjustment fee on each cellular telecommunications utility and local exchange company for 1999 and 2000.
The transition fee is equal to the difference between the ad valorem tax assessment and the gross revenues tax payments that would have been made under s. 76.38 of the 1993 Statutes. While the transitional adjustment fee applies for 1999 and 2000, the transition fee is based on a comparison of ad valorem taxes from assessments on 1998 and 1999 property values and a 5.77% gross revenues license fee on revenues during calendar years 1998 and 1999. The Department of Revenue has interpreted Act 351 to mean that, if the transition fee calculation produced a negative number, the transition fee would be zero and such companies would be taxed at the ad valorem rate. This provision would specify that a credit could be taken against the ad valorem tax assessment for a telecommunications company if: (a) the telecommunications company had annual gross revenue under s. 76.38, 1993 Statutes of less than $10.0 million; and (b) the calculation of the transition fee for the company resulted in a negative number. As described above, the credit would be limited to 60% for the first year and 40% for the second year.
Because these provisions would be retroactive to include taxes due for 1998 and would sunset beginning with ad valorem taxes due for 2000, the full effect of the proposal would occur in 1999-00. It is estimated that these provisions would result in reduced utility tax collections of $870,000 in 1999-00.
[Act 9 Sections: 1810d, 9343(22f) and 9443(7d)]
2. AD VALOREM TAX EXEMPTION FOR COMPUTERS AND COMPUTERIZED EQUIPMENT [LFB Paper 856]
Governor: Extend the exemption for mainframe computers, minicomputers, personal computers, networked personal computers, servers, terminals, monitors, disk drives, electronic peripheral equipment, tape drives, printers, basic operational programs, systems software, prewritten software and custom software, which currently applies to property subject to locally imposed property taxes and to telephone companies subject to state ad valorem taxation, to the property of air carrier, conservation and regulation, municipal electric, pipeline and railroad companies that are also subject to state ad valorem taxation, effective with assessments as of January 1, 1999.
Provide an exemption for fax machines, copiers, cash registers and automatic teller machines for all public utility property subject to ad valorem taxation, effective with assessments as of January 1 of the year following enactment of the bill.
The fiscal effect is estimated to be a reduction in general fund ad valorem tax collections of $75,000 in 1999-00 and $150,000 in 2000-01 from the following types of companies: conservation and regulation; municipal electric; pipeline; and telephone companies. In addition, it is estimated that transportation fund ad valorem tax collections for air carrier and railroad companies would be reduced by $50,000 in 1999-00 and $100,000 in 2000-01.
Joint Finance: Modify the provision to extend the property tax exemption for computers and related property to the property of air carrier, conservation and regulation, municipal electric, pipeline and railroad companies subject to state-imposed ad valorem taxes by specifying that the exemption would take effect with property assessed as of January 1, 2000. Delete the provisions establishing an exemption for fax machines, copiers, cash registers and automatic teller machines. Decrease the estimated reductions in general fund revenue by $50,000 in 1999-00 and $100,000 in 2000-01. As compared to current law, these provisions would decrease general fund revenues by $25,000 in 1999-00 and $50,000 in 2000-01. The transportation fund reductions are reflected in this document under the sections for "Transportation -- Transportation Finance" and "Shared Revenue and Tax Relief -- Property Taxation."
Senate: Delay the current law property tax exemption for computers and related equipment from assessments as of January 1, 1999, to assessments as of January 1, 2002. Extend the delay both to local property taxes paid under Chapter 70 of the statutes and to state ad valorem taxes paid under Chapter 76 of the statutes.
3. RELIABILITY 2000 INITIATIVE -- TAX PROVISIONS
Under current law, an exemption for computers and related equipment applies to property subject to locally imposed property taxes and to telecommunications companies subject to state ad valorem taxation. Under the Joint Finance provisions, the current law exemption for telecommunications companies that are subject to ad valorem taxes would be extended to all utility companies that pay ad valorem taxes, effective with property assessed as of January 1, 2000. The Senate provisions would delay until January 1, 2002, both the current law exemption and the proposed extension of the current law exemption that was specified under the Joint Finance provision.
