2018 Wisconsin Tax Update Questions and Answers

SECTIONS:

IRC Update

  1. Did Wisconsin adopt the federal provision relating to treating inventory as non-incidental materials and supplies?

    Yes. Wisconsin adopted sec. 13102(c) of the federal Tax Cuts and Jobs Act (TCJA, Public Law 115-97), relating to the treatment of inventory as non-incidental materials and supplies, or conforming to its financial accounting treatment, if the business is permitted to use the cash method of accounting.

  2. Did Wisconsin adopt the federal provision relating to deferral of inclusion in gross income for capital gains reinvested in a qualified opportunity fund?

    Yes. Wisconsin adopted sec. 13823, Public Law 115-97, relating to qualified opportunity funds.

  3. Is Wisconsin following the federal repeal of the deduction for amounts paid in exchange for college athletic event seating rights?

    Yes. Wisconsin adopted sec. 13704, Public Law 115-97, repealing the deduction for amounts paid in exchange for college athletic event seating, previously allowed under sec. 170, IRC.

  4. Did Wisconsin adopt the reduction in the classification period for farm property from seven to five years?

    Yes. Wisconsin adopted sec. 13203, Public Law 115-97, relating to the classification period of farm property.

  5. Did Wisconsin adopt the federal changes to opportunity zones?

    Yes. Wisconsin adopted sec. 18823, Public Law 115-97, relating to opportunity zones (secs. 1400Z-1 and 1400Z-2, IRC).

  6. Is Wisconsin following the IRC with respect to IRA distributions to a charitable organizations?

    Yes. Beginning with the 2018 taxable year, amounts directly transferred from an individual retirement account to a qualified charitable organization are not included in Wisconsin income. Federal law requires the person to be at least age 70 ½ when the distribution is made and the maximum exclusion from income is $100,000 per person.

  7. Do the federal changes to net operating losses (NOLs) apply to new losses only or both new and current losses incurred?

    The federal elimination of the NOL carryback and 20-year carryforward period applies to federal NOLs arising in taxable years ending after December 31, 2017. The 80% of taxable income NOL deduction limitation applies for federal losses arising in taxable years beginning after December 31, 2017. Wisconsin has its own treatment of Wisconsin NOLs and has not adopted these federal provisions.

  8. Do I have to add back to income the 20 percent qualified business income (QBI) deduction under sec. 199A, Internal Revenue Code (IRC), that Wisconsin did not adopt?

    For individuals, the deduction is a "below the line" deduction. This means that the deduction on the federal Form 1040 is after adjusted gross income (AGI). Wisconsin Form 1 starts with federal AGI; therefore, no modification is necessary.

    For estates and trusts, Wisconsin Form 2 starts with federal taxable income, which includes the QBI deduction. Therefore, estates and trusts claiming the QBI deduction on federal Form 1041 add back the deduction on Form 2, Schedule B.

  9. What is the class life for depreciating Qualified Improvement Property using the straight line method under sec. 168(b)(3), IRC?

    Qualified Improvement Property, as defined in sec. 168(e)(6), IRC, and created by sec. 13204, Public Law 115-97, is depreciated using the straight line method over 39 years. Wisconsin follows this federal law.

  10. Does the $10,000 limitation per beneficiary for withdrawal from a college savings account to pay for elementary or secondary public, private, or religious school tuition apply per year?

    Yes. The $10,000 limitation per beneficiary under sec. 529 (e) (3) (A) (iii), IRC, is per year.

  11. Can a rollover from a college savings account to a qualified ABLE account be made in excess of $15,000?

    No. Wisconsin adopted sec. 11025, Public Law 115-97, relating to rollovers from college savings accounts to qualified ABLE accounts. A qualified ABLE program must provide that contributions which exceed the amount of the gift tax exclusion for the year ($15,000 for 2018) not be allowed (sec. 529A(b)(2), IRC).

  12. For casualty losses related to a federally-declared disaster, can excess amounts not used in computing the Wisconsin's itemized deduction credit be carried forward to future years?

    No. Wisconsin follows the federal treatment of personal casualty losses under sec. 165, IRC, which provides that excess amounts may not deducted on the next year's return as an itemized deduction. For additional information, see federal "Publication 547, Casualties, Disasters, and Thefts.

