AB637: Bill Text

LRB-3206/2

JK&MES:med&cjs:jf

2011 - 2012 LEGISLATURE

2011 Assembly BILL 637

February 27, 2012 - Introduced by Representatives C. Taylor, Zamarripa, Grigsby, E. Coggs, Berceau, Roys and Sinicki. Referred to Joint Committee on Finance.

AB637,2,4 An Act to repeal 71.07 (5n), 71.07 (9e) (aj), 71.10 (4) (cr), 71.255 (6) (bm), 71.26 (4) (b), 71.28 (5n), 71.30 (3) (dn), 71.45 (4) (b), 71.47 (5n), 71.49 (1) (dn), 71.54 (1) (g) and 71.54 (2) (b) 4.; to renumber and amend 71.26 (4) (a) and 71.45 (4) (a); to amend 71.01 (14), 71.05 (6) (a) 15., 71.05 (6) (b) 9., 71.05 (6) (b) 9m., 71.05 (6) (b) 25., 71.05 (6) (b) 47. b., 71.05 (6) (b) 47. c., 71.05 (8) (b), 71.05 (25) (b) (intro.), 71.06 (1p) (e), 71.06 (2) (g) 5., 71.06 (2) (h) 5., 71.06 (2e) (b), 71.07 (9e) (af) (intro.), 71.09 (11) (f), 71.21 (4), 71.255 (2m) (d), 71.255 (6) (a), 71.26 (2) (a) 4., 71.34 (1k) (g), 71.36 (1m) (a), 71.45 (2) (a) 10., 71.54 (1) (f) (intro.), 71.54 (2) (b) 3., 71.54 (2m), 72.01 (11m), 72.01 (11n), 72.02 and 77.92 (4); and to create 71.06 (1p) (f), 71.06 (2) (g) 6. and 71.06 (2) (h) 6. of the statutes; relating to: disregarding a taxpayer's election to include another in its combined group, disallowing certain carry-forward amounts for combined reporting purposes, repealing the income and franchise tax credit for qualified production activities income, repealing the changes made to the earned income tax credit in 2011 Wisconsin Act 32, restoring indexing provisions to the homestead tax credit, eliminating the individual income tax exclusion for long-term capital gains other than for farm assets, computing the estate tax based on 2002 federal law, and creating a new individual income tax upper bracket.

Analysis by the Legislative Reference Bureau

Combined reporting

Under current law, a taxpayer may elect to include in its combined group, for income and franchise tax reporting purposes, every corporation in its commonly controlled group, regardless of whether such corporations are engaged in the same unitary business of the taxpayer. Under current law, the Department of Revenue (DOR) may not disallow such an election, or disregard its effect. Under this bill, if DOR determines that such an election has the effect of tax avoidance, DOR must disregard the election's tax effect or disallow the election.

Under current law, for each taxable year that a corporation that is a member of a combined group has net business loss carry-forward from a taxable year beginning before January 1, 2009, the corporation may, for 20 taxable years, use up to 5 percent of the net business loss carry-forward to offset the income of all other members of the combined group. The bill eliminates this provision.

Qualified production activities income credit

Under the federal Internal Revenue Code, a taxpayer may claim a deduction equal to 9 percent of the taxpayer's qualified production activities income in the taxable year or 9 percent of the taxpayer's total taxable income, whichever is less. For federal tax purposes, qualified production activities income is, generally, the amount of the taxpayer's domestic production gross receipts that exceed the sum of the cost of goods sold and other expenses, losses, or deductions. Domestic production gross receipts are, generally, gross receipts derived from property that was manufactured, produced, grown, or extracted in the United States.

Under current law, an individual taxpayer may claim a state income tax credit equal to the taxpayer's qualified production activities income derived from manufacturing property and agricultural property, multiplied by a certain percentage. A corporation or insurer may claim a state income and franchise tax credit equal to the lesser of its taxable income apportioned to this state or its qualified production activities income derived from manufacturing property or agricultural property located in this state, multiplied by a certain percentage. The percentage of qualified production activities income that a taxpayer may claim as a credit is 1.875 percent for 2013, 3.75 percent for 2014, 5.526 percent for 2015, and 7.5 percent for 2016 and for each year thereafter.

The bill eliminates the tax credit for qualified production activities income.

Estate tax

Under current law, the estate tax is equal to the federal estate tax credit allowed for state death taxes as computed under the federal estate tax law in effect on the day of the decedent's death. Under current federal law, the estate tax is imposed on the portion of an estate that is in excess of $5,000,000 and the federal credit for state death taxes has been eliminated for 2011 and 2012.

Under this bill, for deaths occurring after December 31, 2011, the estate tax is equal to the federal estate tax credit allowed for state death taxes as computed under the federal estate tax law in effect on December 31, 2002. Under the bill, the tax imposed on estates of $1,000,000 or more, but not on property used in farming.

