Brian Dake

(2017 Wisconsin Act 59)

In 1997, state lawmakers exempted computers, related equipment and software from the personal property tax. Four years later, cash registers and fax machines, except for fax machines that are also copiers, were exempted from Wisconsin’s personal property tax. These tax laws required the owners of exempt computers, cash registers and fax machines to annually report the value of this exempt property on their Statement of Personal Property.

2017 Wisconsin Act 59 repealed the requirement that owners of exempt computers, cash registers, and fax machines report the value of their property tax exempt computers, related equipment and software, cash registers and fax machines on their Statement of Personal Property.

(2017 Wisconsin Act 59)

Wisconsin is one of only six states to have an Alternative Minimum Tax (AMT) as a component of their tax code. The AMT is calculated by first determining alternative minimum taxable income (AMTI), subtracting any allowable exemption, and applying the AMT rate. The base for computing AMTI is regular taxable income, to which adjustments and tax preference items are added.

An exemption is provided to taxpayers with an AMTI below specified amounts. The exemptions vary by filing status and phase out as income rises. Finally, the taxpayer’s AMT liability is compared to the taxpayer’s regular tax liability. If the AMT liability exceeds the regular tax amount, an AMT is owed equal to the difference.

2017 Wisconsin Act 59 repeals Wisconsin’s AMT for taxable years beginning on or after January 1, 2019.

(2017 Wisconsin Act 59)

Wisconsin’s construction sales tax law is cumbersome and complicated. At the heart of the confusion is the determination of which entity – contractor, subcontractor or customer – pays the applicable sales tax.

In 2013, state lawmakers tried to address this problem by creating a new sales and use tax exemption for property, items and services sold by a contractor as part of a lump sum contract for real property construction activities if the total sales price attributable to the taxable products is less than 10% of the total contract price.

A lump sum contract is defined as a contract for which the contractor quotes the charge for the labor and services of subcontractors and the taxable products and services as one price

The contractor is the consumer of such taxable products and is liable for sales and use tax on its purchase of these products.

This tax code change cleared up some of the confusion, but contractors and subcontractors were still struggling to comply with Wisconsin’s construction sales tax law.

2017 Wisconsin Act 59 expands the exemption for lump sum contracts to apply to all construction contracts involving real property construction activities if the total sales price of the taxable is less than 10% of the total contract price. Furthermore, if the prime contractor qualifies for the exemption, the exemption also applies to all subcontracts entered into with respect to the real property construction activities. If the exemption applies to the subcontract, the subcontractor owes sales tax on its purchase of the materials.

Please refer to enclosed April, 2018 DOR guidance for further details.

(2017 SB 291\AB 387 & 2017 SB 292\AB 386)

During the 20170-2018 legislative session, WIB spent a considerable amount of time lobbying against two legislative proposals which alter the way in which property is assessed in Wisconsin. Collectively, these are referred to as the “Dark Stores” legislation. If they were to become law, we believe the result would be an increase in the property tax burden for small businesses which own or lease their property.

The assessment of real property is guided by the Uniformity Clause of Wisconsin’s Constitution and state law. The Uniformity Clause requires the method or mode of taxing real property to be applied uniformly.

State law requires assessors to use a three-step process to assess the value of real property – the land and all buildings and improvements affixed to the land. The first step is to base the assessment on any recent arm’s-length sale of the property. If the property has not been recently sold, an assessor must consider sales of reasonably comparable properties. If there are no such comparable sales, an assessor may use a “cost” or “income” assessment approach, considering all factors which have a bearing on the value of the property.

2017 Assembly Bill 386/Senate Bill 292 specifies new property tax assessment practices for the use of the comparable sales approach. More specifically, a property may not be considered comparable if the property is a dark property. The term “dark property” is defined as a property that is vacant or unoccupied beyond the normal period for property in the same real estate market segment.

Proponents of this legislation claim these new assessment practices are needed to prevent big-box retailers from having their fully-operational stores assessed at the same value as a vacant property in a different location. While this legislation may accomplish that objective, the Uniformity Clause requires assessors to apply this assessment practices to the sale of property owned by a small, hometown business.

