Wisconsin addresses PPP treatment, amends SALT deduction workaround
TAX ALERT |
Authored by RSM US LLP
On Feb. 18, 2021, Wisconsin Gov. Tony Evers signed Assembly Bill 2 and Assembly Bill 3, addressing certain conformity to the CARES Act and making other legal and administrative changes to the state’s tax regime. Selected changes are highlighted below.
Paycheck Protection Program conformity
Assembly Bill 2 includes the highly anticipated conformity to the federal tax treatment of the Paycheck Protection Program (PPP) loans. Accordingly, Wisconsin now conforms to the CARES Act’s treatment of forgiven PPP loans, excluding the forgiven debt from being treated as taxable income. Additionally, in January 2021, the Wisconsin Department of Revenue issued guidance stating that taxpayers could not deduct expenses paid for with forgiven PPP loans. Assembly Bill 2 provides the necessary legislative support to permit businesses to deduct the expenses the forgiven loans were used to pay.
Reporting of federal changes
Assembly Bill 2 extends the time allowed for reporting federal final audit determinations and amended returns from 90 to 180 days.
Sales tax changes
Pursuant to Assembly Bill 2, the following sales tax changes are effective beginning Feb. 20, 2021:
- The resale exemption is expanded to persons providing landscaping, printing, fabricating, processing or photographic services or performing services to tangible personal property who are providing non-taxable sales.
- The economic sales tax nexus provision is amended to eliminate the 200 or more separate transactions threshold component. The $100,000 sales threshold remains unchanged.
SALT deduction limitation workaround amendments
Assembly Bill 3 makes changes to the state’s elective pass-through entity tax regime. Beginning in 2018, Wisconsin enacted an elective 7.9% entity-level income tax on pass-through entities. Under that law, S corporations making the election were unable to use the individual capital gain exclusion. Partnerships making the election; however, were allowed the exclusion. The new law rectifies the disparity between the treatment of S corporations and partnerships making the election. The act retroactively applies to tax years beginning after Dec. 31, 2019 and allows 30% or 60% long-term individual capital gain exclusion. There are other limitations associated with making the election; however, for S corporations this change may require another review of whether the Wisconsin election is beneficial. Taxpayers considering a pass-through entity tax election should remember that the strategy may not benefit all owners.
These bills are widely believed to be the start to a busy year of tax changes as Gov. Evers recently announced his fiscal year 2021-23 executive budget, which appears to propose additional changes. In the meantime, taxpayers subject to Wisconsin taxes should be aware of the new conformity rules governing PPP loan forgiveness. Businesses organized as S corporations should consider whether the new law affects whether to make the pass-through entity tax election. Finally, remote sellers should consider that, while the elimination of the 200 transaction threshold will ultimately make establishing an economic sales tax nexus in Wisconsin more difficult, states are increasing enforcement of remote seller sales tax collection and filing responsibilities. Taxpayers considering the pass-through entity election or have questions about Wisconsin conformity to recent federal changes should reach out to their state and local tax advisers for more information.
Call us at +1 213.873.1700, email us at email@example.com or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Zach Rieboldt, Suzanne Schrank, Christopher Brophey and originally appeared on 2021-02-23.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.