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Wisconsin Department of Revenue

 Unused Manufacturer's Sales Tax Credit

  1. Since the manufacturer's sales tax credit was replaced with a sales and use tax exemption beginning January 1, 2006, what happens to my unused manufacturer's sales tax credits from taxable years that began before January 1, 2006?
  2. Can I use the credit to offset my entire Wisconsin tax liability?
  3. I am a shareholder in a tax-option (S) corporation. What types of income can I include when computing the tax imposed on the business operations of the tax-option (S) corporation?
  4. I am a fiscal filer with a taxable year beginning in 2005 and ending in 2006. On my 2005 franchise or income tax return, may I claim credit for sales and use tax paid during my taxable year but after December 31, 2005, on fuel and electricity purchased before January 1, 2006?
  5. On my 2004 calendar-year return I forgot to claim the manufacturer's sales tax credit for sales tax that I paid in 2004 on fuel and electricity purchased that year. Can I claim the credit on an amended return for 2004?
  6. I am being audited for my taxable year beginning July 1, 2003, and ending June 30, 2004. I miscalculated the manufacturer's sales tax credit for that taxable year. May I claim credit for the additional amount of manufacturer's sales tax credit discovered during the audit?
  7. I paid sales tax during my taxable year beginning on or after January 1, 2006, or a subsequent taxable year, for fuel and electricity purchased prior to January 1, 2006. May I claim credit either on my tax return for the year in which the fuel and electricity was purchased or on my return for the year in which the sales tax is paid?
  8. How do the rules for 2006 and 2007 apply to manufacturer's sales tax credits computed by a partnership, limited liability company (LLC) treated as a partnership, or tax-option (S) corporation for taxable years beginning on or after January 1, 1998?
  9. How do the rules for 2006 and 2007 apply to manufacturer's sales tax credits computed by a tax-option (S) corporation for taxable years beginning before January 1, 1998, that are still available under the 20-year carryforward period?
  1. Since the manufacturer's sales tax credit was replaced with a sales and use tax exemption beginning January 1, 2006, what happens to my unused manufacturer's sales tax credits from taxable years that began before January 1, 2006?

    If you have $25,000 or less of unused credits as of January 1, 2006, you may use up to 50% of the credit in each of your taxable years beginning in 2006 and 2007. You may use any remaining credits in future taxable years within the 20-year carryforward period.

    If you have more than $25,000 of unused credits as of January 1, 2006, you may deduct in each of your two taxable years beginning after December 31, 2005, and before January 1, 2008, 50% of the amount of unused credit that you had added back to income at the time that you first claimed the credit. You may take these deductions even if you otherwise have no Wisconsin income due to business losses or carryforwards.

    Also, if you have more than $25,000 of unused credits as of January 1, 2006, you may be eligible for a manufacturing investment credit, in addition to the deductions described above, if you are certified by the Wisconsin Department of Commerce. The manufacturing investment credit is equal to the amount of unused manufacturer’s sales tax credit carryforward as of the first day of your taxable year beginning in 2006, amortized over a 15-year period. To become certified for this credit, your business must meet one of the following criteria:

a) The business has retained from December 23, 2003, 100 percent of the business's full-time jobs in this state.

b) The business's average annual investment in this state since January 1, 2003, is equal to no less than 2 percent of the total book value of the business's depreciable assets in facilities that are based in this state.

c) The business's average annual investment in this state since January 1, 2003, is no less than $5,000,000.

d) Other criteria specific to an industry, as determined by the Department of Commerce.

For more information on the manufacturing investment credit, visit the Department of Commerce’s web site at www.commerce.wi.gov.

  1. Can I use the credit to offset my entire Wisconsin tax liability?

    Corporations may offset the credit from their own manufacturing operations against their entire Wisconsin franchise or income tax liability. Sole proprietors may offset the credit only against tax on the income from the business operations in which the fuel and electricity were consumed. If you have an unused manufacturer's sales tax credit from more than one sole proprietorship or if you have an unused credit that was passed through from an estate, trust, partnership, limited liability company treated as a partnership, or tax-option (S) corporation, you must compute the allowable credit from each entity separately. You may not offset credits from a business that operated at a loss against the income from another business that operated at a profit. See Wisconsin Schedule MS and its instructions to compute your allowable credit.

    Note: You may not offset the credit against the recycling surcharge. Tax-option (S) corporations may not offset the credit against the built-in gains tax.

  2. I am a shareholder in a tax-option (S) corporation. What types of income can I include when computing the tax imposed on the business operations of the tax-option (S) corporation?

For purposes of computing the tax imposed on the business operations of the tax-option (S) corporation, the income is limited to your pro rata share of the corporation's net income or loss which is taxable by Wisconsin. This includes your pro rata share of the corporation's ordinary income or loss, interest and dividend income, capital gains or losses, and other separately stated items of corporate income or expense passed through to you.