In communities throughout Wisconsin, there are many vacant commercial properties. These vacancies adversely impact the value of occupied commercial property. We believe restricting assessors from even using vacant property to discern the value of occupied property will lead to higher assessments for hometown businesses.

2017 Assembly Bill 387/Senate Bill 291 redefines real property to include any leases, rights, and privileges pertaining to the property, including assets that cannot be taxed separately but that are inextricably intertwined with the real property.

The stated intent of this legislation is to reverse the 2008 decision by the Wisconsin Supreme Court in Walgreen Company v. City of Madison. In this case, the Wisconsin Supreme Court unanimously ruled that a property tax assessment of retail property leased at above market rent values should be based on market rents.

From our perspective, the key commentary from this ruling was:

“If we were to expand the law in the direction the City (Madison) requests, property assessments would in essence become business value assessments, with assessors improperly equating financial arrangements with property value. This is in contravention of the general principle that real property assessments should not be based on business value. Rather, the valuation of the fair market value of property for purposes of property taxes is by its nature different from business, or income tax assessment. “[A]n assessor’s task is to value the real estate, not the business concern which may be using the property.”

We agree with the Wisconsin Supreme Court. The job of the assessor is to value the real estate, not the business using the property. Therefore, we do not believe it is appropriate to overturn the unanimous ruling of the Wisconsin Supreme Court.

State lawmakers failed to reach consensus on either of the so-called “Dark Stores” proposals during the 2017-2018 legislative session. As a result, local assessors must continue to follow the existing law process for the assessment of commercial property.

(2017 Wisconsin Act 327)

Over the past decade, local elected officials representing large American cities have enacted expensive regulations which interfere with private sector employer-employee relationships.

For example, “fair scheduling” ordinances mandate employers post work schedules for their hourly employees up to four weeks in advance, “wage equity” ordinances restrict the ability of employers to seek prior wage history from job applicants and “commuter benefit” ordinances require employers to pay a portion of their worker’s transit expenses.

Local governments in Wisconsin could enact any of these types of ordinances. 2017 Wisconsin Act 327 prevents such action. Under this new law, Wisconsin cities, villages, towns and counties are prohibited from enacting or enforcing an ordinance regarding:

• regulation of employee hours and overtime;
• employment benefits an employer may be required to provide to its employees; or an employer’s right to solicit information regarding the salary history of prospective employees.

(2017 Wisconsin Act 108)

One of the most significant flaws in the process by which state government agencies carry out their regulatory duties is the absence of formalized procedures to continuously review and\or revise existing regulations to ensure marketplace conditions, current business practices as well as technology and innovation are considered. This institutional shortcoming can force small employers to spend time and money complying with state government regulations that are outdated, obsolete, unnecessary or overly burdensome.

2017 Wisconsin Act 108 establishes formalized procedures for the continuous review of existing state government regulations. Of note, this new law:

• creates an expedited procedure to repeal obsolete and unnecessary state government regulations which should reduce the amount of time it takes to repeal an existing regulation from years to months;
• requires state government agencies to submit a report to the Wisconsin State Legislature every two years listing all existing regulations under their jurisdiction that are deemed to be obsolete, unnecessary or economically burdensome. State government agencies just also provide legislators with a “plan of action” to address existing regulations that obsolete, unnecessary or economically burdensome; and
• allows state legislators to request and receive retrospective Economic Impact Analysis of existing state government agency regulations thereby allowing lawmakers to know the true compliance costs of an older regulation.

(2017 Wisconsin Act 139)

For over 100 years, a “grand bargain” has been applied to workplace injuries in Wisconsin. Employers must compensate their employees for work-related injuries and in return employees give up the right to sue the employer.

Over the past two years, a Worker’s Compensation-related lawsuit – Rivera v. West Bend Mutual Insurance – has been winding its way through Wisconsin’s court system. The relevant facts of the case are:

The Alex Drywall Company employed Carlos Rivera and provided him as a temporary, skilled worker to the Alpine Insulation Company. An Alpine-owned vehicle in which Rivera was traveling from one job site to another was involved in an accident. Rivera was killed in the accident.

