A powerful income tax credit has been included in the state budget to encourage and strengthen manufacturing in Wisconsin.
The credit will be phased in over a period of four years beginning in 2013, and will virtually eliminate the tax on income derived from manufacturing activity in Wisconsin. It will effectively reduce the rate of tax on Wisconsin manufacturing income from 7.9 percent to 0.4 percent.
"This is great news for businesses with income derived from manufacturing in Wisconsin," commented Christine Dahlhauser, leader of Baker Tilly’s Wisconsin manufacturing team. "By reducing state tax on the production earnings of manufacturers, the new tax credit intends to fortify the manufacturing rebound in the state."
When fully phased in, the credit will be equal to 7.5 percent of the lesser of the following three amounts:
- The company’s qualified production activities income as determined under IRC Section 199(c) that is derived from the property assessed for Wisconsin property tax purposes as manufacturing or agricultural property;
- The company’s income that is apportioned to the state; or
- The company’s income that is determined to be taxable to Wisconsin under Wisconsin combined reporting rules.
"The credit can be taken against corporate income tax liability" said Bill Wong, tax partner in Baker Tilly’s Milwaukee office. "For partnerships, LLCs or tax-option corporations, the credit can be taken against personal income tax liability of partners, members or shareholders in proportion to their ownership interests."
The credit will be phased in as follows:
- 1.875% for tax years beginning after December 31, 2012, and before January 1, 2014;
- 3.75% for tax years beginning after December 31, 2013, and before January 1, 2015;
- 5.526% for tax years beginning after December 31, 2014, and before January 1, 2016;
- 7.5% for tax years beginning after December 31, 2015, and thereafter.
Unused tax credit amounts could be carried forward up to 15 years to offset future tax liabilities.
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