Final Emergency Rule
March 7, 2024
STATE OF WISCONSIN
DEPARTMENT OF REVENUE
ORDER OF THE DEPARTMENT OF REVENUE ADOPTING EMERGENCY RULES
ORDER
The Wisconsin Department of Revenue proposes an order to create Tax 3.10 relating to a commercial loan income exemption.
The statement of scope for this rule, SS 068-23, was approved by the Governor on September 7, 2023, published in Register No. 813A2 on September 11, 2023, and approved by the Secretary of Revenue on September 27, 2023. This emergency rule was approved by the Governor on March 7, 2024. FINDING OF EMERGENCY
The Wisconsin Department of Revenue finds that an emergency exists and that the attached rule is necessary for the immediate preservation of the public peace, health, safety, or welfare. A statement of the facts constituting the emergency is:
2023 Wisconsin Act 19 provides an income/franchise tax benefit to financial institutions effective for taxable years beginning after December 31, 2022. Specifically, the Act provides an income exclusion if the income is derived from certain commercial loans. There is uncertainty regarding the income that qualifies for the exemption.
Financial institutions are preparing to file their 2023 Wisconsin income/franchise tax returns, and certain financial institutions must file their Wisconsin tax returns by March 15, 2024 unless an extension applies.
This rule provides clarity and certainty to taxpayers preparing to file their 2023 Wisconsin tax returns.
ANALYSIS BY THE DEPARTMENT OF REVENUE
Explanation of agency authority: Section 71.80(1)(c) provides that the department may make such regulations as it shall deem necessary in order to carry out chapter 71 of the Wisconsin Statutes, relating to income and franchise taxes. Section 227.11 (2), Stats., provides statutory rule-making authority as follows: (a) "Each agency may promulgate rules interpreting the provisions of any statute enforced or administered by the agency, if the agency considers it necessary to effectuate the purpose of the statute...”
(c) "Each agency authorized to exercise discretion in deciding individual cases may formalize the general policies evolving from its decisions by promulgating the policies as rules …"
Related statute or rule: There are no other applicable statutes or rules.
Plain language analysis: Section 325 and 341 of 2023 Wisconsin Act 19 create new statutory language stating that financial institutions as defined in s. 69.30(1)(b) may claim an income tax exemption for income derived from qualifying loans that meet the following criteria:
— The loan is a commercial loan.
— The loan is for five million dollars or less.
— The loan is provided to a person residing or located in Wisconsin.
— The loan is used primarily for a business or agricultural purpose.
Clarification is needed to describe what entities, loans, and income qualify for the new income exemption.
Summary of, and comparison with, existing or proposed federal regulation: There is no existing or proposed federal regulation that is intended to address the activities to be regulated by the rule.
Summary of comments received during preliminary comment period and public hearing on the statement of scope: No preliminary public hearing was requested and no comments from the public were received on the statement of scope (SS 068-23). Comparison with rules in adjacent states: There is no existing or proposed similar rule in any of the adjacent states.
Summary of factual data and analytical methodologies: 2023 Wisconsin Act 19 provided income, including interest, fees, and penalties, financial institutions derive from commercial loans of five million dollars or less made to a person residing or located in this state and used primarily for a business or agricultural purpose, would be exempt from Wisconsin income and franchise taxes. The Act provides uncertainty with certain terms used in the statute. The Wisconsin Department of Revenue collaborated with the Wisconsin Department of Financial Institutions on their expertise in financial institutions to establish a starting base of knowledge on these terms. The Department of Revenue reviewed Title 12 of the United States Code, federal regulations, and the Federal Deposit Insurance (FDIC) website to understand banking regulations, terminology, and reporting requirements. The Department of Revenue also reviewed existing Wisconsin statutes and administrative rules to find terms and definitions that could be used to clarify this new income exemption. Analysis and supporting documents used to determine effect on small business: This rule order clarifies the income exemption created by 2023 Wis. Act 19. No additional analysis or supporting documents were used to determine the effect on small business. Anticipated costs incurred by private sector: There may be a small increase in administrative costs by financial institutions to create and maintain records to substantiate their income exclusion reported on their Wisconsin tax return; however, such recordkeeping costs are required by law to substantiate deductions, exclusions, credits, and other items reported on federal and state tax returns.
Effect on small business: The department does not expect a negative economic impact on small business. The law provides a Wisconsin tax benefit to financial institutions that derive income from commercial loans of $5 million or less. This rule order clarifies the tax benefits allowed by law. Small businesses seeking commercial loans of $5 million or less may see lower interest rates from their financial institution because of the Wisconsin tax benefit allowed to the financial institution; however, the law does not require a financial institution to pass their Wisconsin tax benefit on to their customers in the form of lower interest rates.
Agency contact person: Please contact Ann DeGarmo at (608) 266-7179 or ann.degarmo@wisconsin.gov if you have any questions regarding this proposed rule. Place where comments are to be submitted and deadline for submission: Comments may be submitted to the contact person shown below no later than the date on which the public hearing on this proposed rule is conducted. Information as to the place, date, and time of the public hearing will be published in the Wisconsin Administrative Register.
Ann DeGarmo
Department of Revenue
Mail Stop 6-40
2135 Rimrock Road
P.O. Box 8933
Madison, WI 53708-8933
