AB208: Bill Text

LRB-1297/4

JK/MES/CTS:wlj:rs

2005 - 2006 LEGISLATURE

2005 Assembly BILL 208

March 14, 2005 - Introduced by Representatives Suder, M. Williams, Pettis, Moulton, Wood, Lamb, Nerison, Ott, Gronemus, Kestell, Davis, Mursau, Owens, Freese, Van Roy, Musser, Kreibich, McCormick, Hines, Hahn, Vruwink, Vos, F. Lasee, Petrowski, Ballweg and Gunderson, cosponsored by Senators Zien, Harsdorf, Roessler, Brown and Darling. Referred to Committee on Rural Development.

AB208,1,8 An Act to amend 71.05 (6) (a) 15., 71.08 (1) (intro.), 71.10 (4) (i), 71.21 (4), 71.26 (2) (a), 71.30 (3) (f), 71.34 (1) (g), 71.45 (2) (a) 10., 71.49 (1) (f) and 77.92 (4); and to create 20.835 (2) (cm), 20.835 (2) (em), 20.835 (2) (eo), 71.07 (3c), 71.07 (3e), 71.07 (3w), 71.28 (3w), 71.47 (3w) and 560.799 of the statutes; relating to: creating rural enterprise development zones and providing tax incentives to qualified businesses in the zones, creating refundable individual income tax credits for income and capital gains derived from the zones, making appropriations, and providing a penalty.

Analysis by the Legislative Reference Bureau

This bill authorizes the Department of Commerce (department) to designate up to ten rural enterprise development zones (zones), upon applications by political subdivisions. A zone may be no larger than 5,000 acres, and may not include any part of a city of the first class or a city with a population greater than 200,000. A political subdivision may apply for designation of a zone that includes land within that political subdivision by submitting a development plan. A development plan must contain certain information, including: 1) a map of the proposed zone; 2) evidence of support in the proposed zone from local government, the public, and business groups; 3) a description of the applicant's goals and methods for increasing economic opportunity and expansion, improving infrastructure, reducing regulatory burdens, and increasing job training opportunities; and 4) anticipated economic activity in the proposed zone.

In selecting areas for zone designation, the department must consider indicators of the areas' economic need and likelihood of success. The department must give preference to applications that propose designation of zones with the lowest population density and greatest economic need. A zone designation may remain in effect for no more than 12 years.

The department may certify a business to receive certain tax benefits if the business begins operations in a zone or relocates to a zone from outside the state. The department may also certify a business that relocates to a zone from elsewhere in the state, but only if the business will increase its full-time employees in the zone by at least 10 percent or will make a capital investment in property in the zone equal to at least 10 percent of the business's gross revenues in the preceding year.

This bill creates two refundable individual income tax credits. If the allowable amount of the credit exceeds the taxpayer's income tax liability, the difference is paid to the claimant by check. Under the rural enterprise development income credit, an individual who owns or operates a trade or business in a rural enterprise development zone may claim a credit equal to an amount obtained by multiplying 20 percent of the income the individual derives from the operation of his or her trade or business in the rural enterprise development zone by 6.5 percent. The credit is prorated if the claimant, or the claimant's spouse, is not a full-year resident of this state.

Under the rural enterprise development capital gains credit, an individual may claim a credit based on capital gains derived from the sale or exchange of property, both real property and property other than real property, that is used by a rural enterprise development business that is certified by the department of commerce. Under current law, there is an income tax exclusion for individuals and shareholders of tax-option corporations for 60 percent of the net long-term capital gains realized from the sale of assets held for at least one year. Under this bill, a claimant of the capital gains credit may claim an amount equal to the amount of capital gains that is not currently excluded, multiplied by 6.5 percent. The credit is prorated if the property is also held by the claimant during a period when the rural development zone was not certified by the department. The credit is also prorated if the claimant, or the claimant's spouse, is not a full-year resident of this state.

The bill also creates refundable income and franchise tax credits for businesses located in a rural enterprise development zone. A taxpayer may claim credits based on the amount that the taxpayer pays to employees in the rural enterprise development zone. In addition, the taxpayer may claim a credit equal to the amount of property taxes the taxpayer paid on his or her personal property located in a rural enterprise development zone, the amount of sales and use taxes the taxpayer paid to purchase tangible personal property or taxable services that are used or consumed primarily in a rural enterprise development zone, or the amount the taxpayer paid in the taxable year to provide certain training to the taxpayer's full-time employees.

For further information see the state 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:

AB208, s. 1 Section 1. 20.835 (2) (cm) of the statutes is created to read:

AB208,3,3 20.835 (2) (cm) Rural enterprise development zone jobs credit. A sum sufficient to make the payments under ss. 71.07 (3w) (c) 1., 71.28 (3w) (c) 1., 71.47 (3w) (c) 1.

AB208, s. 2 Section 2. 20.835 (2) (em) of the statutes is created to read:

AB208,3,6 20.835 (2) (em) Rural enterprise development income credit. A sum sufficient to pay the claims approved under s. 71.07 (3c).

AB208, s. 3 Section 3. 20.835 (2) (eo) of the statutes is created to read:

AB208,3,9 20.835 (2) (eo) Rural enterprise development capital gains credit. A sum sufficient to pay the claims approved under s. 71.07 (3e).

AB208, s. 4 Section 4. 71.05 (6) (a) 15. of the statutes is amended to read:

AB208,3,15 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (3g), (3n), (3s), (3t), (3w), (5b), and (5d) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g).

AB208, s. 5 Section 5. 71.07 (3c) of the statutes is created to read:

AB208,3,18 71.07 (3c) Rural enterprise development income credit. (a) Definitions. In this subsection:

AB208,3,20 1. "Claimant" means an individual who owns or operates a trade or business in a rural enterprise development zone.

AB208,4,2 2. "Rural enterprise development zone" has the meaning given in s. 71.07 (3w) (a) 4.

AB208,4,11 (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.02 an amount obtained by multiplying 20 percent of the income that the individual derives from the operation of his or her trade or business in a rural enterprise development zone by 6.5 percent. If the allowable amount of the claim exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against those taxes shall be certified by the department of revenue to the department of administration for payment to the claimant by check, share draft, or other draft from the appropriation under s. 20.835 (2) (em).

AB208,4,13 (c) Limitations. 1. No credit may be allowed under this subsection unless it is claimed within the time period under s. 71.75 (2).

AB208,4,23 2. For a claimant who is a nonresident or part-year resident of this state and who is a single person or a married person filing a separate return, multiply the credit for which the claimant is eligible under par. (b) by a fraction the numerator of which is the individual's Wisconsin adjusted gross income and the denominator of which is the individual's federal adjusted gross income. If a claimant is married and files a joint return, and if the claimant or the claimant's spouse, or both, are nonresidents or part-year residents of this state, multiply the credit for which the claimant is eligible under par. (b) by a fraction the numerator of which is the couple's joint Wisconsin adjusted gross income and the denominator of which is the couple's joint federal adjusted gross income.

AB208,4,25 (d) Administration. Subsection (9e) (d), to the extent that it applies to the credit under that subsection, applies to the credit under this subsection.

AB208, s. 6 Section 6. 71.07 (3e) of the statutes is created to read:

AB208,5,3 71.07 (3e) Rural enterprise development capital gains credit. (a) Definitions. In this subsection:

AB208,5,4 1. "Claimant" means an individual who files a claim under this subsection.

AB208,5,6 2. "Property gain" means the gain derived from the sale or exchange of property, other than real property, that is used by a certified business under s. 560.799 (5).

AB208,5,9 3. "Real property gain" means the gain derived from the sale or exchange of real property that is located in a rural enterprise development zone and used by a certified business under s. 560.799 (5).

AB208,5,11 4. "Rural enterprise development zone" has the meaning given in s. 71.07 (3w) (a) 4.

AB208,5,14 (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.02 all of the following:

AB208,5,16 1. An amount obtained by multiplying the amount of property gain that is not excluded under s. 71.05 (6) (b) 9. by 6.5 percent.

AB208,5,18 2. An amount obtained by multiplying the amount of real property gain that is not excluded under s. 71.05 (6) (b) 9. by 6.5 percent.

AB208,5,23 (bm) Payment. If the allowable amount of the claim under par. (a) exceeds the income taxes otherwise due on the claimant's income, the amount of the claim not used as an offset against those taxes shall be certified by the department of revenue to the department of administration for payment to the claimant by check, share draft, or other draft from the appropriation under s. 20.835 (2) (eo).

AB208,5,25 (c) Limitations. 1. No credit may be allowed under this subsection unless it is claimed within the time period under s. 71.75 (2).