Upper income tax bracket

Under current law, there are five income tax brackets for single individuals, certain fiduciaries, heads of households, and married persons. The brackets are indexed for inflation. The rate of taxation under current law for the lowest bracket for single individuals, certain fiduciaries, heads of households, and married persons is 4.6 percent of taxable income; the rate for the second bracket is 6.15 percent; the rate for the third bracket is 6.5 percent; the rate for the fourth bracket is 6.75 percent; and the rate for the highest bracket, which was created in the 2009-11 biennial budget act, 2009 Wisconsin Act 28, is 7.75 percent.

For taxable year 2011, the highest bracket applies to taxable income exceeding $224,210 for single individuals, certain fiduciaries, and heads of households. For married persons, the highest current bracket applies to taxable income exceeding $298,940 for joint filers and $149,470 for separate filers.

For taxable year 2012 and thereafter, this bill creates a sixth bracket with a taxation rate of 8.75 percent. For single individuals, certain fiduciaries, and heads of households, this bracket applies to taxable income exceeding $1,000,000. For married persons, this bracket applies to taxable income exceeding $1,000,000 for joint filers and $500,000 for separate filers. This bracket is indexed for inflation.

Earned income tax credit

Under current law, as created in 2011 Wisconsin Act 32, the earned income tax credit (EITC) is reduced for claimants with two or more qualifying children. The bill repeals those provisions and restores former law. Under the bill, the EITC, as a percentage of the federal credit, would be 4 percent for claimants with one qualifying child, 14 percent for claimants with two qualifying children, and 43 percent for claimants with three or more qualifying children.

Homestead tax credit

Under current law, as created in 2011 Wisconsin Act 32, the homestead tax credit formula factors (maximum income, maximum property taxes, and income threshold) are not indexed for inflation after 2010. The bill repeals those provisions and restores former law. Under the bill, the homestead tax credit formula factors would be indexed for inflation for 2011 and beyond.

Exclusion of capital gains

Under current law, there is an income tax exclusion for individuals, fiduciaries, members of limited liability companies and partnerships, and shareholders of tax-option corporations for 30 percent of the net long-term capital gains realized from the sale of assets held more than one year and the sale of all assets acquired from a decedent, and an exclusion for 60 percent of such gains realized from the sale of farm assets held more than one year and the sale of all farm assets acquired from a decedent.

Under this bill, the exclusion of 30 percent of such net long-term capital gains, and all assets acquired from a decedent, does not apply to taxable years beginning after December 31, 2011. The bill does not affect the exclusion of the gains realized from the sale of farm assets held more than one year and the sale of farm assets acquired from a decedent.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.

For further information see the state and local 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:

AB637, s. 1 Section 1. 71.01 (14) of the statutes is amended to read:

AB637,4,5 71.01 (14) "Wisconsin net operating loss" of persons other than corporations means "federal net operating loss" adjusted as prescribed in s. 71.05 (6) (a) and (b), (7) to (12) and (19) to (21), except s. 71.05 (6) (b) 9., except that no deductions allowable on schedule A for federal income tax purposes are allowable.

AB637, s. 2 Section 2. 71.05 (6) (a) 15. of the statutes, as affected by 2011 Wisconsin Act 32, is amended to read:

AB637,4,13 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (2dy), (3g), (3h), (3n), (3p), (3q), (3r), (3rm), (3rn), (3s), (3t), (3w), (5e), (5f), (5h), (5i), (5j), (5k), (5n), (5r), (5rm), and (8r) 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 (1k) (g).

AB637, s. 3 Section 3. 71.05 (6) (b) 9. of the statutes is amended to read:

AB637,5,11 71.05 (6) (b) 9. On assets held more than one year and on all assets acquired from a decedent, 30 percent of the capital gain as computed under the internal revenue code, not including capital gains for which the federal tax treatment is determined under section 406 of P.L. 99-514; not including amounts treated as ordinary income for federal income tax purposes because of the recapture of depreciation or any other reason; and not including amounts treated as capital gain for federal income tax purposes from the sale or exchange of a lottery prize. For purposes of this subdivision, the capital gains and capital losses for all assets shall be netted before application of the percentage. This subdivision does not apply to taxable years that begin after December 31, 2011.

AB637, s. 4 Section 4. 71.05 (6) (b) 9m. of the statutes is amended to read:

AB637,5,23 71.05 (6) (b) 9m. On farm assets held more than one year and on all farm assets acquired from a decedent, to the extent that they are not subtracted under subd. 9. or 10., 60 percent of the capital gain as computed under the Internal Revenue Code, not including capital gains for which the federal tax treatment is determined under section 406 of P.L. 99-514; not including amounts treated as ordinary income for federal income tax purposes because of the recapture of depreciation or any other reason; and not including amounts treated as capital gain for federal income tax purposes from the sale or exchange of a lottery prize. In this subdivision, "farm assets" means livestock, farm equipment, farm real property, and farm depreciable property. For purposes of this subdivision, the capital gains and capital losses for all assets shall be netted before application of the percentage.