  13. If a tax-option (S) corporation's, partnership's, limited liability's, estate's or trust's meal expenses relating to meals provided to employees at the convenience of the employer are reduced to 50% for federal purposes, how is the pass-through of 100% of the meal expenses for Wisconsin reported to the shareholder, partner, or beneficiary?

    An adjustment should be shown on the Schedule 2K-1, 3K-1, or 5K-1, column C, for the additional 50% allowed by Wisconsin. The shareholder, partner, or beneficiary should make this adjustment on Wisconsin Schedule I.

Homestead Credit

  1. A farmer, in addition to raising crops, sells cows. Sales are reported on federal Schedule D. Are gains from the sales of cows considered farm income for determining primary income from farming? Is the gross sales price from the sale of cows included in the $250,000 threshold used to determine if disqualified losses should be added to household income?

    Yes to both. "Farming," for purposes of determining disqualified losses added to household income, includes the raising, breeding, tending, training and management of livestock, bees, poultry, fur-bearing animals, wildlife or aquatic life, or their products. Therefore, income from farming includes capital gains reported on federal Schedule D from the sale of livestock. Gross sales price from the sales of the livestock is also used for the $250,000 gross receipts threshold.

    Any loss from the sale of the cows must be added back to household income if the exception for farmers does not apply.

  2. Is each loss from federal Form 4797 looked at separately for adding back losses to household income or are they netted with gains reported on federal Schedule D?

    The losses should not be netted with gains on federal Form 4797. Each transaction is looked at separately when determining the amount of disqualified loss added back to household income.

  3. When determining if primary income is from farming and whether farm losses should be added to household income, is income from both spouses used if one works or has a business and the other farms?

    Yes. For determining primary income, household income is used, which includes the claimant and the claimant's spouse.

  4. When adding back disqualified losses to household income, is depreciation, which is included in the disqualified loss, also added back?

    Depreciation included in disqualified losses is added back separately on lines 11g, 11h, or 11i of Schedule H. Line 12 of Schedule 4, Schedule H, removes any depreciation from disqualified losses since this amount has already been added back to household income.

  5. Are interest and dividend income considered in determining whether primary income is from farming?
    Interest and dividends earned by a farm are considered farm income for determining primary income from farming if the interest and dividends received are directly related to the operation of the farm.

  6. Must a claimant under age 62 with no earned income submit proof of disability with his or her 2018 Homestead Credit claim?

    Yes.

  7. If someone is totally and permanently disabled and last year submitted a doctor's note with the Schedule H as proof of disability, must the person get a new doctor's note every year?

    A claimant must submit proof of disability each year homestead credit is claimed if under age 62 and no earned income.

  8. If a taxpayer uses the simplified method to compute their business use of home deduction on federal Schedule C, must any portion of the deduction be added to household income as depreciation?

    No. The depreciation deduction allowed for that portion of the home for that year is deemed to be zero. For additional information on the simplified method, see the Schedule C instructions.

College Savings Credit

  1. If an employer claims the credit, may the employer still claim a deduction as wages for the contribution?

    Yes. There is no requirement in secs. 71.07(10), 71.28(10), or 71.47(10), Wis. Stats., that limits the deduction for wages when claiming credit for contribution to an employee's college savings account.

  2. Must an employer make contributions for all employees who have 529 accounts to claim the credit?

    No. There is no requirement in secs. 71.07 (10), 71.28 (10), or 71.47 (10), Wis. Stats., that an employer contribute to all employees' college savings accounts to qualify for the credit.

  3. Can an individual shareholder, partner, or member of a pass-through entity claim both the college savings credit that is passed through to the individual shareholder, partner, or member and a Wisconsin subtraction for contributions the individual shareholder, partner, or member personally makes to his or her 529 account?

    Yes.

  4. Can an employer claim the college savings credit for a contribution to another state’s 529 account?

    No. The contribution must be made to a Wisconsin 529 account as described in sec. 224.50, Wis. Stats. (i.e., Edvest or Tomorrow's Scholar).

  5. Can an employer claim the college savings credit for contribution to a Wisconsin 529 account owned by an employee's spouse?

