Joint Finance Committee Passes Major State Income Tax Reform
By Tom Larson
As part of the 2013-15 state budget, the Wisconsin Legislature’s Joint Finance Committee recently passed a major tax reform package that includes one of the biggest income tax cuts in our state’s history. The tax reform package includes approximately $651 million in income tax cuts (over two years), a reduction in the number of income tax brackets from five to four, the elimination of numerous tax credits, and the removal of inconsistencies between the state and federal tax codes. These changes are intended to reduce the tax burden for Wisconsinites, simplify Wisconsin’s tax code and make Wisconsin more attractive for job growth and economic development.
As part of his 2013-15 state budget, Governor Walker proposed cutting state income taxes by $343 million through, among other things, lowering the income tax rate in Wisconsin’s three lowest tax brackets. However, Rep. Dale Kooyenga (R-Brookfield) and other members of the legislature’s Joint Finance Committee wanted to cut income taxes even further, and eventually passed an income tax reform package that cut taxes by $651 million, almost doubling the tax cuts proposed by Governor Walker.
The tax reform proposal includes the following changes to Wisconsin’s income tax code, and several changes to the law affecting property taxes and fees:
+ Income tax brackets and rates – 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.
The tax reform package, along with other provisions in the state budget, will first be considered by the state Assembly, and then the state Senate before going back to Governor Walker for final consideration. To become law, both houses and the governor will have to agree on the various provisions in the tax reform package.
Income tax cuts and the federalization of Wisconsin’s tax treatment of depreciation and capital losses are top legislative priorities for NAIOP-WI this year. Accordingly, NAIOP-WI will continue to lawmakers to enact this tax reform package into law.