Estimate the following fiscal effects of these provisions: (a) increased general fund ad valorem tax collections from public utility taxpayers of $925,000 in 1999-00 and $1,050,000 in 2000-01; (b) increased transportation fund ad valorem tax collections from public utility taxpayers of $30,000 in 1999-00 and $60,000 in 2000-0; (c) increased state forestry tax collections of $505,900 in 1999-00 and $573,800 in 2000-01; and (d) reductions in expenditures under the state aid for exempt computers program of $63,800,000 in 1999-00 and $71,000,000 in 2000-01. These provisions are also described in this document under the sections for "Transportation -- Transportation Finance" and "Shared Revenue and Tax Relief -- Property Taxation."
Conference Committee/Legislature: Include Joint Finance provision.
[Act 9 Sections: 1807, 1808 and 9343(23c)]
Senate: Include the following provisions related to light, heat and power companies under the Reliability 2000 Initiative (as described in this document under the section for "Public Service Commission -- Agencywide"):
· Define a transmission company as a light, heat and power company that is subject to the state gross revenues license fee in lieu of local property taxation. Provide that the rate of the license fee for a transmission company would be the same as the rate for a private light, heat and power company. However, specify that a transmission company's revenues for transmission service to certain public utilities and electric cooperative associations would be excluded from the definition of gross revenues subject to the license fee.
· Specify that an electric cooperative that is subject to the gross revenues license fee on electric cooperatives and that is in the business of transmitting electric current for light, heat and power would be excluded from taxation as a light, heat and power company.
· Specify that these provisions would first apply to taxable years beginning on January 1 of the year in which the bill generally takes effect, unless the bill's general effective date is after July 31. In that case, the provisions would first apply to taxable years beginning on January 1 of the following year.
Conference Committee/Legislature: Include the Senate provision. In addition, provide the following tax exemptions related to the Reliability 2000 Initiative:
Gross Revenues License Fee
Specify that, for the purpose of determining the gross revenues license fee on light, heat and power companies and electric cooperatives, "gross revenues" would exclude the following items [as defined under Reliability 2000 and described under "Public Service Commission -- Agencywide"]: (a) public benefits fees collected by an electric utility or retail electric cooperative; (b) grants awarded to a generator public utility or to an electric cooperative under the air quality improvement program; (c) public benefits fees received by a wholesale supplier from a municipal utility or retail electric cooperative or under a joint commitment to community program; and (d) public benefits fees received by a municipal utility or a retail electric cooperative from a municipal utility or retail electric cooperative under a joint commitment to community program.
Sales Tax
Provide a sales tax exemption for the transfer to the transmission company of the following: transmission facilities on land not owned by the transferor that are made after the transmission company is organized in exchange for an equity interest in the transmission company. Under current law, such transfers would be subject to the sales tax, while transfers similar in every way except that they occur as part of the organization of the transmission company would be exempt from the tax.
In addition, provide a sales tax exemption for the gross receipts of electric utilities and retail electric cooperatives from the collection of public benefits fees.
Real Estate Transfer Fee
Provide an exemption from the real estate transfer fee for a conveyance to the transmission company of real property transmission facilities or land rights in exchange for securities.
Compared to current law, there would be no fiscal effect of these provisions, as in the absence of Reliability 2000, the transactions that are the subject of these provisions would not occur.
[Act 9 Sections: 1809b thru 1809zp, 1810gm, 1812Lmr, 1813v and 9343(1zt)]
4. UTILITY TAX ON CAR LINE COMPANIES [LFB Paper 124 ]
Governor: Reduce the gross earnings tax on car line companies from 3% to 2.5% of gross earnings of such companies in this state. A "car line company" is any person, other than a person operating a railroad, that is engaged in the business of leasing or furnishing car line equipment to a railroad. "Car line equipment" includes railroad cars and other equipment used in railroad transportation. Under current law, a 3% gross earnings tax is levied on car line companies in lieu of all property taxes on their car line equipment.
This provision would first apply to taxable years beginning on January 1 of the year in which the bill generally takes effect, unless the bill's general effective date is after July 31. In that case, the tax decrease would first apply to taxable years beginning January 1 of the following year. It is estimated that this provision would reduce general fund revenues by $100,000 in 1999-00 and $200,000 in 2000-01, assuming that the tax reduction would first apply on January 1, 2000. However, these revenues are not accounted for in the bill.
Joint Finance/Legislature: Delete provision.
[Bill Sections: 1809 and 9343(12)]
5. WHOLESALE MERCHANT PLANTS
Senate: Reduce the gross receipts tax rate for a wholesale merchant plant that received a certificate of public convenience and necessity after January 1, 2000, from 3.19% to 1.59%.
Wisconsin statutes specify that a "wholesale merchant plant" means electric generating equipment and associated facilities located in this state that do not provide service to any retail customer and that are owned and operated by: (a) an affiliated interest of a public utility, subject to the approval of the Public Service Commission; or (b) a person that is not a public utility.
Under current law, a license fee on gross revenues is imposed on certain utilities in lieu of local property taxation. A light, heat and power company, including a qualified wholesale electric company, is generally subject to a 3.19% gross revenues license fee on revenues from electricity sales. A wholesale merchant plant, as a qualified wholesale electric company, is subject to the 3.19% gross revenues license fee. These provisions would reduce the rate of the gross revenues license fee for a wholesale merchant plant that received a certificate of public convenience and necessity after January 1, 2000, from 3.19% to 1.59%.
Due to the limitation of these provisions to a wholesale merchant plant that received a certificate of public convenience and necessity after January 1, 2000, it is estimated that there would be no effect on general fund tax collections in the 1999-01 biennium. However, an estimate of the effect on future utility tax collections can be made from projections provided by a company that is considering developing a wholesale merchant plant and that would meet this qualification. It is estimated that, if the company were to receive a certificate after January 1, 2000, and choose to operate a merchant plant in Wisconsin, state utility tax collections would be lower by $3.6 million per year under the proposed gross revenues tax rate of 1.59% than they would be at the current rate of 3.19%. The annual effect on future utility tax collections could be higher or lower, depending on taxable gross revenues of wholesale merchant plants that receive certificates of public convenience and necessity after January 1, 2000.
Conference Committee/Legislature: Delete provision.
6. REAL ESTATE TRANSFER FORM
Senate: Direct the Department of Revenue to: (a) identify non-essential items that can be made optional on the Wisconsin real estate transfer return; (b) develop a simplified form based on that identification; and (c) submit the revised form for review under the Joint Finance Committee 14-day passive review process by January 1, 2000.
Conference Committee/Legislature: Include the Senate provision. In addition, specify that a real estate transfer return would not be required in the case of a conveyance that is executed for nominal, inadequate or no consideration to confirm, correct or reform a conveyance previously recorded. Current law provides an exemption from the real estate transfer fee for such conveyances [s. 77.25(3)]. This provision would provide that, for conveyances exempt from the fee under s. 77.25(3), no return would be required.
7. OCCUPATIONAL TAX ON ATTORNEY FEES
Veto by Governor [F-30]: Delete provisions.
[Act 9 Vetoed Sections: 1810hm and 9143(3b)]
Assembly: Impose an 80% occupational tax on the amount of attorney fees for legal services provided to the state that exceeds $500 per hour, regardless of the basis on which the attorney fees are paid. Specify that the revenue from the occupational tax would be deposited in the property tax relief fund. Require the Department of Revenue to administer the tax and authorize DOR to take any action, conduct any proceeding and impose interest and penalties related to the tax. Specify that certain provisions for the administration of the sales tax would apply to the administration of the attorney fees tax.
According to the Attorney General's office, the state does not have any contracts for outside legal assistance for which the hourly fee exceeds $500 (with the exception of the attorney fees related to the tobacco settlement as described below). In addition, there are no past cases of legal work by outside attorneys for which the hourly rate exceeded $500. Therefore, it appears that these provisions would affect only attorney fees for the three law firms that worked for the state on the lawsuit against the tobacco industry.