AB637, s. 5 Section 5. 71.05 (6) (b) 25. of the statutes is amended to read:

AB637,6,8 71.05 (6) (b) 25. All gains that are not excluded from taxation under subd. 9., on business assets or 9m. on assets used in farming, including shares in a corporation or trust that meets the standards under s. 182.001 (1), or both, held more than one year, that are sold or otherwise disposed of to persons who are related to the seller or transferor by blood, marriage or adoption within the 3rd degree of kinship as determined under s. 990.001 (16), as computed under the Internal Revenue Code, not including amounts treated as ordinary income for federal income tax purposes because of the recapture of depreciation or any other reason.

AB637, s. 6 Section 6. 71.05 (6) (b) 47. b. of the statutes, as created by 2011 Wisconsin Act 3, is amended to read:

AB637,7,5 71.05 (6) (b) 47. b. With respect to partners and members of limited liability companies, for taxable years beginning after December 31, 2010, for 2 consecutive taxable years beginning with the taxable year in which the partnership's or limited liability company's business locates to this state from another state or another country and begins doing business in this state, as defined in s. 71.22 (1r), and subject to the limitations provided under subd. 47. d. and e., the partner's or member's distributive share of taxable income as calculated under section 703 of the Internal Revenue Code; plus the items of income and gain under section 702 of the Internal Revenue Code, including taxable state and municipal bond interest and excluding nontaxable interest income or dividend income from federal government obligations; minus the items of loss and deduction under section 702 of the Internal Revenue Code, except items that are not deductible under s. 71.21; plus guaranteed payments to partners under section 707 (c) of the Internal Revenue Code; plus the credits claimed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (2dy), (3g), (3h), (3n), (3p), (3q), (3r), (3rm), (3rn), (3s), (3t), (3w), (5e), (5f), (5g), (5h), (5i), (5j), (5k), (5r), (5rm), and (8r); and plus or minus, as appropriate, transitional adjustments, depreciation differences, and basis differences under s. 71.05 (13), (15), (16), (17), and (19), multiplied by the apportionment fraction determined in s. 71.04 (4) and subject to s. 71.04 (7) or by separate accounting. No amounts subtracted under this subd. 47. b. may be included in the modification under par. (b) 9. or 9m.

AB637, s. 7 Section 7. 71.05 (6) (b) 47. c. of the statutes, as created by 2011 Wisconsin Act 3, is amended to read:

AB637,7,18 71.05 (6) (b) 47. c. With respect to shareholders of a tax-option corporation, for taxable years beginning after December 31, 2010, for 2 consecutive taxable years beginning with the taxable year in which the tax-option corporation's business locates to this state from another state or another country and begins doing business in this state, as defined in s. 71.22 (1r), and subject to the limitations provided under subd. 47. d. and e., the shareholder's distributive share of the entity's net income or loss as determined under this chapter, including interest income from federal, state, and municipal government obligations, multiplied by the apportionment fraction determined in s. 71.25 (6m) and subject to s. 71.25 (9) or by separate accounting. No amounts subtracted under this subdivision may be included in the modification under par. (b) 9. or 9m.

AB637, s. 8 Section 8. 71.05 (8) (b) of the statutes, as affected by 2011 Wisconsin Act 32, is amended to read:

AB637,8,8 71.05 (8) (b) A Wisconsin net operating loss may be carried forward against Wisconsin taxable incomes of the next 15 taxable years, if the taxpayer was subject to taxation under this chapter in the taxable year in which the loss was sustained, to the extent not offset against other income of the year of loss and to the extent not offset against Wisconsin modified taxable income of any year between the loss year and the taxable year for which the loss carry-forward is claimed. In this paragraph, "Wisconsin modified taxable income" means Wisconsin taxable income with the following exceptions: a net operating loss deduction or offset for the loss year or any taxable year thereafter is not allowed, the deduction for long-term capital gains under subs. (6) (b) 9. and 9m. and (25) is not allowed, the amount deductible for losses from sales or exchanges of capital assets may not exceed the amount includable in income for gains from sales or exchanges of capital assets and "Wisconsin modified taxable income" may not be less than zero.

