The below article is the Special Focus section of the August 2019 Compliance Journal. The full issue may be viewed by clicking here.
On July 3, 2019, Governor Tony Evers signed the State 2019-2021 Budget Bill (budget) into law after 78 line-item vetoes. WBA has been tracking the budget since it was introduced earlier this year and now offers this report on some of its more prominent features.
The budget was presented to Governor Evers on June 28, 2019 and approved with partial veto on July 3, 2019. This version of the budget was just the final stop on a long process that began in the fall of 2018 when state agencies began to formulate their budget requests. The Executive Budget, the budget recommendations provided initially by the governor, was released in February and then Republicans in charge of the Joint Committee on Finance began to pick it apart. Deal-making throughout the summer between Governor Evers and the Legislature got a budget bill to the governor’s desk, which became 2019 Wisconsin Act 9 after the governor’s partial vetoes and signature. Considering this is the first time since the 2007-2009 budget that such a bill was passed under split government, the process went surprisingly smoothly.
WBA’s advocacy team campaigned for the interests of our members and reported on many key issues leading up to the passing of the budget as a way to keep members informed, as well as generate media and public support (in some cases). This long process saw many versions of the budget as different provisions were added and removed. Ultimately, Evers’s initial 1,100-page Executive Budget was whittled down to 500 pages by the Legislature. This article presents the results of the WBA’s efforts in the final budget.
The budget contains no major legislative victories, but also no major losses. While not exciting news, it demonstrates the importance of advocacy for our industry in the coming years. The WBA advocacy team worked hard and long hours on defense to achieve this “neutral” result by preventing many negative items from being added to the budget.
Highlights include provisions from the Tax Cut and Jobs Act (TCJA) proposed to conform Wisconsin’s tax code to the Internal Revenue Code. Those changes, which were ultimately removed from the final budget, would have increased taxation on Wisconsin business by over $362,000,000.* In addition to what was deleted from the final budget, a $500 million income tax cut was ultimately passed.
Select items that WBA followed closely and lobbied on are included in the table below. The table describes the provision, its ultimate outcome in the final budget, and the net impact this has on banking.
|Updating References to the Internal Revenue Code for Corporate Income and Franchise Taxes||$12M tax on the banking industry by incorporating federal changes to Federal Deposit Insurance Corporation premium deductibility for banks with asset sizes from $10B to $50B||REMOVED||POSITIVE|
|Tax Credit Changes||Several tax credit changes were proposed||REMOVED||NEUTRAL|
|Gas Tax||Proposed 8 cents per gallon gas tax||Replaced by $10 increase in registration fees||NEUTRAL|
|Loss Limitation Provision for Taxpayers Other Than Corporations||Proposed excess business loss limitation (a $166M increase). Meaning, those business losses by which the total deductions attributable to business exceed total gross income plus $250,000. Affects business gains and loss reporting.||REMOVED||POSITIVE|
|Limitation on the Deduction for Business Interest ($156 million increase)||This provision would apply to all who have business interest expenses. Taxpayers may generally deduct interest expense paid over a taxable year. However, this limitation restricts the amount of deductible business interest expense to not exceed:
1) The taxpayer’s business interest income for the year; 2) 30% of the taxpayer’s adjusted taxable income for the year; and 3) The taxpayer’s floor plan financing interest expense for the year
|Accounting Rules for Accrual Method Taxpayers ($20M increase)||Certain converting S corporations required to change from the overall cash method to an overall accrual method of accounting (as a result of revocation of S corporation election)||REMOVED||POSITIVE|
|Limitation on the Deduction of FDIC Premiums||For banks with assets greater than $10B, phases out FDIC premium deduction ($12M increase)||REMOVED||POSITIVE|
|Limitation on the Deduction for Highly Paid Individuals||Proposed modification to limit the deduction that can be taken with respect to compensation for “covered employees” to $1M per year. “Covered employees” are those who: 1) served as principal executive officer; 2) were in the top three highest-paid officers for the year; 3) were a covered employee during a prior tax year beginning in 2016||REMOVED||NEUTRAL|
