Wisconsin Enacts Elective Pass-Through Entity Tax & Codifies Wayfair Response

Thoughtware Article Published: Jan 22, 2019
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On December 14, 2018, Wisconsin Gov. Scott Walker signed Senate Bill (SB) 883 into law. SB 883 allows Wisconsin tax-option corporations (S corporations), partnerships and limited liability companies the ability to elect to be taxed at the entity level rather than the individual level for Wisconsin income tax. Entities that make this election will be taxed at the Wisconsin corporate income tax rate of 7.9 percent rather than the highest individual income tax rate of 7.65 percent. The election is available for S corporations for tax years beginning on or after January 1, 2018, and for all other pass-through entities for tax years beginning on or after January 1, 2019. The election is made on an annual basis—but note that it must be made on or before the due date or extended due date of the Wisconsin return.

The only credit available against the pass-through entity tax is the credit for taxes paid to another state. Eligible creditable taxes are entity-level taxes imposed by other states and composite income taxes paid by the pass-through entity to other states on behalf of its owners. Tax credits available to owners of pass-through entities can’t be claimed against the entity-level tax with the exceptions noted above. This includes the Wisconsin manufacturing and agricultural credit and research and development credit. In addition, there’s no carryover of pass-through entity losses.

Taxpayers should carefully consider their fact pattern before making this election. For example, taxpayers with a large Wisconsin manufacturing and agricultural credit would likely not want to make this election because they would be unable to use those credits against the pass-through entity tax.

In response to the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., SB 883 also included legislation requiring out-of-state retailers to register and collect sales or use taxes for sales into Wisconsin if 1) the retailer’s annual total sales into the state exceed $100,000 or 2) the retailer’s annual number of transactions into the state is 200 or more in either the current or previous year. It’s important to note that annual sales and transaction totals include both taxable and nontaxable sales. The effective date for the requirements is October 1, 2018, due to an emergency regulation previously enacted by the Wisconsin Department of Revenue.

For more information, contact Jim or your trusted BKD advisor.

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