AB637, s. 9 Section 9. 71.05 (25) (b) (intro.) of the statutes, as created by 2011 Wisconsin Act 32, is amended to read:

AB637,8,15 71.05 (25) (b) (intro.) For taxable years beginning after December 31, 2015, for a Wisconsin capital asset that is purchased after December 31, 2010, and held for at least 5 years, a claimant may subtract from federal adjusted gross income the lesser of one of the following amounts, to the extent that it is not subtracted under sub. (6) (b) 9. or 9m.:

AB637, s. 10 Section 10. 71.06 (1p) (e) of the statutes is amended to read:

AB637,8,18 71.06 (1p) (e) On all taxable income exceeding $225,000 but not exceeding $1,000,000, 7.75 percent.

AB637, s. 11 Section 11. 71.06 (1p) (f) of the statutes is created to read:

AB637,8,20 71.06 (1p) (f) On all taxable income exceeding $1,000,000, 8.75 percent.

AB637, s. 12 Section 12. 71.06 (2) (g) 5. of the statutes is amended to read:

AB637,8,23 71.06 (2) (g) 5. On all taxable income exceeding $300,000 but not exceeding $1,000,000, 7.75 percent.

AB637, s. 13 Section 13. 71.06 (2) (g) 6. of the statutes is created to read:

AB637,8,25 71.06 (2) (g) 6. On all taxable income exceeding $1,000,000, 8.75 percent.

AB637, s. 14 Section 14. 71.06 (2) (h) 5. of the statutes is amended to read:

AB637,9,3 71.06 (2) (h) 5. On all taxable income exceeding $150,000 but not exceeding $500,000, 7.75 percent.

AB637, s. 15 Section 15. 71.06 (2) (h) 6. of the statutes is created to read:

AB637,9,5 71.06 (2) (h) 6. On all taxable income exceeding $500,000, 8.75 percent.

AB637, s. 16 Section 16. 71.06 (2e) (b) of the statutes is amended to read:

AB637,9,23 71.06 (2e) (b) For taxable years beginning after December 31, 2009, the maximum dollar amount in each tax bracket, and the corresponding minimum dollar amount in the next bracket, under subs. (1p) (d) and (e) and (2) (g) 4. and 5. and (h) 4. and 5., and the dollar amount in the top bracket under subs. (1p) (e) (f) and (2) (g) 5. 6. and (h) 5. 6., shall be increased each year by a percentage equal to the percentage change between the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August of the previous year and the U.S. consumer price index for all urban consumers, U.S. city average, for the month of August 2008, as determined by the federal department of labor, except that for taxable years beginning after December 31, 2011, the adjustment may occur only if the resulting amount is greater than the corresponding amount that was calculated for the previous year. Each amount that is revised under this paragraph shall be rounded to the nearest multiple of $10 if the revised amount is not a multiple of $10 or, if the revised amount is a multiple of $5, such an amount shall be increased to the next higher multiple of $10. The department of revenue shall annually adjust the changes in dollar amounts required under this paragraph and incorporate the changes into the income tax forms and instructions.

AB637, s. 17 Section 17. 71.07 (5n) of the statutes, as created by 2011 Wisconsin Act 32, is repealed.

AB637, s. 18 Section 18. 71.07 (9e) (af) (intro.) of the statutes, as affected by 2011 Wisconsin Act 32, is amended to read:

AB637,10,7 71.07 (9e) (af) (intro.) For taxable years beginning after December 31, 1995, and before January 1, 2011, any natural person may credit against the tax imposed under s. 71.02 an amount equal to one of the following percentages of the federal basic earned income credit for which the person is eligible for the taxable year under section 32 (b) (1) (A) to (C) of the Internal Revenue Code:

AB637, s. 19 Section 19. 71.07 (9e) (aj) of the statutes, as created by 2011 Wisconsin Act 32, is repealed.

AB637, s. 20 Section 20. 71.09 (11) (f) of the statutes is amended to read:

AB637,10,14 71.09 (11) (f) The taxpayer has underpaid the taxpayer's estimated taxes due to the change in brackets under s. 71.06 (1p) (e) or (f) and (2) (g) 5. or 6. and (h) 5. or 6. This paragraph applies only in the first taxable year to which these bracket changes apply.

AB637, s. 21 Section 21. 71.10 (4) (cr) of the statutes, as created by 2011 Wisconsin Act 32, is repealed.

AB637, s. 22 Section 22. 71.21 (4) of the statutes, as affected by 2011 Wisconsin Act 32, is amended to read:

AB637,10,22 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2ds), (2dx), (2dy), (3g), (3h), (3n), (3p), (3q), (3r), (3rm), (3rn), (3s), (3t), (3w), (5e), (5f), (5g), (5h), (5i), (5j), (5k), (5n), (5r), (5rm), and (8r) and passed through to partners shall be added to the partnership's income.

AB637, s. 23 Section 23. 71.255 (2m) (d) of the statutes, as affected by 2011 Wisconsin Act 32, is amended to read: