SB970: Bill Text

LRB-4262/1

KP:amn

2023 - 2024 LEGISLATURE

2023 Senate BILL 970

January 26, 2024 - Introduced by Senator Testin, cosponsored by Representatives Moses, Allen, O'Connor and Schmidt. Referred to Committee on Universities and Revenue.

SB970,1,5 An Act to amend 71.05 (6) (a) 15., 71.10 (4) (i), 71.21 (4) (a), 71.26 (2) (a) 4., 71.30 (3) (f), 71.34 (1k) (g), 71.45 (2) (a) 10. and 71.49 (1) (f); and to create 20.835 (2) (de), 71.07 (11), 71.28 (11), 71.47 (11), 71.748 and 73.03 (78) of the statutes; relating to: creating a digital interactive media tax credit, granting rule-making authority, and making an appropriation.

Analysis by the Legislative Reference Bureau

This bill creates a refundable digital interactive media income and franchise tax credit. The credit is equal to the sum of the following 1) 30 percent of the salary or wages paid by a claimant to employees residing in this state for producing digital interactive media or entertainment; and 2) 30 percent of the eligible expenditures. Under the bill, “digital interactive media or entertainment” is generally a product or platform intended for commercial use that uses text, sound, fixed images, animated images, video, or three-dimensional geometry and that uses a system in which users are able to input information or data in response to the information or data provided through the system. “Digital interactive media or entertainment” does not include largely static Internet sites, social media, and gambling products or services. The bill also defines “eligible expenditures” as expenditures related to creating digital interactive media or entertainment, such as testing, source code development, and leases of facilities and equipment. The credit under the bill is refundable, which means that if the credit exceeds the claimant's tax liability, the claimant will receive the difference as a refund check.

To claim the credit for a taxable year, a person must file an application with the Department of Revenue and receive a certificate of eligibility for the credit. To grant a certificate, DOR must determine that the applicant will have at least $25,000 in eligible expenditures in the taxable year, and DOR, or an auditor certified by DOR, must conduct an audit of the applicant. The bill requires auditors to comply with various requirements in conducting the audits, including using sampling methods adopted by DOR and verifying each expenditure covered by the audit. Applicants must reimburse DOR for its costs related to the audits. DOR must also certify as eligible to conduct those audits certified public accountants who submit an application and satisfy various requirements under the bill. Every two years, DOR must submit a report to the governor and standing committees of the legislature related to taxation that includes the number of applications approved for the credit, the amount of credits claimed, the number of people employed in the state in the industries eligible for the credit, the economic impact of the credit, and the community impact of the industries eligible for the credit.

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:

SB970,1 Section 1. 20.835 (2) (de) of the statutes is created to read:

SB970,2,3 20.835 (2) (de) Digital interactive media credit. A sum sufficient to make the payments under ss. 71.07 (11), 71.28 (11), and 71.47 (11).

SB970,2 Section 2. 71.05 (6) (a) 15. of the statutes is amended to read:

SB970,2,10 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dm), (2dx), (2dy), (3g), (3h), (3n), (3q), (3s), (3t), (3w), (3wm), (3y), (4k), (4n), (5e), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (11) 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).

SB970,3 Section 3. 71.07 (11) of the statutes is created to read:

SB970,2,13 71.07 (11) Digital interactive media credit. (a) Definitions. In this subsection:

SB970,3,6 1. “Claimant” means a person who engages in qualified activities, owns a copyright in digital interactive media or entertainment or has contracted directly with the copyright owner or a person acting on behalf of the copyright owner, has a viable plan for the commercial distribution of the digital interactive media or entertainment, as determined by the department, and files a claim under this subsection.

SB970,3,9 2. “Digital interactive media or entertainment” means a product or platform intended for commercial production, use, or distribution, that has primarily an entertainment purpose, and that satisfies all of the following:

SB970,3,11 a. Contains at least 2 of the following types of data: text, sound, fixed images, animated images, video, or 3-dimensional geometry.

SB970,3,14 b. Uses discrete values that are ordinarily symbolized numerically to represent information for input, processing, transmission, and storage, including information input, processed, transmitted, and stored via the Internet.

SB970,3,18 c. Uses a system for inputting, processing, transmitting, or storing information or data in which users of the system are able to respond to the system by inputting, processing, transmitting, or storing information or data in response to the information or data provided to them through the system.

SB970,3,22 d. Uses communication tools to store, transmit, distribute, and deliver information and data, including distributed networks such as the Internet and physical media such as compact discs, CD-ROM, DVD, and other removable storage drives or devices.

SB970,3,24 3. “Digital interactive media or entertainment” does not include any of the following:

SB970,4,2 a. Software designed and developed primarily for the internal or operational purposes of an entity.

SB970,4,6 b. Largely static Internet sites designed primarily to provide information about a person, business, company, or firm, including Internet sites that are primarily social media, user generated videos, podcasting, interactive advertising, or journalism.

SB970,4,8 c. Products or services regulated under chs. 562 to 569 or any software or application primarily involving gambling or wagering.

SB970,4,9 d. Software or applications that contain content in violation of s. 944.21.

SB970,4,12 4. “Eligible expenditures” means expenditures in this state directly related to qualified activities and that have economic substance and a business purpose, including all of the following:

SB970,4,16 a. Testing software, source code development, patches, updates, sprites, 3-dimensional models, engine development and other back-end programming activities, performance and motion capture, audio production, tool development, original scoring, and level design.

SB970,4,17 b. Photography, sound synchronization, lighting, and related services.

SB970,4,19 c. Information technology support, data analysis, and activities related to a community of users of digital interactive media or entertainment.

SB970,4,20 d. Leases of facilities and equipment.

SB970,4,21 e. Prepackaged audio files, video files, photographic files, or libraries.

SB970,4,22 f. Licenses to use prerecorded audio files, video files, or photographic files.

SB970,4,24 g. Development associated with producing audio files and video files used in the production of end products of digital interactive media or entertainment.

SB970,5,2 h. Accountants and lawyers whose work is directly related to qualified activities and who are licensed or otherwise authorized to practice in this state.

SB970,5,3 5. “Eligible expenditures” does not include any of the following:

SB970,5,4 a. Expenditures related to marketing, promotion, or distribution.

SB970,5,6 b. Administrative, payroll, or management services that are not directly related to management of qualified activities.

SB970,5,7 c. Any expenditure that is later reimbursed by the state.

SB970,5,8 d. Costs related to the transfer of tax credits.

SB970,5,10 e. Amounts that are paid to persons as a result of their participation in profits from a digital interactive media or entertainment production.

SB970,5,11 f. Any reimbursement required under s. 71.748 (2).

SB970,5,12 g. Interest expenses for loans.

SB970,5,14 h. Any expenditure incurred solely to increase the amount of the credit under this subsection and that involves self-dealing or the claimant inflating prices.

SB970,5,16 i. Costs incurred for food or entertainment expenses not involved in qualified activities.

SB970,5,18 6. “Qualified activities” means creating digital interactive media or entertainment, including updates, subsequent editions, new seasons, and sequels.

SB970,5,21 (b) Filing claims. Subject to the limitations provided in this subsection, for taxable years beginning after December 31, 2023, a claimant may claim as a credit against the tax imposed under s. 71.02 any of the following amounts:

SB970,5,25 1. An amount equal to 30 percent of the salary or wages paid by the claimant in the taxable year to the claimant's employees who were residents of this state at the time that they were paid for services rendered in this state to produce digital interactive media or entertainment.

SB970,6,2 2. An amount equal to 30 percent of the eligible expenditures, other than salary or wages described in subd. 1., paid by the claimant in the taxable year.

SB970,6,6 (c) Limitations. 1. No credit may be allowed under this subsection unless the claimant files an application with the department, at the time and in the manner prescribed by the department, and the department approves the application. The claimant shall submit a copy of the approved application with the claimant's return.

SB970,6,14 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 under par. (b). 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 interest.

SB970,6,16 (d) Administration. 1. Section 71.28 (4) (e), (g), and (h), as it applies to the credit under s. 71.28 (4), applies to the credits under this subsection.

SB970,6,21 2. If the allowable amount of the claim under par. (b) exceeds the tax otherwise due under this chapter or no tax is due under this chapter, the amount of the claim not used to offset the tax due 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 account under s. 20.835 (2) (de).

SB970,4 Section 4. 71.10 (4) (i) of the statutes is amended to read:

SB970,7,6 71.10 (4) (i) The total of claim of right credit under s. 71.07 (1), farmland preservation credit under ss. 71.57 to 71.61, farmland preservation credit, 2010 and beyond under s. 71.613, homestead credit under subch. VIII, jobs tax credit under s. 71.07 (3q), business development credit under s. 71.07 (3y), research credit under s. 71.07 (4k) (e) 2. a., veterans and surviving spouses property tax credit under s. 71.07 (6e), enterprise zone jobs credit under s. 71.07 (3w), electronics and information technology manufacturing zone credit under s. 71.07 (3wm), earned income tax credit under s. 71.07 (9e), digital interactive media credit under s. 71.07 (11), estimated tax payments under s. 71.09, and taxes withheld under subch. X.

SB970,5 Section 5. 71.21 (4) (a) of the statutes is amended to read:

SB970,7,11 71.21 (4) (a) The amount of the credits computed by a partnership under s. 71.07 (2dm), (2dx), (2dy), (3g), (3h), (3n), (3q), (3s), (3t), (3w), (3wm), (3y), (4k), (4n), (5e), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (11) and passed through to partners shall be added to the partnership's income.

SB970,6 Section 6. 71.26 (2) (a) 4. of the statutes is amended to read:

SB970,7,18 71.26 (2) (a) 4. Plus the amount of the credit computed under s. 71.28 (1dm), (1dx), (1dy), (3g), (3h), (3n), (3q), (3t), (3w), (3wm), (3y), (5e), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (11) 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 (1k) (g).

SB970,7 Section 7. 71.28 (11) of the statutes is created to read:

SB970,7,21 71.28 (11) Digital interactive media credit. (a) Definitions. In this subsection:

SB970,8,2 1. “Claimant” means a person who engages in qualified activities, owns a copyright in digital interactive media or entertainment or has contracted directly with the copyright owner or a person acting on behalf of the copyright owner, has a viable plan for the commercial distribution of the digital interactive media or entertainment, as determined by the department, and files a claim under this subsection.

SB970,8,5 2. “Digital interactive media or entertainment” means a product or platform intended for commercial production, use, or distribution, that has primarily an entertainment purpose, and that satisfies all of the following:

SB970,8,7 a. Contains at least 2 of the following types of data: text, sound, fixed images, animated images, video, or 3-dimensional geometry.

SB970,8,10 b. Uses discrete values that are ordinarily symbolized numerically to represent information for input, processing, transmission, and storage, including information input, processed, transmitted, and stored via the Internet.

SB970,8,14 c. Uses a system for inputting, processing, transmitting, or storing information or data in which users of the system are able to respond to the system by inputting, processing, transmitting, or storing information or data in response to the information or data provided to them through the system.

SB970,8,18 d. Uses communication tools to store, transmit, distribute, and deliver information and data, including distributed networks such as the Internet and physical media such as compact discs, CD-ROM, DVD, and other removable storage drives or devices.

SB970,8,20 3. “Digital interactive media or entertainment” does not include any of the following:

SB970,8,22 a. Software designed and developed primarily for the internal or operational purposes of an entity.

SB970,9,2 b. Largely static Internet sites designed primarily to provide information about a person, business, company, or firm, including Internet sites that are primarily social media, user generated videos, podcasting, interactive advertising, or journalism.

SB970,9,4 c. Products or services regulated under chs. 562 to 569 or any software or application primarily involving gambling or wagering.