|Limitation on the Deduction for Entertainment, Amusement, and Recreation Expenses||Proposal to eliminate the deduction for any expense related to activities generally considered entertainment, amusement, or recreation||REMOVED||POSITIVE|
|Amortization of Research and Experimental Expenditures||Proposal to require specific research and experiment expenditures to be capitalized and amortized over a five-year period||REMOVED||POSITIVE|
|Wisconsin Economic Development Corporation (WEDC) Changes||14 different changes to WEDC||REMOVED||NEUTRAL|
|Increase and Subsequent Indexing of Minimum Wage||Increase of statutory minimum wage by $1.00 beginning Jan. 1, 2020, to increase $0.75 each subsequent year for three years||REMOVED||POSITIVE|
|Family and Medical Leave Act (FMLA) Expansion||Expanded coverage of FMLA in terms of applicability, permitted use, and qualifications||REMOVED||NEUTRAL|
|Increased Concentrated Animal Feeding Operations (CAFO) Fees||Increased annual fee assessed to operators of CAFOs and added an application and renewal fee for the operation of a CAFO||REMOVED||NEUTRAL|
|Legalization of Medicinal Marijuana||Funding to establish a medical marijuana program||REMOVED||NEUTRAL|
|Codifying Obamacare Into State Statute||Accepts the federal Affordable Care Act’s provision for Medicaid||REMOVED||NEUTRAL|
|Property Taxes Increase||Proposal to increase property taxes by a minimum of 2% per year||REMOVED||POSITIVE|
|Repeal of State Pre-Emption of Certain Employment Local Ordinances||Repeal prohibition on local governments enacting ordinances regarding: 1) Minimum family and medical leave requirements; 2) Wage claims and collections; 3) Employee hours and overtime; 4) Required employment benefits; and 5) Solicitation of a prospective employee’s salary history||REMOVED||NEGATIVE|
|Creation of a Tax-Advantaged First-Time Homebuyer Savings Account||Proposal to create savings accounts that permit certain contributions as exempt from state taxation||REMOVED||NEGATIVE|
|Historic Rehabilitation Tax Credit Changes||Proposals to apply awards under the rehabilitation credit program on a per project basis rather than a per parcel basis and repeal the state’s supplement (given the repeal at the federal level)||REMOVED||POSITIVE|
|Repeal of Net Operating Loss Carryback||Proposed repeal of state net operating loss carryback provisions to parallel the federal repeal||REMOVED||NEGATIVE|
|Amend Calculation of Low-Income Housing Tax Credit||Proposal to add back low-income housing credits to taxable income of the entity claiming the credit||REMOVED||NEUTRAL|
|Limit Capital Gains Exclusion||Proposal to eliminate the long-term capital gains exclusion for filers above certain income levels||REMOVED||NEUTRAL|
|Real Estate Transfer Fee Exemption||Exemption for transfers from a subsidiary corporation to its parent corporation does not apply in cases where a non-corporate entity owns a majority of shares in the corporation. Specifies that the exemption does not apply to conveyances between different owners||REMOVED||POSITIVE|
|Student Loan Refinancing Study||Creation of an advisory group to study the development of an authority for the refinancing of student loans||REMOVED||NEUTRAL|
|Dark Store Legislation||Reforms to assessment practices to clarify the assessment of leased property to specify that real property be assessed for property tax purposes at its highest and best use and that real property includes leases, rights and privileges pertaining to the property||REMOVED||NEUTRAL|
|Undocumented Immigrant Driver’s License Creation||Extension of eligibility to receive driver’s licenses and identification cards for undocumented individuals if they comply with the driver knowledge and skills requirement||REMOVED||NEUTRAL|
|Bonding for New Water Lines||Clean water fund program expanded to include bonding for safe drinking water loan program||PASSED||NEUTRAL|
|DATCP Industrial Hemp Program||Funding for three additional agency positions||PASSED||POSITIVE|
|Wisconsin Forestry Practice Study||Funding for the implementation of recommendations made in the Wisconsin Forestry Practices Study||PASSED||NEUTRAL|
The budget process was surprisingly tame this year. Although the banking industry did not gain anything major, it also did not suffer any major loss. WBA was on the front line throughout the process, working to ensure the voice of Wisconsin’s banks was heard by decision-makers, even on topics that would only indirectly affect banks. Regardless of its impact on Wisconsin’s banks, the state budget is an important process that provides insight into what the governor and the Wisconsin Legislature currently consider important.
For more information on WBA’s Advocacy efforts contact Mike Semmann at firstname.lastname@example.org.
*All figures derived from the Wisconsin Legislative Fiscal Bureau.
By, Ally Bates