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April 4, 2024

Wisconsin Department of Revenue adopts rules on commercial loan income exemption for financial institutions

Wisconsin Governor Tommy Evers approved an emergency administrative rule (Wis. Admin. Code 3.10) on March 7, 2024, clarifying what income from certain commercial and agricultural loans qualifies for a tax exemption enacted in 2023.1

For tax years beginning after December 31, 2022, Wis. Stat. 71.26(l)(i), 71.05(l)(i) permits financial institutions to exclude from their income interest, fees, and penalties from a commercial loan of $5 million or less that they provide to a Wisconsin resident primarily for business or agricultural purposes. The emergency rule further defines statutory terms, outlines the Wisconsin Department of Revenue's interpretation of the $5 million limitation, and prescribes record-keeping requirements.


Wis. Admin. Code 3.10(2) defines several key terms in the statute:

  • A "financial institution" is defined by reference to Wis. Stat. 69.30(1)(b), which includes banks, savings banks, savings and loan associations, or credit unions that are not exempt from Wisconsin income tax.
  • "Income" is defined as "all income, including interest, fees, and penalties derived from a commercial loan [, but] does not include income derived from persons other than the borrower of the commercial loan, including income derived from the sale of a commercial loan or income derived from another financial institution for a loan participation agreement."
  • A "commercial loan"2 is defined as a loan that is issued to a borrower and primarily used for a business or agricultural purpose in Wisconsin. The rule further defines "primarily" to mean that at least 75% of the loan is used for a business or agricultural purpose in Wisconsin.
  • "Business purpose" means "activities undertaken for an industrial, commercial, or professional purpose." The term does not include the following:
    • Investment in stocks, bonds, and other securities or ownership interests in entities including the borrower's own stock or ownership interests, unless such assets are regularly held for sale in a trade or business.
    • Personal or consumer expenditures.
    • The purchase, expansion, or improvement by an owner of a one-to-four-unit residential facility if such owner or their parent or child uses all or a portion of the facility as their personal residence.
    • Activities conducted by any unit of government or any agency or instrumentality of one or more units of government.
    • Activities conducted by nonprofit organizations, unless: (1) the commercial loan proceeds are used in this state for activities in which the nonprofit organization reports unrelated business taxable income on Form 990-T to the federal department of the treasury; or (2) the nonprofit organization has over 50 full-time employees in the calendar year immediately preceding the calendar year in which the commercial loan is issued, and the loan proceeds are used in this state for activities regularly conducted by such employees.
  • "Agricultural purpose" means the preparation of plant or animal products for use in a business or for sale or distribution to markets. An "agricultural purpose" includes agriculture, horticulture, viticulture, dairy, livestock, poultry, bees, forest products, fish and shellfish, and all products raised or produced on farms, but does not include fishing preserves, or recreational or personal uses.

Applying the $5 million limitation

The rule uses the original loan obligation to determine the $5 million limitation. For secured open-ended lines of credit, secured revolving credit plans, and letters of credit, the maximum credit available to the borrower determines the $5 million limitation. Costs and fees rolled into the loan will also be included as part of the original loan. Charge-offs or amounts not expected to be recoverable from a borrower will not serve to reduce the original loan.

Refinanced commercial loans will be considered new original loans, with the refinanced loan documentation used to determine the limitation.

A commercial loan with an original obligation over $5 million to a single borrower will not qualify for the exemption even if that loan is sold, in whole or in part, to another financial institution for $5 million or less. Financial institutions that acquire a commercial loan through a purchase, assignment, or participation agreement cannot exempt income if the original loan obligation exceeded $5 million.

If one or multiple financial institutions enter a loan syndication with multiple financial institutions originating the loans, the total loan provided to the borrower will determine the original loan obligation, not each financial institution's portion of the syndicated loan. If the original loan obligation is $5 million or less, each financial institution will qualify for the exemption according to its proportional interest in the syndicated loan.

A financial institution may not execute multiple separate commercial loan agreements of $5 million or less for a borrower seeking a loan over $5 million (including the refinancing of a single loan into separate loans). However, a financial institution may issue multiple qualifying loans to the same borrower if each loan is obtained for a different use or qualifying purpose. Commercial loans over $5 million will not qualify for the exemption, even when the portion of the loan used within Wisconsin for qualified purposes is less than $5 million.


The rule requires financial institutions to keep electronic records, in an "easily accessible and usable form," to substantiate the exemption for each loan. Data must be able to be queried for the following elements: borrower name, borrower state or residence, loan identification number, name or originating underwriter of the loan (if someone other than the financial institution), loan origination date, original loan obligation amount (including costs and fees rolled into the loan), and a detailed description of the purpose(s) of the loan and where the proceeds will be used. The rule requires the loan records to be retained for tax years open under the statute of limitations.


The administrative rule provides more clarity around how the Wisconsin Department of Revenue will apply this new exclusion. Taxpayers should take note of the 75% exempt purpose requirement, as some may have believed "primarily" would mean more than 50%. Taxpayers should also take steps to comply with the recordkeeping requirements to minimize the risk of the exemption being denied for want of documentation.

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1 Wis. Admin. Register No. 819A3, EmR2404 - Wis. Admin. Code 3.10 (March 18, 2024).

2 The rule provides that a "'loan' do[es] not include unsecured open-end lines of credit such as credit cards and other unsecured revolving credit plans and letters of credit; conversions; sales or leases or property; futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables … ; non-interest bearing balances; cash items in the process of collection; federal funds sold; securities purchased under a agreements to resell;, assets held in a trading accounts; securities; interests in a real estate mortgage investment conduit; or other mortgage-backed or asset-backed securit[ies]; and other similar items."

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Contact Information

For additional information concerning this Alert, please contact:

State and Local Taxation Group

Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor