Member Wins

Oversight and Fiscal Management of State Highway Program

(2017 Wisconsin Act 247)

The State Highway Program (SHP) funds the construction, repair and maintenance of Wisconsin’s 11,800 miles of interstate and major state highways and bridges. It is the most expensive transportation-related program operated by the Wisconsin Department of Transportation (DOT). In fiscal year 2015-16, funding for the SHP exceeded $2.1 billion.

Three years ago, state lawmakers directed the non-partisan Legislative Audit Bureau (LAB) to conduct a comprehensive evaluation of the management of the SHP by the DOT. Shortly after the start of the 2017-2018 legislative session, the LAB released the results of its evaluation.

According to the LAB, there were material weaknesses in the processes by which the DOT tracks the costs of major highway projects from start to finish and Department staff were not consistently following the performance measures established by the DOT to ensure that road projects are prioritized to account for condition of the road, safety of travel and economic need.

Based on its evaluation, the LAB recommended two dozen administrative changes for the DOT to improve the management, planning, engineering, construction and maintenance of state highways; and five legislative changes to improve oversight and fiscal management of the SHP.

The administrative changes recommended by the LAB were adopted as part of 2017 Wisconsin Act 59 – the 2017-2019 state budget. 2017 Wisconsin Act 247 included four of the five changes in law recommended by the LAB to improve oversight and fiscal management of the SHP. Under this new law:

  • SHP project costs estimates provided to the Governor and the Wisconsin State Legislature on a semi-annual basis must now include all costs associated with the project, including; design engineering and construction engineering costs; the costs of environmental studies; the expected date of completion; an estimate of the effects of construction cost inflation; and unexpected costs on the cost of the project; and
  • DOT is required consider and document the results of the uniform cost-benefit analysis before determining whether to undertake a proposed engagement for engineering, consulting, surveying, or other specialized services

Reduced Transactional Costs Relating to Discovery in Civil Lawsuits

(2017 Wisconsin Act 235)

One of the most pressing civil litigation challenges for Wisconsin employers is the escalating transactional costs relating to discovery.  Discovery is a fact-finding process that takes place after a lawsuit has been filed. Discovery methods include written questions (interrogatories), oral questions (depositions) and requests for documents. Failure to answer or fulfill a discovery request may lead to fines and other sanctions.

2017 Wisconsin Act 235 aligns Wisconsin’s civil justice procedures for discovery to the corresponding federal rules. Better uniformity between federal and state civil procedures for discovery should reduce litigation costs for businesses involved in civil justice lawsuits.

Work Permits for Minors

(2017 Wisconsin Act 11)

Under prior state law, a work permit issued by the Wisconsin Division of Equal Rights was required before anyone under the age of 18 could work in any job except for agricultural or domestic service work. To obtain a work permit, the minor must:

  • provide proof of age;
  • get written consent from a parent or legal guardian to work;
  • have a signed letter from the employer describing the job duties, hours of work, and the time of day the minor will be working; and
  • pay a $10 permit fee – payment of the fee is the responsibility of the employer.

2017 Wisconsin Act 11 eliminated the requirement that a 16 and 17-year-old individuals obtain a work permit for the Wisconsin Division of Equal Rights before being allowed to work in any job except for agricultural or domestic service work.

Increased Funding for School Levy Tax Credit

(2017 Wisconsin Act 59)

Reducing Wisconsin’s property tax burden is an elusive goal. Property taxes are levied and collected by local units of government. State-imposed limits on local government spending keep property taxes in check, but to reduce property taxes requires additional state funding of Wisconsin’s property tax credit programs and/or increases in state aid for public education.

One of Wisconsin’s property tax credit programs is the School Levy Credit which is applied to every taxable property in Wisconsin. The amount of the credit is based on the property’s assessed value as a percentage of the municipality’s total assessed value.

2017 Wisconsin Act 59 increased annual state funding of Wisconsin’s School Levy Tax Credit by $87 million beginning with property taxes levied in 2017 and payable in 2018.

Small Employer Access to Statistical Sampling in Sales Tax Audits

(2017 Wisconsin Act 59)

State law authorizes the Wisconsin Department of Revenue (DOR) to use statistical sampling in sales and use tax audits. This auditing practice is generally used in field audits when it is not efficient to review all the records or to use one of the non-statistical methods.

In a statistical sample, the sample is randomly selected and probability theory is used to evaluate the sample results. When sampling is used, both the DOR and the taxpayer can save time and resources. An example cited by DOR is illustrative:

Company A has approximately 10,000 purchase invoices for each year filed alphabetically by vendor name. If the audit scope includes four years, a block sample based on alphabetical vendor name would require the auditor to review 10,000 records (approximately one-fourth for each year). However, a statistical sample covering that same scope might require the auditor to review 1,000 or fewer invoices.

