As we first reported last year, the Wisconsin Manufacturing and Agriculture Credit is available for taxable years that begin on or after January 1, 2013. The credit is available to an individual, estate, trust, partnership, LLC, or corporation for manufacturing and agricultural activities in Wisconsin. The credit can be claimed if the individual or entity owns or rents real property and improvements in Wisconsin, the property is assessed as manufacturing or agriculture property as defined under Wisconsin property tax statues, and it is used by the claimant to manufacture or to grow, produce, or extract in whole or in part tangible personal property.
Insurance companies cannot claim the credit. Pass through entities cannot claim the credit themselves; however, the credit can be passed through to the partners, members, or shareholders. Trusts and estates may also pass the credit through to their beneficiaries based on the income allocable to each.
The credit is calculated by multiplying “eligible qualified production activities income” by one of the following percentages:
- 1.875% for tax years beginning after December 31, 2012
- 3.75% for tax years beginning after December 31, 2013
- 5.526% for tax years beginning after December 31, 2014
- 7.5% for tax years beginning after December 31, 2015
Eligible qualified production activities income is the lesser of:
- Eligible qualified production activities income
- Income apportioned to Wisconsin, or
- Income taxable to Wisconsin as determined under combined reporting, if the corporation is a member of a Wisconsin combined group
Eligible qualified production activities income is calculated by multiplying the qualified production activities income from property manufactured or produced, grown, or extracted by the manufacturing or agriculture property factor. Qualified production activities income is defined as production gross receipts less cost of goods sold allocable to such receipts less direct costs allocable to such receipts less indirect costs multiplied by the production gross receipts factor.
Activities that do not qualify in calculating the credit are as follows:
- Constructing real property
- Engineering and architectural services
- Lease, rental, license, sale, exchange, or other disposition of land
- Sale of food and beverage prepared at a retail establishment
- Film production
- Producing, transmitting, or distributing electricity, natural gas, or potable water
The amount of the credit claimed is reported as income in the tax year immediately after the taxable year in which the credit is computed.
If the credit cannot entirely offset against Wisconsin income or franchise taxes, it may be carried forward up to fifteen years. The credit can only be used to offset the Wisconsin franchise or income tax due of the corporation that generated it. It cannot be shared with other members of a combined group.
This credit will be beneficial to many corporations as well as individuals who are members, partners, or shareholders of pass through entities. Currently the credit that is passed through to an individual who is a member, partner, or shareholder can be used to offset other income such as wages, dividends or interest. Also, the credit could provide more in tax credit than taxes owed as the Wisconsin individual income tax rate does not hit the maximum level until a taxpayer reaches $300,000 in income.
One of the challenges of the credit will be recordkeeping, as accounting for costs can become complex for multi-state taxpayers and taxpayers with eligible and non-eligible activities.
It is critical that the company’s property is properly classified as manufacturing or agricultural for property tax purposes to qualify for this credit. With some companies, some of their activities may qualify while other activities may not. These certain activities may not be apparent to business management or owners.
If you would like additional information regarding the credit or are seeking assistance to qualify activities as manufacturing or agricultural please contact your account director or Rebecca Smith at 800-236-2245.