New tax credit will boost manufacturers in Wisconsin

In the early part of this century there was a prevailing thought that if the state of Wisconsin was going to compete in the “Economy of the Future” we needed to move on from our manufacturing heritage and embrace the new economy.

The state should be grateful that our manufacturing community did not heed the advice of the experts as manufacturing has shown remarkable resilience in an economic recovery that still feels like a recession for millions of people.

While manufacturing has changed dramatically over the past decade it has remained a driving force in the state of Wisconsin’s Economy. Manufacturing has generated 8,233 new jobs since 2009 and Wisconsin leads the nation in the percentage of its workforce that is employed by manufacturing with approximately 16 percent of the state’s workforce.

The economic impact of manufacturing in Wisconsin cannot be overstated. The sector supports approximately 1.1 million jobs with total earnings of $53 billion. That is 32 percent of the state’s jobs and 35 percent of all earnings. For each manufacturing job that is created there are, by conservative estimates, two service sector jobs needed to support the wealth creation effects of the sector.

A little known provision in the recent State Budget, Act 32, is going to make creating economic growth much easier for the manufacturing community in the state of Wisconsin. The Wisconsin “Qualified Production Activities Credit” will effectively eliminate taxation on qualified production activity within the state by 2016.

The credit will be available for all qualified activity income generated from manufacturing and agricultural operations derived from property located in Wisconsin and assessed by the state as either manufacturing or agricultural. The credit will be available for both Wisconsin corporate taxpayers and individual taxpayers who own their interests through an S Corp or Partnership/LLC.

Due to budget constraints, the state was not prepared to roll this piece of legislation out immediately, however the following phase in process will begin in 2013:
Tax years beginning 2013 – A 1.875 percent tax credit.
Tax years beginning 2014 – A 3.75 percent tax credit.
Tax years beginning 2015 – A 5.526 percent tax credit.
Tax years beginning 2016 – A 7.5 percent tax credit.

With the current top tax rates of 7.5 percent for an individual or 7.9 percent for a C-Corp, the state of Wisconsin is positioned to essentially eliminate state income tax for manufacturing businesses.

Manufacturing, the actual making of a product, creates wealth and sustainable economic growth which in turn creates jobs and all the benefits that come with growth.

With the passing of this piece of legislation, the state adds another recruitment tool to its arsenal of competitive advantages in the field of manufacturing. This will not only be an attractive tool to recruit out-of-state companies, but is also sends the signal to the existing manufacturing base in Wisconsin that if your company is planning an expansion, Wisconsin wants you to expand in your home state. 

Jeff Hoffman is vice president of industrial real estate at Judson & Associates, s.c., and Jim Brandenburg is a CPA and a shareholder of Kolb + Co SC. Both are board members of the Independent Business Association (IBA) of Wisconsin.

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