AB208,6,6 2. If the claimant held the property to which the claim relates during a period when the rural enterprise development zone was not designated, the gain subject to the credit under par. (b) must be multiplied by a fraction, the numerator of which is the number of days the claimant held the property during the period the zone designation was in effect and the denominator of which is the total number of days the claimant held the property.

AB208,6,18 3. For a claimant who is a nonresident or part-year resident of this state and who is a single person or a married person filing a separate return, multiply the credit for which the claimant is eligible under par. (b), or the credit for which the claimant is eligible under par. (b) as modified by subd. 2., if applicable, by a fraction the numerator of which is the individual's Wisconsin adjusted gross income and the denominator of which is the individual's federal adjusted gross income. If a claimant is married and files a joint return, and if the claimant or the claimant's spouse, or both, are nonresidents or part-year residents of this state, multiply the credit for which the claimant is eligible under par. (b), or the credit for which the claimant is eligible under par. (b) as modified by subd. 2., if applicable, by a fraction the numerator of which is the couple's joint Wisconsin adjusted gross income and the denominator of which is the couple's joint federal adjusted gross income.

AB208,6,20 (d) Administration. Subsection (9e) (d), to the extent that it applies to the credit under that subsection, applies to the credit under this subsection.

AB208, s. 7 Section 7. 71.07 (3w) of the statutes is created to read:

AB208,6,23 71.07 (3w) Rural enterprise development zone jobs credit. (a) Definitions. In this subsection:

AB208,7,3 1. "Base year" means the taxable year beginning during the calendar year prior to the calendar year in which the rural enterprise development zone in which the claimant is located takes effect.

AB208,7,5 2. "Claimant" means a person who is certified to claim tax benefits under s. 560.799 (5) and who files a claim under this subsection.

AB208,7,8 3. "Full-time employee" means an individual who is employed in a regular, nonseasonal job and who, as a condition of employment, is required to work at least 2,080 hours per year, including paid leave and holidays.

AB208,7,10 4. "Rural enterprise development zone" means a zone designated under s. 560.799.

AB208,7,12 5. "State payroll" means the amount of payroll apportioned to this state, as determined under s. 71.04 (6).

AB208,7,18 6. "Zone payroll" means the amount of state payroll that is attributable to compensation paid to individuals for services that are performed in a rural enterprise development zone or who are working from an office located in a rural enterprise development zone if the work is incidental to any work that the individual performs within the rural enterprise development zone. "Zone payroll" does not include the amount of compensation paid to any individual that exceeds $100,000.

AB208,7,21 (b) Filing claims; payroll. Subject to the limitations provided in this subsection and s. 560.799, a claimant may claim as a credit against the tax imposed under s. 71.02 an amount calculated as follows:

AB208,7,22 1. Determine the amount that is the lesser of:

AB208,7,24 a. The claimant's zone payroll in the taxable year, minus the claimant's zone payroll in the base year.

AB208,8,2 b. The claimant's state payroll in the taxable year, minus the claimant's state payroll in the base year.

AB208,8,6 2. Subtract the number of full-time employees that the claimant employed in the area that comprises the rural enterprise development zone in the base year from the number of full-time employees that the claimant employed in the rural enterprise development zone in the taxable year.

AB208,8,8 3. Multiply the amount determined under subd. 2., but not an amount less than zero, by $30,000.

AB208,8,10 4. Subtract the amount determined under subd. 3. from the amount determined under subd. 1.

AB208,8,11 5. Multiply the amount determined under subd. 4. by 7 percent.

AB208,8,15 (bm) Filing supplemental claims. In addition to the credit under par. (b) and subject to the limitations provided in this subsection and s. 560.799, a claimant may claim as a credit against the tax imposed under s. 71.02 an amount equal to all of the following:

AB208,8,18 1. The amount of the property taxes that the claimant paid in the taxable year for the claimant's personal property that is located in a rural enterprise development zone.

AB208,8,21 2. The amount of taxes imposed under subch. III of ch. 77 that the claimant paid in the taxable year on the purchase of tangible personal property and taxable services that are used or consumed primarily in a rural enterprise development zone.

AB208,9,2 3. If all of the claimant's payroll is zone payroll and all of the claimant's business-related property is located in a rural enterprise development zone, the amount obtained by multiplying 20 percent of the sum of the claimant's zone payroll in the taxable year and the adjusted basis of the claimant's property at the time that the property is first placed in service in the rural enterprise development zone by 6.5 percent.

