February 23, 2021
Wisconsin Governor signs legislation updating state's IRC conformity and providing tax relief
On February 18, 2021, Wisconsin Governor Tony Evers signed Acts 1 (AB 2) and 2 (AB 3), which update the Internal Revenue Code (IRC) conformity for the state's income tax law along with other tax changes, some of which provide tax relief to Wisconsin taxpayers.
Wisconsin's state income tax law is tied to the IRC as it exists as of a specified date, a so-called static conformity state. In addition, the law decouples from various federal provisions. The latest conformity language, which is in new statutory subsection Wis. Stat. 71.22(4)(m), generally conforms Wisconsin's income tax law to the IRC as amended to December 31, 2020, effective for tax years beginning after December 31, 2020.1 Therefore, Wisconsin's income tax law does not conform to IRC amendments that were enacted after December 31, 2020, unless otherwise specified.2
Wisconsin does not conform to the following IRC amendments even though they were enacted before December 31, 2020:3
For tax years beginning after December 31, 2020, Wisconsin's income tax law conforms to the following federal provisions:
For tax years beginning after December 31, 2017 and before January 1, 2021, Wisconsin's income tax law generally conforms to the IRC as amended to December 31, 2017.5 This conformity includes the following IRC amendments:6
Taxpayers that already filed their Wisconsin income tax returns should consider amending those returns if they included expenses paid with PPP loan funds.
Exemption for certain Wisconsin grant programs
Wisconsin income tax will not apply to income received via the state from the coronavirus relief fund authorized under 42 USC 801 if that income is used for any of the following purposes:
Income from the foregoing programs is included in federal taxable income. The legislation provides for a subtraction adjustment on the appropriate line of the Wisconsin state tax return using the description "Wisconsin COVID-19 Program Funds." Expenses paid for with proceeds from these programs and deducted for federal income tax purposes do not have to be added back to compute Wisconsin taxable income.
Taxpayers that have already filed the Wisconsin state income tax returns should consider amending their returns if they have included the foregoing items in income.
Reporting final audit determinations
Under Wis. Stat. 71.76, Wisconsin extends from 90 to 180 days the deadline for reporting to the Wisconsin Department of Revenue any changes or corrections made to returns filed with the IRS. The new statute also applies the 180-day reporting deadline for any partnership adjustments as defined under IRC Sections 6241 and 6225 after a final determination by the IRS under the federal partnership audit program.
Tax-Option (S) corporations that elect to pay tax at the entity level
Wisconsin law allows tax-option (S) corporations to elect to be taxed at the entity level for tax years beginning on or after January 1, 2018. Partnerships may elect to be taxed at the entity level for tax years beginning on or after January 1, 2019.
Under AB 3, tax-option (S) corporations that make the entity-level tax election under Wis. Stat. 71.365(4m)(a) are entitled, or subject, to the following:
Modification to Wayfair nexus standard for remote sellers
On October 1, 2018, Wisconsin adopted a Wayfair nexus standard for remote sellers under its sales and use tax law. Under that standard, nexus is created if the remote seller met either of the following thresholds in the current or previous calendar year:
AB 2 eliminates the 200-or-more-transactions threshold.
The Wisconsin Department of Revenue is currently updating its tax forms and their instructions to reflect these legislative tax law changes and will be issuing additional guidance in the coming days on the foregoing provisions. Taxpayers that have already filed their Wisconsin state income tax returns should consider amending those returns if they included in income the items excluded by the new legislation.
1 See Wisconsin Tax Bulletin No. 212 (February 2021).
2 See id. 71.22(4)(m)3.
3 AB 2 repealed references to specified sections of the federal tax law (see, e.g., Wis. Stat. 71.22(4)(c) to (4)i). The historic coupling and decoupling referenced in those provisions have been moved to new Wis. Stat. 71.22(4)(m)2 and (m)3. This Tax Alert will focus on the more recent statutory coupling and decoupling to the IRC now codified in Wis. Stat. 71.22(4)(m)2 and (m)3.
4 Wis. Stat. 71.22(4)(m)4.
5 Wis. Stat. 71.22(4)(L)1.
6 Wis. Stat. 71.22(4)(L)3.