    No. The Wisconsin 529 account must be owned by the employer's employee.

  6. Must the employee be the beneficiary of the 529 account for the employer to be eligible for the credit?

    No. Section 71.07 (10) (b), Wis. Stats., states that the subtraction is for the amount an employer contributes to a college savings account that is owned by an employee. It does not state that the employee must also be the beneficiary.

    Example: Employee created a 529 account for his grandchild. Employee is the account owner and the grandchild is the beneficiary. Employer may claim the credit for contributions to this account.

  7. If an employee owns multiple accounts, can the employer make contributions to multiple accounts?

    Yes. However the maximum amount of credit per employee is $200 for tax year 2018.

    Example: Employee created a 529 account for each of his two children. Employee is the owner of each account and the children are the beneficiaries. The employer may claim a credit for contributions to these accounts. The amount of the contribution that is eligible for the credit per employee for tax year 2018 is limited to $800 (25 percent of the $3,200 maximum amount that an individual contributor may deduct per beneficiary) for tax year 2018, and the maximum credit is $200 ($800 contribution limit x 25% tax credit rate).

  8. Is a carryforward available for the employee college savings account contribution credit?

    Yes. A 15-year carryforward period is available for any credit not used to offset tax in the year claimed.

  9. Can an S-corporation shareholder or partner in a partnership claim the credit for contributions to Wisconsin 529 accounts for the children of its employees?

    Yes. An individual may claim a credit computed and passed through by an S corporation or partnership. The contribution must be to an account owned by the employee of the S corporation or partnership. The employee's child may be the beneficiary of the employee’s account.

  10. If a partnership makes a contribution to an employee owned college savings account of more than $3,200 and claims the Wisconsin credit, can the business deduct the entire contribution as a business expense?

    The full amount of the contribution to an employee's 529 account is an employee benefit (compensation) which is deductible by the employer, but is income to the employee under the Internal Revenue Code.

Other Credits

  1. If a taxpayer does not itemize deductions for federal purposes, can the Wisconsin itemized deduction credit be claimed?

    Yes. Prepare federal Schedule A, write "Wisconsin" at the top, and include with the Wisconsin return.

  2. Why must a copy of the property tax bill be sent to DOR when claiming farmland preservation credit using Schedule FC-A? The acreage upon which the credit is computed and ownership hasn't changed from prior years?

    The tax return may suspend for review by DOR for a number of reasons (e.g., data capture error, third party information mismatch, etc.). As part of the return review, a DOR employee may verify ownership and acreage from the property tax bill with what was entered on the return. If not included with the return or Form W-RA, the employee may contact the taxpayer for a copy of the property tax bill, delaying processing of the return.

    The return will not suspend solely because the property tax bill is not attached to the return or submitted with Form W-RA.

Sales and Use Tax – Remote Sellers/Wayfair

  1. Is a remote seller required to register for a use tax certificate if it does not make any taxable sales in Wisconsin?

    A remote seller that does not qualify for the small seller exception and only makes nontaxable sales in Wisconsin is not required to register for Wisconsin sales or use tax. For example, a remote seller that is a wholesaler and only sells products for resale is not required to register for sales or use tax. However, if that wholesaler makes taxable sales to end users (i.e., not for resale), the wholesaler is required to register and collect sales or use tax on such sales, unless an exemption applies (e.g., occasional sales exemption).

    See Remote Sellers – Wayfair, Common Question 9 on DOR's website for more information.

  2. Is a Wisconsin seller required to collect tax on sales made into all states if it exceeds Wisconsin's small seller exception sales threshold?

    Wisconsin's small seller exception only determines whether a remote seller is required to collect tax on sales that it makes into Wisconsin. A Wisconsin retailer's collection requirement in another state is not based on its sales into Wisconsin. A Wisconsin seller should contact each state it makes sales into to determine if the Wisconsin seller is required to collect that state's tax.

    Each state's laws and rules are different and applying the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc., will vary by state. In addition, the implementation dates may differ for states requiring remote sellers to collect their sales or use tax.

    The article titled "Information for Wisconsin Sellers" provides information on other states, including links to state websites, customer service contact information, registration pages, sales and use tax rates, and taxable/exempt information for each state.