Rivera’s estate did not make a claim for death benefits under Wisconsin’s Worker’s Compensation law but instead filed a wrongful death action against Alpine and its insurance carrier (West Bend Mutual Insurance).

On January 9, 2018, the District III of the Wisconsin Court of Appeals issued its ruling in this case. The three-judge panel concluded a temporary employee who has not made a claim for worker’s compensation is permitted to sue his or her temporary employer for damages. This ruling fundamentally altered the guiding principles of Wisconsin’s Worker’s Compensation program.

WIB joined with other business advocacy organizations to lobby for legislation which would close this “loophole.” Our efforts were successful.

Under 2017 Wisconsin Act 139, an injured employee of a temporary help agency engaged in work for the employer to which the employee is placed or leased may not sue the employer to which the employee is placed or leased if the employee has the right to make a claim for compensation under Wisconsin’s Worker’s Compensation law.

The 2017-2018 session of the Wisconsin State Legislature has adjourned. For Wisconsin Independent Businesses (WIB) and its members, it has been a productive session. Outlined below is a summary of our “Member Wins.”

• Partial Repeal of Wisconsin’s Personal Property Tax
• Regulations in Need of Executive Scrutiny (REINS) Act
• Wisconsin Health Care Stability Plan
• Broadband Expansion and Deployment throughout Rural Wisconsin
• Stiffer Criminal Penalties for UI Benefit Fraud
• Temporary Employee “Loophole” in Worker’s Compensation law
• Expedited Process to Eliminate Unnecessary Regulations
• Employment Law Standardization Act
• “Dark Stores” Legislation
• Construction Sales Tax Law Simplification
• Eliminated Wisconsin’s Alternative Minimum Tax
• Personal Property Tax Reporting
• Taxpayer Reliance on Past State Tax Audit Guidance
• Repealed Wisconsin’s Forestry Mill Tax
• Small Employer Access to Statistical Sampling in Sales Tax Audits
• Increased Funding for School Levy Tax Credit
• Work Permits for Minors
• Reduced Transactional Costs Relating to Discovery in Civil Lawsuits
• Oversight and Fiscal Management of State Highway Program

(2017 Wisconsin Act 147)

The existing penalties for Unemployment Insurance (UI) benefit fraud include repayment of fraudulently obtained benefits, reductions in future UI benefits, civil forfeitures, court fines and jail time. Even with this array of penalties, UI benefit fraud continues to be a multimillion dollar problem in Wisconsin.

The Wisconsin Department of Workforce Development (DWD) has advised state lawmakers that the current criminal penalties for UI benefit fraud – a maximum fine of $500, 90 days in jail, or both – are not enough to convince local District Attorneys to prosecute UI benefit fraud cases.

2017 Wisconsin Act 147 created a new criminal penalty structure based on the amount of money that a person fraudulently receives in UI benefit payments and provides that multiple violations can be charged as a single crime. The new penalties range from a fine of up to $10,000 and\or 9 months in prison to a $25,000 fine and\or 10 years in prison.

Local prosecutors have a new, powerful tool to combat UI benefit fraud and we hope they will put it to good use.

(2017 Wisconsin Act 59)

In 2013, with the support of WIB, state lawmakers created the Broadband Expansion Grant program administered by the Wisconsin Public Service Commission. This program provides reimbursement for equipment and construction expenses incurred to extend or improve broadband telecommunications service in underserved areas of the state – areas served by fewer than two broadband service providers. Eligible applicants include:

• an organization operated for profit or not for profit, including a cooperative;
• a telecommunications utility; or
• a city, village, town, or county that has established a legal partnership or joint venture arrangement with an otherwise qualified organization or telecommunications utility.

Since then, WIB has successfully lobbied for more grant funding and statutory changes to make the program more responsive to the needs of underserved and unserved communities throughout rural Wisconsin.

2017 Wisconsin Act 59 provided an additional $14 million in funding for Broadband Expansion Grants in 2017-2018.