The requirements imposed by the DOR on taxpayers seeking to utilize statistical sampling – detailed charts of accounts in electronic format; trial balances in electronic format; and electronic detail records of sales and/or purchases, including coding information – are such that only very large companies can access this cost-saving auditing process.

2017 Wisconsin Act 59 extends this option to small employers by requiring the DOR to establish criteria for using statistical sampling methods during sales and use tax field audits. The criteria will specify:

  • that any person with less than $10,000,000 in annual sales during any year at issue during a field audit may choose to have the audit conducted using statistical sampling;
  • the number of transactions necessary to qualify for statistical sampling; and
  • the maximum sample size.

Repealed Wisconsin’s Forestry Mill Tax

(2017 Wisconsin Act 59)

Wisconsin’s Constitution authorizes a state forestry tax of up to 0.2 mills for acquiring, preserving, and developing state forests. Since 2007, the forestry mill tax – the only property tax levied by the State of Wisconsin – has been set at 16.97¢ per $1,000 of assessed value.

2017 Wisconsin Act 59 ended Wisconsin’s forestry mill tax beginning with property taxes levied in 2017 and payable in 2018 thereby reducing statewide property tax collections by roughly $90 million annually.

Taxpayer Reliance on Past State Tax Audit Guidance

(2017 Wisconsin Act 231)

If the Wisconsin Department of Revenue (DOR) reviews a taxpayer’s transactions during a tax audit and finds no tax liability, we believe the taxpayer should be able to rely upon this determination in the event of future tax audit. Existing state law on this issue is ambiguous.

Under 2017 Wisconsin Act 231, the DOR in subsequent tax audits would not be able to revisit a topic that has been previously settled, unless the taxpayers provided “false or incomplete” information during the initial tax audit.

Personal Property Tax Reporting

(2017 Wisconsin Act 59)

In 1997, state lawmakers exempted computers, related equipment and software from the personal property tax. Four years later, cash registers and fax machines, except for fax machines that are also copiers, were exempted from Wisconsin’s personal property tax. These tax laws required the owners of exempt computers, cash registers and fax machines to annually report the value of this exempt property on their Statement of Personal Property.

2017 Wisconsin Act 59 repealed the requirement that owners of exempt computers, cash registers, and fax machines report the value of their property tax exempt computers, related equipment and software, cash registers and fax machines on their Statement of Personal Property.

Eliminated Wisconsin’s Alternative Minimum Tax

(2017 Wisconsin Act 59)

Wisconsin is one of only six states to have an Alternative Minimum Tax (AMT) as a component of their tax code. The AMT is calculated by first determining alternative minimum taxable income (AMTI), subtracting any allowable exemption, and applying the AMT rate. The base for computing AMTI is regular taxable income, to which adjustments and tax preference items are added.

An exemption is provided to taxpayers with an AMTI below specified amounts. The exemptions vary by filing status and phase out as income rises. Finally, the taxpayer’s AMT liability is compared to the taxpayer’s regular tax liability. If the AMT liability exceeds the regular tax amount, an AMT is owed equal to the difference.

2017 Wisconsin Act 59 repeals Wisconsin’s AMT for taxable years beginning on or after January 1, 2019.

Construction Sales Tax Law Simplification

(2017 Wisconsin Act 59)

Wisconsin’s construction sales tax law is cumbersome and complicated. At the heart of the confusion is the determination of which entity – contractor, subcontractor or customer – pays the applicable sales tax.

In 2013, state lawmakers tried to address this problem by creating a new sales and use tax exemption for property, items and services sold by a contractor as part of a lump sum contract for real property construction activities if the total sales price attributable to the taxable products is less than 10% of the total contract price.

A lump sum contract is defined as a contract for which the contractor quotes the charge for the labor and services of subcontractors and the taxable products and services as one price

The contractor is the consumer of such taxable products and is liable for sales and use tax on its purchase of these products.

This tax code change cleared up some of the confusion, but contractors and subcontractors were still struggling to comply with Wisconsin’s construction sales tax law.

2017 Wisconsin Act 59 expands the exemption for lump sum contracts to apply to all construction contracts involving real property construction activities if the total sales price of the taxable is less than 10% of the total contract price. Furthermore, if the prime contractor qualifies for the exemption, the exemption also applies to all subcontracts entered into with respect to the real property construction activities. If the exemption applies to the subcontract, the subcontractor owes sales tax on its purchase of the materials.

Please refer to enclosed April, 2018 DOR guidance for further details.