  3. How will the department enforce collection requirements on out-of-state sellers?

    The department sent letters to over 650 of the top 1,000 internet retailers to inform them of Wisconsin’s law and the requirement to start collecting October 1, 2018. The department has an audit unit that identifies businesses located outside Wisconsin that have activities in Wisconsin sufficient to create a Wisconsin tax filing obligation. This audit unit will continue to contact out-of-state businesses based on any public and non-public information available to the department that may indicate a filing obligation.

  4. What is a "separate sale transaction" for determining the small seller exception?

    Each invoice is considered a "separate sale transaction" for determining the small seller exception. For example, a bill or invoice that has multiple products is considered one separate sale transaction. For leases and licenses, each required periodic payment is a separate sale transaction. A deposit made in advance of a sale is not a sale transaction.

    See the answer to Remote Sellers – Wayfair, Common Question 6 for additional information about the small seller exception.

  5. Is a remote seller liable for tax if it only makes sales of taxable services or taxable digital goods into Wisconsin?

    A remote seller is required to collect and remit Wisconsin sales or use tax on all sales of taxable products and services in Wisconsin if it does not qualify for the small seller exception and an exemption does not apply. Wisconsin sales and use tax is imposed on sales of the following products in Wisconsin:

    Example: Remote Seller only makes sales of digital goods into Wisconsin. Remote Seller does not qualify for the small seller exception because its gross sales in the previous year were more than $100,000. Remote Seller sells a video game that is transferred electronically (i.e., taxable additional digital good) to a purchaser in Wisconsin. Remote Seller is liable for Wisconsin sales or use tax on its sale of the video game into Wisconsin.

    See the answer to Remote Sellers – Wayfair, Common Question 6 for additional information about the small seller exception.

My Tax Account (MTA)

  1. I tried to register in MTA for pass-through withholding for a trust. MTA asked me to enter a NAICS code. The trust has no business operating activities. What should the trust enter?

    In MTA, select "Search for 6 digit NAICS code" and enter keyword "trust" in the search field. Unless a different NAICS code applies from the list that appears, code 525920 is used for legal entities, trusts, estates, or agency accounts, administered on behalf of the beneficiaries under the terms of a trust agreement, will, or agency agreement.

  2. A new business registered for Wisconsin sales and use tax and withholding. The owner also registered for MTA and associated himself as the master to the business' MTA account. Why doesn't DOR show a pass-through withholding or corporation account in MTA automatically? Instead, the MTA user or third party must contact Customer Service to push out the account to begin making quarterly pass-through withholding or estimated tax payments.

    My Tax Account is configured to only make tax accounts available automatically for tax types requiring the filing of the business tax registration application (e.g., sales and use tax, employer withholding, local exposition tax, premier resort area tax). Corporation and pass-through withholding accounts are only created in MTA when a return is filed or you contact DOR to create the account prior to a return filing.

  3. If a user's MTA account is inactivated because it was not used in the last 18 months, can the email associated to that user be used by a new user?

    Yes, because the user name associated to that email address is no longer active. If the prior user tries to reactivate his or her user profile, whose e-mail is now being used by an active user, he or she must select a new e-mail address to reactivate his or her profile.

  4. Can corporations make tax payments using the unregistered Pay Online application?

    No. Online payments must be made through the corporation's My Tax Account. Only individual and fiduciary income tax, occasional consumers use tax, and holder unclaimed property can be paid online through the unregistered Pay Online application.

  5. How long before the security code to log into MTA expires?

    A security code expires when a new code is requested or the code is used and the user did not select "Yes" for Trust this Browser."

Withholding Tax

  1. Will Form WT-7, Annual Reconciliation, reject if a Form WT-6, Withholding Tax Deposit Report is pending?

    No. All deposit reports must be submitted prior to submitting Form WT-7, but a pending deposit report will not cause Form WT-7 to reject.

  2. If Form WT-6 is submitted but a future payment date is selected, will the Form WT-7 reject? Will the Form WT-7 still show an amount due equal to the Form WT-6 future payment?

    The Form WT-7 will not reject because the last Form WT-6 was submitted. However, the Form WT-7 will show an amount due equal to the Form WT-6 submitted with a future payment date until that payment is received by DOR and posted.

