By Rose Oswald Poels
As many of you heard me say from the podium at the WBA Bank Executives Conference, WBA has been fortunate to provide input to the Wisconsin Department of Revenue (DOR) staff on issues of interest to the banking industry that ideally should be addressed in rulemaking. That process has concluded, and I am expecting the rules to be published after a technical correction in the law is signed by the Governor.
As many of you know, WBA discovered in late January that we needed a legislative fix to clarify that the commercial and ag loan income tax exemption also applied to Subchapter S banks where the state income tax is paid at the entity/franchise level rather than the individual shareholder level. WBA quickly worked to get this technical correction inserted into another tax clean-up bill already introduced in the legislature. After that bill passed the Joint Finance Committee on February 8, and passed on the Senate floor on February 13, an amendment unrelated to our language was added to the bill in the Assembly. The Assembly did not vote on the floor to pass the amended bill until February 22. Since the bill was amended after the Senate had already passed the original version, the Senate must concur in the passage of the amended bill, which it is scheduled to do at its next floor period on March 12. I am hopeful the Governor will call for the bill once it passes the Senate such that the rules may be published expediently thereafter. DOR understandably prefers to not publish the rules until the law has been amended. The emergency rule may be issued ahead of the permanent rule, and the emergency rule will be applicable as of the date published.
The rules will have some nuances to them with regard to the loans that fit the exemption outlined in the law. For example, it is expected that business purpose multifamily loans where the original loan amount is $5 million or less will be covered with the exception of certain loans secured by 1–4 family units. Income earned from commercial or ag purpose loans that are participated out among other financial institutions will also be covered assuming the original loan amount (not the amount allocated to any single participating bank) is $5 million or less. As WBA has stated since the law first passed, the income tax benefit is only for eligible loans and lines of credit where the original loan amount (including any financed fees) is $5 million or less.
Moreover, the borrower and the purpose of the eligible loan must be tied to the state of Wisconsin. The law itself requires that the person (individual or entity) either reside or be located (e.g. an office or facility in WI) in Wisconsin. In addition, the law as part of the technical correction bill mentioned above will be further amended to clarify that the primary purpose for the commercial or ag purpose loan must also be “in this state.” That phrase will be added to the end of the language in the law itself once the technical correction bill is passed by the Assembly and signed by the Governor.
WBA is finalizing updates to its FAQ document related to the new law and rules which will be available once the rules are published in emergency form. WBA will also hold a member webinar very soon thereafter to review the rules in detail so please watch WBA’s Daily e-publication over the next few weeks for registration information.
Thank you for your patience and understanding as we have worked through the process.
By Lorenzo Cruz
Furthermore, the average size of state-chartered credit unions exceeds that of state-chartered banks. As of the first quarter of 2023, the average asset size of state-chartered credit unions is $568 million compared to $529 million for state-chartered banks. This disparity continues to grow each quarter that WBA has been measuring since last year.
Given the current environment, the WBA Board decided that now was the time for some type of tax parity to happen in order to preserve the breadth of financial institutions in Wisconsin. If we continued to do nothing, credit unions in Wisconsin will only grow larger at the expense of the banking industry. As of the first quarter of 2023, six of the top 10 headquartered financial institutions in Wisconsin are credit unions.