Businesses Unable to Benefit from Tax Credits Because Business Taxes are Too Low !?!

Tuesday, March 6, 2012 at 3:30 PM by
Assembly Debates Bill Today Allowing Corporations to Transfer Their Tax Credits
For many years, corporations complained that Wisconsin’s corporate taxes could discourage new businesses from locating or expanding in our state.  Now we have a very different complaint.  Some businesses are grumbling that new enterprises in Wisconsin don’t have enough tax liability to be able to take advantage of tax credits offered to induce corporations to locate or expand here!   Apparently, some people think this is a problem for those businesses.
A bill that is scheduled for an Assembly vote today, AB 376, would address this “problem” by granting the Wisconsin Economic Development Corp. the option of letting companies transfer up to 85% of their potential income tax credits to another taxpayer.  A recent article in the Janesville Gazette by Jim Leute explains the perspective of some Rock County businesses who support transferable tax credits, and it also reports on a couple of concerns that have been raised about the legislation.
AB 376 and its Senate counterpart, SB 291, would create a pilot program in which up to $10 million of income tax credits provided by the Wisconsin Economic Development Corporation (WEDC) could be transferred to others.  Although the pilot program would potentially expire after 5 years, the bill grants to WEDC the authority to continue the pilot for another 5 years and an additional $10 million of credits, subject to approval of the legislature’s Joint Finance Committee.   
Last Wednesday the Assembly Committee on Jobs, Economy and Small Business voted 9-1 in favor of the bill, after introducing a substitute amendment that modifies the bill in a number of respects.  That lopsided vote contrasts with the 4-3, vote in a Senate Committee yesterday on SB 291, where all three Senate Democrats voted against the amended legislation.   

One of the significant changes in the substitute amendments to both AB 376 and SB 291 is that credits couldn’t be sold.  I presume the credits would still typically be transferred in exchange for or acknowledgement of some sort of investment or non-cash remuneration.  I suspect there would have been a much different vote in the Assembly Committee if it authorized new tax credits, but the funding for credits has already been set aside.

Other changes in Assembly Substitute Amendment 1 include the following: 
  • It removes a provision in the original bill that the pilot program would only be available to qualifying counties (such as those with high unemployment rates).
  • The amended bill only includes credits awarded by the WEDC, whereas the original version also allowed the sale or transfer of credits previously granted its predecessor, the Commerce Department.
The wisdom of allowing tax credits to be transferred is being debated in Oklahoma, which currently allows them to be sold.   Republican Representative David Dank is seeking to end the practice.  He contends that the credits are being granted to and then transferred by businesses that don’t need them.  (Read about the Oklahoma debate here.)  
The Senate version of the bill, SB 291, was voted on yesterday in the Senate Committee on Economic Development and Veterans and Military Affairs.  As noted above, it was recommended for passage by a vote of 4-3, with all the GOP members of the committee voting in favor of it, and all the Democrats voting against the bill.  
Jon Peacock
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