  3. Do I have to file Form WT-6 if I am an annual filer?

    No. An annual withholding filer, must only file Form WT-7 and pay any tax withheld during the year with Form WT-7. If there was no tax withheld, Form WT-7, must still be filed if the withholding account is active.

  4. If I have fewer than 10 Forms 1099 and there is no withholding, do I have to submit copies to DOR?

    Yes, unless you are submitting 1099s to the IRS under the Combined Federal and State Filing Program.

  5. Is the payer required to insert WI/ before the 15-digit Wisconsin Tax Account Number in Box 17 of Form 1099 MISC submitted on paper?

    "WI/" should be entered prior to the 15-digit Wisconsin Tax Number. However, if there is no withholding and all other information is entered correctly, the Form 1099 MISC will process without the "WI/."

Miscellaneous – Income or Franchise Tax

  1. By law, DOR is required to hold an individual's income tax refund until March 1 if wage and withholding information has not been received from the individual's employer.

    1. Will this apply to self-employed individuals?

      No, assuming there are no wages and withholding to verify. The law is specific to wage and withholding verification.

    2. On a joint return, will the refund be held if only one spouse's employer complies?

      The refund will be held if any of the wage and withholding info cannot be verified. DOR will not split the refund.

    3. What happens if the refund is generated from homestead or earned income tax credits?

      If there is a refund on the return and wage or withholding information cannot be verified, the refund will be held, regardless of what generated the refund.

    4. If an employer has not complied with wage and withholding requirements by March 1, will the refund be held indefinitely?

      DOR will issue the refund if it can verify wage and withholding by other means.

  2. Why do I have to submit copies of Wisconsin Schedule K-1s with individual income tax returns filed? Doesn't DOR already have copies from the pass-through entity?

    Individual income tax returns may suspend for review of credits and other items. Often these items are flowing through from a pass-through entity. DOR staff review the Schedule K-1s and can often resolve the issue allowing the return to fully process. If the Schedule K-1 is not attached, the DOR employee reviewing the return will look to the pass-through entity return. Often the pass-through entity return has not yet been filed because of an extension. To verify the information, the DOR employee will send a letter to the individual asking for a copy of the Schedule K-1, substantially delaying processing of the return.

    It is more efficient for return processing that a Wisconsin Schedule K-1 be attached to the individual return. However, a return will not reject or suspend solely because the Schedule K-1 is not included with the return.

  3. Form PW-1 is not approved for trusts and estates in the software program I am using. Can this form be used for trusts and estates?

    Yes. Form PW-1 must be filed for trusts and estates that have Wisconsin source income attributable to nonresident beneficiaries.

  4. Who is responsible for reporting as income, distributions from a sec. 529 account that were (1) contributed within the last 365 days, or (2) used for nonqualified expenses?

    The owner of the account is required to report the distribution as income, regardless of who made the contribution.

  5. Is there any limit to the number of Edvest accounts a person can own and/or contribute to?

    Wisconsin income tax law has no limitation as to the number of Edvest accounts a person can own or contribute to. However, contact the Edvest program to determine if they have placed a limitation on the maximum number of accounts an individual can establish under the program.

  6. Is the child sales tax rebate received in 2018 reportable as income?

    The Wisconsin child sales tax rebate received in 2018 must be included in federal adjusted gross income if:

    • The claimant itemized deductions on their 2017 federal income tax return, and
    • Sales taxes were included in the itemized deductions claimed on the claimant's 2017 federal Schedule A

    See federal Publication 525, Taxable and Nontaxable Income, for more information on recoveries of previously deducted amounts that must be included in taxable income.

    The Wisconsin child sales tax rebate is not included in a claimant's 2018 Wisconsin taxable income. If the rebate is included in federal adjusted gross income, the claimant may take a subtraction for the amount on their Wisconsin tax return.

  7. If federal Form 1045, Application for Tentative Refund, is filed with a Wisconsin return, is that sufficient for purposes of the new statute of limitations on Wisconsin net operating losses?