You may not include the following types of payments you received from the tax-option (S) corporation:

  1. I am a fiscal filer with a taxable year beginning in 2005 and ending in 2006. On my 2005 franchise or income tax return, may I claim credit for sales and use tax paid during my taxable year but after December 31, 2005, on fuel and electricity purchased before January 1, 2006?

Yes. You may claim a credit if, during your taxable year beginning in 2005, you paid the tax on electricity or natural gas that was billed or on other fuel that was delivered before January 1, 2006. In addition, you must report the amount of credit you computed as income.

You cannot claim a credit if the tax was paid in error. For example, if the electricity or natural gas was billed or other fuel was delivered on or after January 1, 2006, no credit is allowed. You may file a refund claim for sales tax paid in error.

  1. On my 2004 calendar-year return I forgot to claim the manufacturer's sales tax credit for sales tax that I paid in 2004 on fuel and electricity purchased that year. Can I claim the credit on an amended return for 2004?
Yes. You may claim credit on an amended return for a taxable year that begins before January 1, 2006, for qualifying sales and use tax paid in that taxable year on electricity and natural gas that was billed prior to January 1, 2006, or other fuels delivered prior to January 1, 2006. You may not file an amended return for a taxable year that is beyond the statute of limitations.
  1. I am being audited for my taxable year beginning July 1, 2003, and ending June 30, 2004. I miscalculated the manufacturer's sales tax credit for that taxable year. May I claim credit for the additional amount of manufacturer's sales tax credit discovered during the audit?
Yes. You may claim credit during an audit for a taxable year that begins before January 1, 2006, for qualifying sales and use tax paid in that taxable year on electricity and natural gas that was billed prior to January 1, 2006, or other fuels delivered prior to January 1, 2006, if the taxable year is not beyond the statute of limitations. If the year is beyond the statute of limitations, you many claim an offset for the credit against the franchise or income tax owed in the same period in which the sales tax was paid.
  1. I paid sales tax during my taxable year beginning on or after January 1, 2006, or a subsequent taxable year, for fuel and electricity purchased prior to January 1, 2006. May I claim credit either on my tax return for the year in which the fuel and electricity was purchased or on my return for the year in which the sales tax is paid?
No. The credit is available only for the year in which the tax is “paid,” regardless of when the fuel or electricity was purchased, billed, delivered, or consumed. No credit is available for tax paid in a taxable year that begins on or after December 31, 2005.
  1. How do the rules for 2006 and 2007 apply to manufacturer's sales tax credits computed by a partnership, limited liability company (LLC) treated as a partnership, or tax-option (S) corporation for taxable years beginning on or after January 1, 1998?
A partnership or LLC treated as a partnership was required to pass through to its partners or members the credits for sales and use tax paid by the entity on fuel and electricity used in manufacturing. The partners or members could offset the credits only against the tax on the partner's or member's distributive share of the partnership or LLC income. Therefore, each partner or member must separately determine whether his, her, or its unused credit is $25,000 or less or more than $25,000 and apply the appropriate rules.

A tax-option (S) corporation had the option of claiming the credits computed for taxable years beginning on or after January 1, 1998, at the corporation level or passing the credits through to its shareholders. The shareholders could offset the credits only against the tax on the shareholder's pro rata share of the tax-option (S) corporation's income. The tax-option (S) corporation and each of its shareholders must separately determine whether his, her, or its unused credit is $25,000 or less or more than $25,000 and apply the appropriate rules.

See Wisconsin Schedule MS and its instructions to compute the allowable credit for each partner, member, or shareholder.

  1. How do the rules for 2006 and 2007 apply to manufacturer's sales tax credits computed by a tax-option (S) corporation for taxable years beginning before January 1, 1998, that are still available under the 20-year carryforward period?
The treatment of a tax-option (S) corporation's unused credits from taxable years beginning before January 1, 1998, that are still available under the 20-year carryforward period is determined at the corporation level.
If the tax-option (S) corporation has $25,000 or less of unused credits from these years, the unused credits may only be used by the corporation to offset its franchise tax measured by certain federal, state, and municipal bond interest. These credits cannot be passed through to the corporation's shareholders.
If the tax-option (S) corporation has more than $25,000 of unused credits, the corporation may claim a deduction only to the extent that the credits had previously been included in the corporation's income. Since tax-option (S) corporations were not required to report credits as income until the year in which the credits were actually used, it is unlikely that tax-option (S) corporations would qualify for the deduction.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Customer Service and Education Bureau
P.O. Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2772
Fax: (608) 267-1030
E-Mail Additional Questions

Last updated January 3, 2008