AB208,9,7 4. The amount the claimant paid in the taxable year to upgrade or improve the skills of any of the claimant's full-time employees, to train any of the claimant's full-time employees on the use of new technologies, or to train any full-time employee whose employment with the claimant represents the employee's first full-time job.

AB208,9,12 (c) Limitations. 1. If the allowable amount of the claim under this subsection exceeds the taxes otherwise due on the claimant's income under s. 71.02, the amount of the claim that is not used to offset those taxes shall be certified by the department of revenue to the department of administration for payment by check, share draft, or other draft drawn from the appropriation under s. 20.835 (2) (cm).

AB208,9,20 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for, and the amount of, the credit are based on their payment of amounts described under pars. (b) and (bm). A partnership, limited liability company, or tax-option corporation shall compute the amount of credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members of limited liability companies, and shareholders of tax-option corporations may claim the credit in proportion to their ownership interests.

AB208,9,23 3. No credit may be allowed under this subsection unless the claimant includes with the claimant's return a copy of the claimant's certification for tax benefits under s. 560.799 (5).

AB208,9,25 (d) Administration. Section 71.28 (4) (g) and (h), as it applies to the credit under s. 71.28 (4), applies to the credit under this subsection.

AB208, s. 8 Section 8. 71.08 (1) (intro.) of the statutes is amended to read:

AB208,10,11 71.08 (1) Imposition. (intro.) If the tax imposed on a natural person, married couple filing jointly, trust, or estate under s. 71.02, not considering the credits under ss. 71.07 (1), (2dd), (2de), (2di), (2dj), (2dL), (2dr), (2ds), (2dx), (2fd), (3c), (3e), (3m), (3n), (3s), (3t), (3w), (5b), (5d), (6), and (9e), 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1ds), (1dx), (1fd), (2m), (3), (3n), and (3t), and (3w), and 71.47 (1dd), (1de), (1di), (1dj), (1dL), (1ds), (1dx), (1fd), (2m), (3), (3n), and (3t), and (3w), and subchs. VIII and IX, and payments to other states under s. 71.07 (7), is less than the tax under this section, there is imposed on that natural person, married couple filing jointly, trust, or estate, instead of the tax under s. 71.02, an alternative minimum tax computed as follows:

AB208, s. 9 Section 9. 71.10 (4) (i) of the statutes is amended to read:

AB208,10,20 71.10 (4) (i) The total of claim of right credit under s. 71.07 (1), farmland preservation credit under subch. IX, homestead credit under subch. VIII, farmland tax relief credit under s. 71.07 (3m), farmers' drought property tax credit under s. 71.07 (2fd), rural enterprise development income credit under s. 71.07 (3c), rural enterprise development capital gains credit under s. 71.07 (3e), rural enterprise development zone jobs credit under s. 71.07 (3w), earned income tax credit under s. 71.07 (9e), estimated tax payments under s. 71.09, and taxes withheld under subch. X.

AB208, s. 10 Section 10. 71.21 (4) of the statutes is amended to read:

AB208,10,24 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2ds), (2dx), (3g), (3n), (3s), (3t), (3w), and (5b) and passed through to partners shall be added to the partnership's income.

AB208, s. 11 Section 11. 71.26 (2) (a) of the statutes is amended to read:

AB208,11,18 71.26 (2) (a) Corporations in general. The "net income" of a corporation means the gross income as computed under the Internal Revenue Code as modified under sub. (3) minus the amount of recapture under s. 71.28 (1di) plus the amount of credit computed under s. 71.28 (1), (3), (4), and (5) minus, as provided under s. 71.28 (3) (c) 7., the amount of the credit under s. 71.28 (3) that the taxpayer added to income under this paragraph at the time that the taxpayer first claimed the credit plus the amount of the credit computed under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (3g), (3n), (3t), (3w), and (5b) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, limited liability company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g) plus the amount of losses from the sale or other disposition of assets the gain from which would be wholly exempt income, as defined in sub. (3) (L), if the assets were sold or otherwise disposed of at a gain and minus deductions, as computed under the Internal Revenue Code as modified under sub. (3), plus or minus, as appropriate, an amount equal to the difference between the federal basis and Wisconsin basis of any asset sold, exchanged, abandoned, or otherwise disposed of in a taxable transaction during the taxable year, except as provided in par. (b) and s. 71.45 (2) and (5).