State Budget Includes Numerous Changes Impacting Commercial Development Industry
On June 30, 2016, Governor Walker signed the 2013-15 state budget (2013 Wisconsin Act 20) into law. The state budget consists primarily of approximately $70 billion in financial obligations and funding initiatives for k-12 schools, the UW System, Medicaid, and transportation infrastructure. However, NAIOP-WI worked with Governor Walker and lawmakers to includes several other important provisions in the budget that will benefit the commercial development industry including the following:.
Property taxes – Maintains the property tax freeze by limiting increases to local levies to 0.9% or the cost of new construction, whichever is higher. In addition, local governments may exceed the levy limits if approved through local referendum.
Local fees — Requires all revenue generated from local fees to be counted towards the levy limit which will discourage local communities from shifting funding for services from the property tax to local fees.
Income tax cuts – Cuts personal income taxes by $651 million, reduces the number of income tax brackets from five to four and reduces the tax rate in each of the tax brackets.
|Taxable Income||Current Law||Tax Reform Changes|
|Up to $14,510||4.6%||4.4%|
|$14,510 to $29,020||6.15%||5.84%|
|$29,020 to $217,630||6.50%||6.27%|
|$217,630 to $319,460||6.75%||6.27%|
|$319,460 and over||7.75%||7.65%|
Depreciation — Makes Wisconsin’s depreciation laws consistent with federal law. While the federal tax code and Wisconsin tax code generally treat the depreciation of commercial property the same, the federal code currently allows bonus depreciation (50% of qualified leasehold improvements) in the year the improvements are placed into service. (Note – the federal bonus depreciation is set to expire on January 1, 2014.)
Capital losses – Makes Wisconsin’s treatment of capital losses consistent with federal law. Wisconsin currently limits the amount of capital losses (the loss that is realized when real estate/asset is sold) that may be used to offset ordinary income to $500 annually. Unused losses may be carried forward and used in future years without limit until used up. Federal law allows up to $3000 in capital losses to be deducted annually, and allows any unused losses to be carried forward until used up.
Historic preservation tax credits – Increases Wisconsin’s tax credit for historic rehabilitation credits from 5% to 10% of the improvements made to rehabilitate certified historic structures.
Appeal of municipal fees — Allows property owners to appeal the reasonableness of local fees to the Tax Appeals Commission and shifts the burden of proof to the municipality to show that the fees are reasonable. Municipalities and counties are allowed to charge fees for a variety of services, and the cost of such fees may not exceed the actual cost to provide those services. Currently, any appeal regarding such fees must be made to the municipality, where the fees are presumed to be reasonable. Thirty days after the appeal to the municipality, the property owner may appeal to circuit court.
State Budget Includes New Changes tor Commercial Construction Erosion Control Permits
As part of the 2013-15 biennial state budget, Governor Walker signed into law some significant changes to the commercial construction erosion control permitting program. Among other things, these new changes will transfer oversight authority from the Department of Safety and Professional Services (DSPS) to the Department of Natural Resources (DNR) and will direct the DNR to develop new statewide uniform standards to create greater consistency and predictability for the commercial development community.
The state transferred authority over the permitting program from DSPS to DNR to comply with a federal Environmental Protection Agency (EPA) requirement stating that all commercial construction sites above 1 acre must be regulated by EPA and the environmental agency of each state (i.e., the DNR).
While this transfer of authority may have brought the state in compliance with federal EPA requirements, the commercial development industry had concerns about giving the DNR new oversight authority over commercial construction permits because of the broad discretionary authority that the DNR often has over other permitting programs and the uncertainty that often results for permit applicants. Moreover, in many cases, even if the DNR standards are reasonable, local units of government will have the authority to develop more restrictive standards at the local level. If each community has their own standards, compliance with these standards becomes more time consuming and expensive.
Accordingly, NAIOP-WI and other groups representing commercial construction interests pursued changes to the permitting program to address these concerns and were able to have these changes included in the state budget. The primary change will require the erosion control permitting standards to be statewide standards, rather than minimum standards. In addition, statewide standards will be developed for managing the water quality aspects related to stormwater. This will prohibit local communities from developing their own individual standards for erosion control and stormwater quality related to larger commercial projects, which means greater certainty for the commercial development community
These new changes went into effect beginning July 2, 2013.