On September 21, 2017, Governor Scott Walker signed Wisconsin Act 59 (Act 59) into law, providing for the State's 2017-19 biennial budget. The budget was delayed by over two months and was originally due by July 1, 2017. The effective date for most of the tax provisions in Act 59 is September 23, 2017. A number of the significant corporate income/franchise tax-related provisions are summarized below.

Income and franchise taxes

IRC conformity

Effective for tax years beginning after December 31, 2016, Wisconsin's date of conformity to the Internal Revenue Code is updated from December 31, 2013 to December 31, 2016, while expressly decoupling from certain provisions. One notable decoupling provision is that Wisconsin expressly excludes itself from the recent changes due to the enactment of the new federal partnership audit rules.

Apportionment

Act 59 modifies income sourcing (apportionment) rules for tax years beginning on or after January 1, 2017. Under former law, gross receipts from services were sourced to Wisconsin if the purchaser of the service received the benefit of the service in Wisconsin. Under the revised provisions, the benefit of the service is received in Wisconsin if the service relates to tangible personal property delivered directly or indirectly to Wisconsin customers. (Under prior law, the benefit was determined to be in Wisconsin if the service related to tangible personal property located in Wisconsin at the time the service was received.) The benefit of the service is now deemed to be in Wisconsin if the service is purchased by an individual who is physically present in Wisconsin at the time the service was provided. (Under prior law, this provision only applied if the service was provided to an individual.)

New sourcing rules for broadcasters apply to tax years beginning on or after January 1, 2019. The new rules provide that a broadcaster's gross receipts from advertising will be in Wisconsin only if the advertiser's commercial domicile is located in the state. If the broadcaster is a member of a combined group, this provision does not apply to members that are not broadcasters.

Net operating losses

Act 59 provides that net operating losses (NOLs) are not allowed unless the incurred loss was computed on a return filed within four years of the unextended due date for filing the original return for the tax year in which the loss was incurred. In addition, an NOL carryback will not be allowed unless claimed within four years of the unextended due date for filing the original return for the tax year to which the loss is carried back. These changes to the NOL rules first apply to losses claimed on or after September 23, 2017, regardless of the year in which they were incurred.

Alternative minimum tax

Effective for tax years beginning after 2018, the alternative minimum tax (AMT) is eliminated for individual income tax purposes.

Credits and incentives

For tax years beginning after 2017, the research tax credit becomes partially refundable in an amount not to exceed 10% of the allowable amount of the credit claimed for that tax year. The statute does not specifically define what "credit claimed" means, raising the question of whether the potentially refundable credit would include credits carried forward from prior years into 2018 or credits computed for 2018 and forward. Based on legislative commentary supporting Act 59, it appears that only those research credits earned in the tax year will be 10% refundable, with a 15-year carryforward for the 90% nonrefundable portion. The Wisconsin Department of Revenue is expected to issue regulations on this subject that may provide more clarity.

Other items

Act 59 exempts machinery, tools and patterns (not including items considered manufacturing property under current law) from the personal property tax effective for property assessed as of January 1, 2018. Act 59 also eliminates the state portion (forest mill tax) of the property tax beginning in 2017.

Finally, Act 59 makes several changes to Wisconsin's sales/use tax laws, including the following:

— Effective December 1, 2017, tractors, machines and other items (including drugs used on bees) used exclusively and directly in beekeeping are exempt from sales/use tax.

— The sales tax exemption for building materials for local government or certain nonprofit facilities is expanded for contracts entered on July 1, 2018, or thereafter, to include a technical college district, the University of Wisconsin System or the University of Wisconsin-Extension.

— Effective December 1, 2017, the lump-sum sales contract exemption, which applies if the total sales price of taxable products is less than 10% of the total contract price, is expanded to all construction contracts involving real property construction activities.

— The occasional sale exemption threshold increases from $1,000 to $2,000 per year, effective January 1, 2018.

— The effective date of bad debt provisions for private label credit cards is delayed to July 1, 2018.

Implications

Taxpayers should review the corporate income tax changes and determine whether these changes affect their ability to utilize certain NOLs. Further, updating the state's date of conformity to the IRC may result in Wisconsin now coupling to federal law changes it previously had not.

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