The three firms are reported to have stated that they worked approximately 27,000 hours on the case. Based on an agreement with the tobacco companies to pay the firms $75 million for such work, the hourly fee would amount to approximately $2,800. If the hourly fee were $2,800, it is estimated that the proposed occupational tax would amount to $46 million. This figure is net of reduced state income tax collections based on the occupational tax being claimed as a deductible business expense.
It is expected that the firms would be paid over five years. However, the exact starting point and timing of the payments are not known. In addition, the actual number of total hours worked on the case has not been officially released or verified. In the absence of reliable information on the size and timing of installment payments that would be made to the law firms, and the total number of hours worked by attorneys and staff on the tobacco lawsuit on behalf of the state, it is not possible to reliably estimate the fiscal effect of these provisions.
In addition, as outlined in a Legislative Reference Bureau drafter's note, there are a number of constitutional questions regarding these provisions. Given the nature of these questions, it is uncertain as to whether the proposal would withstand legal challenges. If the tax were found unconstitutional, no revenues would be generated.
Conference Committee/Legislature: Delete provision.
[Bill Sections: 1654, 1807, 1808, 1810 and 9443(3)&(4)]
Tax Administration
1. MINNESOTA-WISCONSIN INCOME TAX RECIPROCITY PAYMENTS
GPR $12,500,000
Governor/Legislature: Provide $4,500,000 in 1999-00 and $8,000,000 in 2000-01 to reflect estimated Minnesota-Wisconsin income tax reciprocity payments. Total funding after these adjustments would be $44,500,000 in 1999-00 and $48,000,000 in 2000-01.
2. ILLINOIS-WISCONSIN INCOME TAX RECIPROCITY PAYMENTS
GPR - $2,750,000
Governor/Legislature: Increase funding by $2,750,000 in 1999-00 and decrease funding by $5,500,000 in 2000-01 to reflect Illinois-Wisconsin income tax reciprocity payments. Total funding after these adjustments would be $8,250,000 in 1999-00. Under the current agreement, no payment will be made in 2000-01. However, payments will resume in 2001-02.
3. ILLINOIS-WISCONSIN INCOME TAX RECIPROCITY STUDY
GPR $2,500
Governor/Legislature: Increase funding by $28,400 in 1999-00 and decrease funding by $25,900 in 2000-01 for a study to provide data for determining future income tax reciprocity payments between Wisconsin and Illinois. Total funding of $105,000 in 1999-00 and $50,700 in 2000-01 would be provided under this provision.
4. INTEREST ON OVERPAYMENT OF TAXES
GPR $700,000
Governor/Legislature: Provide $300,000 in 1999-00 and $400,000 in 2000-01 for estimated interest paid on the overpayment of individual income taxes. Total funding would be $800,000 in 1999-00 and $900,000 in 2000-01.
5. SALES TAX LATE FILING FEE [LFB Paper 130]
Governor: Increase the late filing fee for delinquent sales and use tax returns from $10 to $30. The current law exception from paying the fee in cases where there is a reasonable cause would be modified to require a good cause but not due to neglect. The bill would also clarify a provision regarding security that may be required by the Department for retailers. These provisions would first apply to sales and use tax returns that are filed for periods beginning after September 30, 1999. It is estimated that the increase in the late filing fee would result in additional general fund revenues of $1,130,000 in 1999-00 and $1,400,000 in 2000-01.
Under current law, delinquent sales and use tax returns are subject to a $10 late filing fee. However, the fee is not imposed in cases where the person who was required to file the return has died or where the return was not filed because of a reasonable cause and not because of neglect.
Joint Finance/Legislature: Modify provision to increase the late filing fee for delinquent sales and use tax returns from $10 to $20, rather than $30. Compared to current law, this modification would increase general fund tax revenues by an estimated $565,000 in 1999-00 and $700,000 in 2000-01. Compared to the bill, it would reduce revenues by an estimated $565,000 in 1999-00 and $700,000 in 2000-01.
[Act 9 Sections: 1815 and 9343(8)]
