Given the fact that we are approaching the tax deadline and that Governor Doyle's 2009-11 biennial budget includes a few important tax changes, I thought it would be worthwhile to summarize the tax climate in Wisconsin.
I admittedly did not read the entire budget bill or the budget adjustment bill, but I have reviewed portions of them and I have reviewed various summaries prepared by reputable people. It is beyond the scope of this blog post to launch into a full scale critique of the budget bill, so instead I have decided to focus on the tax related issues at a relatively high level, including the High Earner Tax Bracket, Wisconsin Capital Gains Tax and Combined Reporting. I have also provided a link to a post from The Tax Foundation that provides an overview of taxes in Wisconsin.
Wisconsin 2009-11 Budget
High Earner Tax Bracket
Governor Doyle's budget includes a proposed additional 1% tax rate on individual income in excess of $300,000 for joint filers and $225,000 for individual filers. The Individual income tax is applied to net income from the following business entities: sole proprietorships, partnerships, tax options (S) corporations and limited liability companies ("LLCs"). This will bring Wisconsin top income tax bracket to 7.75%.
Wisconsin Capital Gains Tax
The budget aims to reduce the amount capital gains income that is exempt from Wisconsin income taxes. It is important to remember that Wisconsin applies its normal income tax rate to capital gains. This differs from the federal government approach, which treats capital gains separately at lower tax rates. The proposal includes a reduction in the capital gains exemption from 60% to 40%. The Governor's office has felt it important to point out that the top 5% of earners in the state would receive approximately 78% of the benefit of the capital gains exemption. The top 1% earners would recieve 57% of the exemption benefit. Therefore, the cost of lowering the exemption will be borne by the state's top earners.
Combined Reporting
There are currently 20 states that require combined reporting. The Governor's office projects that 13% of corporations in Wisconsin will be affected by combined reporting. Combined reporting is a legal requirement that all related corporations that are operated as a single business enterprise, any part of which is being conducted in the state, be treated as a single taxpayer for apportionment purposes. Governor Doyle also made sure that Wisconsin implemented the single sales factor apportionment formula, which will be used to calculate the percentage of a corporation's combined reporting income is properly apportioned to Wisconsin. The corporation will then be taxed on that amount.
As mentioned above, I have provided the following link to an article from The Tax Foundation titled, The Facts on Wisconsin's Tax Climate. This articles provides an overview/summary along with national rankings in different tax cateqories for the periods of the 2008 through 2009.