    No. The federal net operating loss (NOL) provisions do not apply for Wisconsin. An individual must compute and claim a Wisconsin NOL carry-back on a Wisconsin Form X-NOL within four years of the unextended due date of the original Wisconsin return for the year to which the Form X-NOL relates (the year to which the NOL is carried back).

    Note: Section 13302, Public Law 115-97, eliminated the option for most taxpayers to carry back a federal NOL. Most taxpayers can only carry federal NOLs arising from tax years ending after 2017 to a later year. Wisconsin law does not follow this federal law change.

  8. What is the new subtraction for code 53 on Wisconsin Form 1, line 11, relating to charitable contributions?

    There is no new subtraction; only a new code number. The subtraction relates to the election by tax-option (S) corporation shareholders to take a deduction passed through from the tax-option (S) corporation as a subtraction from Wisconsin income, instead of using it to compute the Wisconsin itemized deduction credit. This amount was previously subtracted using code 51 with other tax-option (S) corporation adjustments.

Miscellaneous – Sales and Use and Related Taxes

  1. A hair salon currently holds a seller's permit and has filed sales tax returns to report taxable sales of hair products. Taxable sales have been under $2,000 in prior calendar years. Do the sales qualify for the occasional sales exemption?

    No. Because the seller holds a seller's permit, its sales do not qualify for the occasional sales exemption. However, if the hair salon, based on sales history, believes its taxable sales will remain under $2,000 per year, it can inactivate its seller's permit and not collect sales tax on future sales of hair products. The occasional sales exemption presumes that a seller is not pursuing a vocation, occupation or business as a vendor of taxable products if its sales of taxable products and services are less than $2,000 per year.

    Note: If the salon inactivates its seller's permit because its sales are exempt occasional sales, the salon must pay tax on all products it purchases from suppliers, even if sold to customers.

    Caution: If the salon's sales exceed $2,000 in a year, the salon owes tax on all of its taxable sales in the year, including its first $2,000 of taxable sales.

  2. If a business is on the SIC code list responsible for collecting a premier resort area tax, but sells items not on the list, does it charge tax on all sales shipped into the Premier Resort Areas, or can it exclude sales of items not identified in the SIC code list?

    If a seller's SIC code is one of those listed as subject to the premier resort area tax, all sales of taxable products in the premier resort area (e.g., tangible personal property, taxable services, digital goods) are subject to the premier resort area tax unless an exemption applies. There is no exemption for products sold that are unrelated to the SIC code.

  3. If a business is registered to collect sales tax and is filing ST-12’s, does the statute of limitations (SOL) for the Premier Resort Area tax follow the SOL for sales tax? Or, if the business has never filed a Premier Resort Area return, has the SOL never started?

    The SOL for the premier resort area tax is determined separately from the SOL for sales tax, but the dates are determined similarly.

    Section 77.9941, Wis. Stats., provides that secs. 77.72, 77.73, 77.74, 77.75, 77.76 (1), (2), and (4), 77.77 (1), 77.785 (1), and 77.79, as they apply to county taxes, apply to the premier resort tax. Section 77.79, Wis. Stats., provides that all provisions under ch. 77, subch III (sales and use tax law), apply to the county tax.

    Therefore, if a business has not filed a Premier Resort Area tax return, there is no statute of limitations as provided in secs. 77.59, 77.79 and 77.9941, Wis. Stats.

  4. Does the Premier Resort Area tax fall under the eligible taxes for voluntary disclosure?

    Yes.

Other

  1. When the IRS sends a transcript for Forms W-2, it only includes the last four digits of the employer's FEIN, the first four letters of the employer's name, and no address. Will this limited information affect using the new MTA application for requesting copies of Wisconsin Forms W-2.

    No. The employer information is not required to use the application.

  2. On a Power of Attorney, the box is checked that correspondence should go to the POA, yet I am still not receiving the correspondence. It is being sent to my client. Why?

    For correspondence that is system generated (i.e., no action necessary by a DOR employee), it will be mailed to the address on the customer or tax account. Often that address is determined by the address on the tax return filed. For correspondence manually generated by a DOR employee, the employee can create a carbon copy and send it to the POA. If the POA wants all correspondence from DOR mailed to him or her, the client must agree to have the address on the account changed to that of the POA and all mail from DOR will go to the POA until the address is changed.

January 10, 2019