There’s been a lot of talk about reforming the Federal Tax Code in the Fiscal Cliff and Sequester debates and now it appears that Wisconsin may be getting in on the act. Gov. Walker’s budget included a very modest reduction in the Wisconsin income tax rates and it appears that the legislature wants to go further.
Representative Dale Kooyenga, who is a CPA, is being tasked with a possible overhaul of the system. As someone who deals with taxes and businesses every day, here would be my suggestions:
Unemployment tax holiday for new businesses
In Wisconsin, employers essentially pay the bill for the unemployment system by paying a quarterly tax. The tax is paid on the first $14,000 an employee makes and the rate is essentially determined over the long haul by how many people you send to the unemployment line. If you have a stable work force, the rate may be less than 1% while a seasonal company may see rates at nearly 10 percent.
A new company is assigned an initial rate of 3.6 percent. This amounts to $504 on each employee making $14,000. That’s a huge amount for a new business where every penny counts. I would suggest waiving this tax for two to three years to give businesses some time to get going.
Change depreciation rules to match the federal government
Over the years the Federal government has offered incentives through Section 179 and Bonus depreciation to encourage business to invest in new equipment. Essentially each system allows for the immediate expensing of some capital purchases. While Section 179 will grow to $500,000 in 2013, Wisconsin will stubbornly stick at $25,000 and offer no bonus depreciation. This causes many businesses to have a major add back of income of their Wisconsin tax return and blunts some of the benefits of the Federal incentives. As all the deduction allows a Company to do is to defer tax I think Wisconsin would be wise to follow the Federal guidelines.
Change personal property taxes
Most business owners have to pay a tax on the equipment they own. The newer and more expensive the equipment is, the more tax you pay. So if you are a dentist who adds a few new rooms and adds a few new employees your reward from the state will be to pay a higher personal property tax. Why not exempt new purchases from this tax for a few years? The tax is imposed by localities, but like anything the State can mandate some changes to this.
Exempt people over 65 from income tax
I know a lot of snowbirds who will get a second residence in a warm weather state and that will not change. What might change is the fact that many of them change their residence to that lower tax state to avoid Wisconsin’s income taxes. Why not give them an incentive to keep their money here? Banks needs capital to make loans and our tax code encourages these people with money to take it to Florida or other low tax locales.
Lower the top marginal rates
Governor Doyle raised the top rate to 7.75 percent, which is higher than Illinois and Indiana and on par with Minnesota. I would at minimum restore the old top rate of 6.75 percent. Businesses make decisions on the marginal rates and if we’re higher than our neighbors it will not encourage growth.
If the goal is to stimulate the economy and job growth the legislature needs to pay special attention to the taxes that impact businesses the most.
Michael Bark is an accountant at Edge Advisors LLC in West Allis.
